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A Petronas tanker truck drives on a road in Kuala Lumpur September 10, 2013. The decline in LNG prices comes as international oil companies look to advance projects on British Columbia’s west coast. Malaysia’s Petronas has delayed a final investment decision on its Pacific Northwest project, saying it will now be made some time this year.

Bazuki Muhammad/Reuters

Low oil prices are posing new challenges for Canada's nascent liquefied natural gas industry.

LNG prices are tied to crude in the Asian market, and they have fallen by half to about $10 per thousand cubic feet as oil prices slumped from their peak last June. The decline in LNG prices comes as international oil companies look to advance projects on British Columbia's west coast. Malaysia's Petronas has delayed a final investment decision on its Pacific Northwest project, saying it will now be made some time this year.

"There's no doubt that as you look at the current cash flow of our partner companies, when you look at launching a very large capital project, that is top of mind," Mike Culbert, chief executive officer of Petronas's Canadian subsidiary, Progress Energy Canada Ltd., said in an interview Thursday. "Does it pose a challenge? Absolutely, because it's a mindset. But companies that look at these long-term investments, look through the commodity cycles, and look to the future."

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However, Mr. Culbert said the industry – and Petronas in particular – should benefit from the increased slack in skilled labour markets as oil companies slash their capital budgets.

KPMG partner Mary Hemmingsen said the lower crude price has a significant impact on Canada's LNG prospects, including the sharp drop in capital available to many proponents and the potential for lower-than-anticipated prices in the longer term. "That would change the long-term attractiveness and affordability of the industry," the energy consultant said in a telephone interview from Calgary. "That remains as a major question mark right now."

Mr. Culbert joined other LNG executives on Thursday in a session aimed at policy makers that was held a block from Parliament Hill. They urged Ottawa to help the industry get off the ground by allowing proponents to write off capital costs at an accelerated pace – an incentive that is provided to the manufacturing sector but not to resource projects.

Mr. Culbert said the incentive would improve the economics of the capital-intensive projects – Petronas and its partners could spend as much as $36-billion – but that all taxes would eventually be paid. The United States and Australia both provide accelerated capital cost allowance for LNG projects.

"This is a new industry and the government needs to do something to help start of new industry," said Alfred Sorensen, CEO of Pieridae Energy Ltd., which is proposing to build an LNG export plant in Goldboro, N.S. "They want this to happen and it is a relatively costless thing to do because without it, there's no investment, there's no jobs and there are no taxes."

Pieridae has lined up partners in Germany's giant E.On SE and General Electric Co., and has an application pending with the U.S. Department of Energy to bring gas from the Marcellus fields to re-export to Europe. While there is considerable skepticism about whether Pieridae can secure the gas supply, Mr. Sorensen expressed confidence.

LNG prices have fallen in Europe as well, but countries such as Germany, Poland, Italy and Ukraine are eager to tap secure North American supplies to provide alternatives to Russian and North African supplies, he said.

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Conservative MP Leon Benoit said there is considerable support among government backbenchers for the LNG tax measure, while Green Party Leader Elizabeth May criticized the proposal as "just more fossil fuel subsidies."

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