Malaysia's Petronas is lining up Asian energy players to help build a Canadian liquefied natural gas megaproject, but there is a catch. Before anyone joins the ownership team, the prospective partners must sign long-term contracts to buy LNG.
The state-owned energy giant is optimistic that it will find partners eager to participate in the massive development planned by Petronas-led Pacific NorthWest LNG LP. Petronas has a 90-per-cent stake in Pacific NorthWest, while Japan Petroleum Exploration holds a 10-per-cent interest.
A condition of becoming a co-owner is to agree to take delivery of LNG in Asia. "When you look at our project, our partners will be fully integrated and have a physical need for LNG," Pacific NorthWest president Greg Kist said in an interview.
"All of our LNG volumes will be committed to partners who will buy their proportion, and that creates an alignment of interests."
The multibillion-dollar plans include transporting natural gas in northeastern British Columbia to remote Lelu Island in the northwest part of the province.
Pacific NorthWest selected TransCanada Corp. earlier this year to design and build a pipeline stretching across 900 kilometres. That $5-billion pipeline, called the Prince Rupert Gas Transmission Project, would carry natural gas to Lelu Island, which will be transformed into an $11-billion LNG export terminal.
Tokyo-based Japex, which acquired its minority interest in Pacific NorthWest earlier this year, also picked up a 10-per-cent stake in the Montney natural gas play in northeastern B.C. from Petronas-owned Progress Energy Canada Ltd.
The Malaysian company bought Calgary-based Progress last year for $5.2-billion.
Pacific NorthWest's head office, which opened in March in Vancouver, now has 25 employees. Thirty Canadian engineers are being hired, initially to work in England with their Malaysian counterparts before transferring to Vancouver.
"We don't have a base of LNG expertise in Canada, and you have to begin to build that," Mr. Kist said.
"The hub of corporate activity as it relates to oil and gas drilling, completion and technology will very much stay in Calgary, but the LNG industry itself will congregate in Vancouver. Vancouver will be the Canadian base because of the proximity to where the LNG facilities ultimately will be, on the northwest B.C. coast."
Industry analysts say the Petronas-led venture is one of the leading contenders among a dozen proposals to export B.C. LNG to energy-thirsty customers in Asia.
Mr. Kist said his project is well-positioned, but "there are lots of horses in the race."
Pacific NorthWest expects to receive a decision by the end of this year on its application for an LNG export licence from the National Energy Board. Mr. Kist said Petronas, Japex and whatever future partners there might be will make a final investment decision in late 2014 on whether to proceed with the LNG project.
Pacific NorthWest estimates it will require 3,500 construction workers at the peak of the project's development, while up to 300 permanent employees would be needed, starting in early 2019, to run the export terminal on Lelu Island.
"In the meantime, we're in every way, shape and form continuing to move forward," he said.
Mr. Kist said Pacific NorthWest is ramping up its efforts to nurture good relations with communities near Lelu Island. As part of the process of securing regulatory approvals, Pacific NorthWest and the B.C. Environmental Agency Office will be co-hosts for information sessions in Port Edward on Tuesday and in Prince Rupert on Wednesday.
Pacific NorthWest employees have been meeting with First Nations, notably the Lax Kw'alaams, Metlakatla, Gitxaala, Kitselas and Kitsumkalum. In contrast to widespread opposition by First Nations to the Northern Gateway oil pipeline proposal, native leaders have been open to the prospect of B.C. LNG developments.
"There are very intense LNG negotiations ongoing with First Nations," Mr. Kist said.