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Motorists pump fuel at a Petronas station in Putrajaya, Malaysia.BAZUKI MUHAMMAD/Reuters

Malaysia's Petronas is narrowing its search for new partners to help construct a multibillion-dollar liquefied natural gas operation in British Columbia, with India topping the shortlist.

State-owned Petronas, which leads the Pacific NorthWest LNG Ltd. project to build an export terminal at Prince Rupert in northwestern British Columbia, signed up Japan Petroleum Exploration and Petroleum Brunei as B.C. LNG partners last year.

Petronas has been eyeing Indian Oil Corp. Ltd. for at least eight months, hoping to sign up India's state-owned energy giant as both an investor and LNG buyer.

Petronas has an 87-per-cent stake in the Pacific NorthWest project, while Japex holds 10 per cent and Petroleum Brunei owns 3 per cent. Japex and Petroleum Brunei have also agreed to sign long-term contracts to buy LNG in what the industry calls "off-take."

The New Delhi-based Economic Times reported that Indian Oil is in advanced negotiations to acquire a 10-per-cent interest in Pacific NorthWest and also B.C. natural gas assets.

But Pacific NorthWest spokesman Spencer Sproule declined to comment on reports of an imminent Malaysian deal with Indian Oil.

"We're not in a position to comment because any discussions with potential off-take partners are subject to confidentially agreements," he said Tuesday.

In 2012, Petronas bought Progress Energy Canada Corp., whose key assets are natural gas properties in northeastern British Columbia.

Progress chief executive officer, Michael Culbert, and Pacific NorthWest president, Greg Kist, have emphasized that huge capital investments are needed to bring LNG projects on stream.

Pacific NorthWest estimates that almost $36-billion will need to be spent in order to make its export plan a reality in early 2019. The massive budget includes $6.7-billion in pipeline projects, nearly $11-billion for an export plant at Lelu Island near Prince Rupert, Petronas's $5.2-billion acquisition of Progress and more than $2-billion annually from 2013 through 2018 on northeast B.C. natural gas development projects.

Pacific NorthWest is aiming to make its final investment decision by the end of 2014.

There are a dozen proposals in the competition to develop B.C. LNG operations. Proponents are awaiting details of the B.C. government's much-delayed tax regime on LNG. Portions of a tax framework could be released as early as next week in the province's Feb. 18 budget. But new legislation on LNG has been postponed for tabling until the fall, adding several more months of fiscal uncertainty as LNG backers mull their next steps.

Analysts caution that Canada lags the United States in the race to export North American LNG to Asia. As well, British Columbia's tax regime must be competitive with global LNG rivals such as Australia.

Pacific NorthWest has said that a condition of becoming a co-owner is to agree to take physical delivery of LNG in Asia. In December, the National Energy Board approved a 25-year export licence for Pacific NorthWest.

TD Securities Inc. analyst Menno Hulshof said in a recent research note that state-owned energy firms may have different goals in their decision-making process on B.C. LNG projects than the private sector. "Decisions made by the national oil companies could in part be driven by 'security of supply' considerations," he said.

LNG Canada, which is proposing to build an export terminal at Kitimat, is another major player in the nascent B.C. LNG sector. Shell Canada Ltd. leads the LNG Canada project, and its partners are PetroChina Co. Ltd., Japan's Mitsubishi Corp. and South Korea's Korea Gas Corp.

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