A liquefied natural gas project led by Malaysia's state-owned Petronas has emerged as the leading entrant in a crowded Canadian field that faces stiff global competition.
Pacific NorthWest LNG, one of 14 projects proposed for British Columbia's coast, has been garnering increased attention in the energy industry as the Malaysian government adds new Asian partners for the joint venture.
On Wednesday, a report by RBC Dominion Securities Inc. singled out Pacific NorthWest LNG as the B.C. project that has been taking large strides toward reaching the goal of supplying energy-thirsty customers in Asia.
"Pacific NorthWest LNG has established a high degree of momentum, with a final investment decision expected by the end of 2014," according to the global study by RBC's energy team headed by Greg Pardy and Kurt Hallead.
RBC released the 44-page report as Prime Minister Stephen Harper talked up B.C. LNG projects, emphasizing Canada's eagerness to diversify energy sales beyond domestic and U.S. customers. "We're overwhelmingly dependent on the Canadian market and American market, and we're looking to take that business global," Mr. Harper said in Munich.
Last October, Mr. Harper met Malaysian Prime Minister Najib Razak just outside the Malaysian capital of Kuala Lumpur, with Mr. Najib outlining the planned investment in B.C.'s fledgling LNG sector.
Pacific NorthWest LNG estimates that almost $36-billion will need to be spent in order to make its export plan a reality in late 2018. The massive budget includes nearly $11-billion for the export plant to be built at Lelu Island, near Prince Rupert.
But Canada is trailing the United States in the North American LNG export race, RBC cautions. The United States has the advantage because major proposals south of the border are "brownfield" projects that call for reconfiguring existing import facilities and converting them to process LNG exports. By contrast, Canada is relying on "greenfield" projects that effectively mean starting from scratch.
"A window of opportunity exists for Canadian LNG projects to capture market share but that opening is limited, given intensifying supply competition from the United States, Russia and Mozambique," RBC said.
RBC also noted that Australia is emerging as an LNG heavyweight, bolstered by seven export projects under construction. "Australia is set to eclipse Qatar as the largest global supplier of LNG by 2018," the report said. Australian greenfield LNG projects, however, have been stung by cost overruns.
There are now 14 B.C. LNG projects vying to launch exports to Asia, but only three or four at most are expected to bear fruit. Two other leading contenders are the Shell Canada Ltd.-led LNG Canada joint venture and the Kitimat LNG project co-owned by the Canadian units of Chevron Corp. and Apache Corp., said Bryan Yu, the Vancouver-based economist at Central 1 Credit Union.
While Canada is seen as an attractive LNG supplier in the future for Asia, the B.C. projects are relatively expensive and lag in development behind the United States, the RBC report said.
Uncertainty lingers over the B.C. government's proposed tax regime for export terminals. Under a plan announced in the Feb. 18 B.C. budget, LNG export plants on the West Coast would be subject to a two-tier tax system. "Our sense is that British Columbia's LNG tax rates are open to negotiation," the study said.
Only one U.S. brownfield project, Cheniere Energy Inc.'s Sabine Pass LNG project in Louisiana, is under construction. But RBC said four others are on the horizon to get started – the Lake Charles and Cameron projects in Louisiana, Freeport LNG in Texas and Dominion Cove Point in Maryland.
With files from Steven Chase in Munich