Malaysia's state-owned energy company is picking a fight with British Columbia over its handling of the province's fledgling liquefied natural gas industry, creating a rift that threatens a major project and further clouds Canada's natural-resource ambitions.
Shamsul Azhar Abbas, the chief executive officer of Petronas, is warning that unless the B.C. government unveils competitive tax and regulatory rules next month, he will cancel plans to spend an estimated $36-billion on the Malaysian-led energy project called Pacific NorthWest LNG. The massive budget includes nearly $11-billion for an export plant to be built at Lelu Island in northwestern B.C.
"Rather than ensuring the development of the LNG industry through appropriate incentives and assurance of legal and fiscal stability, the Canadian landscape of LNG development is now one of uncertainty, delay and short vision," Mr. Shamsul told the Financial Times. Canada is "already 40 years behind in the game."
The dispute pits Petronas against a province that has been striving to turn its rich reserves of natural gas into a vibrant new industry that would create tens of thousands of jobs and a lucrative stream of tax revenue. It comes as Canadian energy companies are increasingly running into roadblocks in their efforts to bring more oil and gas to global markets. Major oil pipeline developments have been held up by opposition from environmentalists and First Nations, as well as political conflict.
B.C. Premier Christy Clark played down the comments from Mr. Shamsul, saying British Columbia has bountiful natural gas reserves that many companies would love to tap into and export from the West Coast to international markets.
"Negotiations are never easy," she said Thursday. "I'm confident that Petronas and British Columbia are going to come to a good agreement, one that respects the fact that British Columbians – the owners of this resource – deserve some benefit."
Adding urgency to the standoff with Petronas, other countries are well ahead of B.C. in the race to become major exporters of LNG, and the province cannot afford to fall further behind.
B.C. is in a fierce LNG competition with Australia, Qatar, Nigeria, the United States and other countries. "Bottom line for the Canadian governments, for the aboriginal communities, is they've got to recognize that these projects cannot stand still. They face a whole host of global dynamics," said Geoffrey Cann, who heads Deloitte Australia's oil and gas consultancy out of Brisbane.
One major source of frustration for Petronas is Canada's environmental review process. While assessments have been streamlined for B.C. LNG proposals, it could still take another six months to complete the review of Pacific NorthWest LNG, which filed its environmental impact statement in February.
The stakes for B.C. are high. The province has tied its fortunes to establishing what it believes will be a new trillion- dollar LNG industry, pledging in the 2013 provincial election to pay off government debt through a new Prosperity Fund.
But while B.C. and the LNG industry are pushing the federal government to contribute tax breaks to help lure investment to the province, Ottawa has not agreed to provide any such financial relief. "We're always working to make sure that our friends in Ottawa understand and feel a similar sense of urgency here," Ms. Clark said.
Mr. Shamsul said in a May interview with The Globe and Mail that B.C. needed to hammer out details of the LNG tax and regulatory regime by Nov. 30 because any timing delays will threaten the viability of the entire joint venture and potentially bring it to a grinding halt.
He turned up the heat this week by raising the possibility of cancelling the project. "Canada has to buck up real fast to be a credible global LNG player if it wants to be taken seriously by potential investors. Until investors cross the final investment line with an economically viable project, they remain just potential investors on paper," he said.
The B.C. LNG Developers Alliance, representing Pacific NorthWest LNG and three other major proponents of LNG exports from the West Coast, said it remains concerned about tax and regulatory rules. "LNG projects are large undertakings that involve substantial capital investment. The project proponents are working with both the provincial and federal governments to ensure that the overall tax rates are competitive with other jurisdictions," the alliance said.
The LNG spat comes amid widespread opposition across B.C. to oil pipeline proposals.
In 2012, Ms. Clark walked away from talks on a national energy strategy when she announced five conditions that would have to be met before new heavy oil pipelines would cross the province. Although she reiterated at that time that "British Columbia is the gateway to Asia," her province has increasingly become a choke point for the nation's energy exports.
Mounting opposition from First Nations, local government and environmentalists to new oil pipeline capacity and increased oil tanker traffic is threatening to stall two major projects. Enbridge Inc.'s Northern Gateway project has won regulatory approval but still must meet more than 200 conditions and even then faces a series of legal challenges. Kinder Morgan's Trans Mountain oil pipeline expansion plan has run into heavy opposition in B.C.'s most populated communities.
Also, a landmark Supreme Court of Canada ruling on aboriginal rights and title has cast a shadow of uncertainty over B.C.'s resource industry.
With a report from Iain Marlow in Vancouver