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Petronas CEO Shamsul Abbas speaks during the LNG conference in Vancouver, B.C. Wednesday, May 21, 2014. Malaysia's Petronas is threatening to quit a proposed liquefied natural gas project on British Columbia's north coast, complaining the government hasn't done enough to convince the oil and gas company that it would be worthwhile to invest billions of dollars, the Financial Times reported Thursday.

JONATHAN HAYWARD/THE CANADIAN PRESS

The Malaysian state-owned energy company that last week threatened to cancel a $36-billion liquefied natural gas project in B.C. because of red tape and taxation is facing environmental hurdles related to the site for its export terminal near Prince Rupert.

Shamsul Azhar Abbas, the chief executive officer of Petronas, warned last week he will scrap the energy project called Pacific NorthWest LNG unless the B.C. government unveils competitive tax and regulatory rules in October.

While Mr. Shamsul complained to the Financial Times that Canada's efforts to attract LNG investment are plagued by "uncertainty, delay and short vision," B.C. government officials confirm it was the LNG company that requested a time extension of the environmental review process that will determine whether the project can proceed.

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Pacific NorthWest LNG asked for more time to work out modifications in the jetty and terminal design at Lelu Island to include "substantial" mitigation measures to avoid and reduce potential adverse effects to the marine habitat, a B.C. Environment Ministry official said.

Last May, the Canadian Environmental Assessment Agency identified "key information gaps" regarding the company's plans to develop an industrial site on an uninhabited island and dredge more than seven million cubic metres of sediment in an area that environmentalists describe as critical habitat for the region's salmon and steelhead trout.

The agency also flagged concerns about species-at-risk, air pollution, inadequate First Nations consultation and potential human health risks including possible contamination of marine foods. Although the proposed site is within the Prince Rupert Port Authority lands, local First Nations will likely have considerable influence on the development if the project interferes with their asserted aboriginal rights.

The federal assessment is being conducted jointly with the B.C. Environmental Assessment Agency.

The project cannot move forward unless both levels of government each grant an environmental certificate. The company asked for an additional 45 days to respond to the concerns raised by the federal agency, which means the final decision may not be reached until Dec. 20.

Shannon McPhail, executive director of the Skeena Watershed Conservation Coalition, said no amount of engineering changes will make the massive project suitable for Lelu Island.

"You could not choose a worse location when it comes to wild salmon and steelhead," Ms. McPhail said in an interview. The island is located in an estuary where eelgrass beds provide shelter for juvenile fish. "They hatch in the tributaries of all these iconic, world-famous river systems in the Skeena watershed and 90 per cent of them go around Lelu Island … This would be a tipping point for the salmon in the estuary. You cannot put a terminal here."

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The B.C. Liberal government has tied its fortunes to establishing what it believes will be a new trillion-dollar LNG industry, pledging in the 2013 provincial election to pay off government debt through a new Prosperity Fund. Until last week, the Petronas project was considered one of the most advanced of 17 proposals for LNG plants in B.C.

Company officials could not be reached for comment on Monday, but Mr. Shamsul is expected to meet with B.C. Premier Christy Clark this week to discuss the state of his project. Petronas has insisted that the province bring in its new LNG tax by November so that the company can reach a final investment decision.

LNG proponents are also waiting to see how the province handles its environmental regulations regarding carbon emissions. Most LNG facilities around the world use natural gas-fired turbines to generate the power to produce LNG, and a study by Tides Canada suggests that even a small number of gas-fired LNG facilities could create a carbon footprint nearly double that of the entire Alberta oil sands in 2010.

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