Skip to main content

An artistic rendering of Pacific NorthWest LNG’s proposals for a liquefied natural gas dock, suspension bridge and export terminal on Lelu Island, near Prince Rupert in northwestern British Columbia.

A major B.C. LNG project put on hold by Petronas in December is showing signs of a revival as three executives from the Malaysian energy giant prepare to visit Canada.

The Pacific NorthWest LNG joint venture, led by Malaysia's state-owned Petronas, is positioned to become the first major exporter of liquefied natural gas from Canada, despite a delay that has lasted nearly three months.

On Dec. 3, Petronas and its four Asian partners placed the venture on hold indefinitely due to anticipated high capital costs that make the project uneconomic to build.

Since then, Petronas-led Pacific NorthWest LNG has made progress in extracting cost savings from prospective contractors and suppliers, B.C. Deputy Premier Rich Coleman said. "Evidently, those costs have come down dramatically," he said in an interview.

Incoming Petronas chief executive officer Wan Zulkiflee Wan Ariffin will travel to Vancouver to meet with B.C. Premier Christy Clark and Mr. Coleman.

Mr. Coleman, who is also the cabinet minister in charge of LNG, said he is encouraged by the upcoming visit by Mr. Wan Zulkiflee, current Petronas CEO Shamsul Azhar Abbas and Petronas executive vice-president Wee Yiaw Hin.

The two sides are aiming to gather in March, subject to scheduling mutually agreeable times.

Mr. Wan Zulkiflee, currently Petronas chief operating officer, will become the Malaysian energy company's CEO on April 1. He is "already familiar with the project. I've met this gentleman before at other meetings," Mr. Coleman said.

The Petronas-led group estimates that $36-billion will need to be spent in order to achieve planned exports to Asia in 2019. The huge budget includes $6.7-billion in two pipeline projects and $11.4-billion for the export plant at Lelu Island, located near Prince Rupert in northwestern British Columbia.

"Petronas and the B.C. government have enjoyed a constructive relationship over the past two years, exemplified by the progress we have made in our efforts to build the first world-scale LNG facility in Canada," Pacific NorthWest LNG president Michael Culbert said in a statement to The Globe and Mail.

Mr. Culbert said the new gathering "will continue the frank and honest discussions that have taken place to date."

The B.C. government unveiled plans for a reduced provincial income tax rate on LNG projects last October.

Industry analysts say that before making a final investment decision, Pacific NorthWest LNG will wait for the federal environmental regulator to release its findings.

The Canadian Environmental Assessment Agency's review of Pacific NorthWest LNG is expected to be completed by the end of June. Pacific NorthWest LNG received clearance in November from the B.C. Environmental Assessment Office, but the CEAA is the lead regulator on the file.

While Pacific NorthWest LNG's co-owners delayed their final investment decision 11 weeks ago, they still plan to go through a crucial preliminary phase called engineering, procurement and construction (EPC). Whether the project will ultimately be cancelled or revived will hinge largely on the outcome of Pacific NorthWest LNG's review of three competing EPC bidders.

"I'm still optimistic about Petronas. I'm going to meet the new CEO," Mr. Coleman said. "He's coming over with the present CEO, so we'll sit down and have dinner and visit and sort of get the feeling for where they're at."

Pacific NorthWest LNG is scrutinizing international engineering costs, subcontractors and two natural gas pipelines to be built by TransCanada Corp. – the $5-billion Prince Rupert Gas Transmission plan and the $1.7-billion North Montney Mainline.

"Back in December when they decided to wait a period of time, their frustration was with the prices they were getting on the pipeline and on the construction," Mr. Coleman said. "It's still a bit of a tough one to make the numbers work, I think, but it depends how the capital costs come down."

Industry observers say Ottawa's announcement last week of federal tax relief for Canadian LNG export terminals will help players such as Pacific NorthWest LNG, but British Columbia remains a laggard in the global LNG race. There are 19 B.C. LNG proposals, but amid the hype, no project has made a final investment decision yet.

Ron Loborec, Canadian energy leader at Deloitte & Touche LLP, said declining prices for LNG in Asia and new supplies from Australia and the United States will pose challenges for the nascent B.C. LNG sector. Still, B.C. proponents stand to benefit by hiring from a pool of workers no longer needed in Alberta due to slumping oil prices while the lower loonie makes LNG exports more attractive, he said.

Report an error

Editorial code of conduct

Tickers mentioned in this story