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Petronas to set pace for B.C.'s make-or-break LNG year

THIS IS THE NEWEST SKETCH rendering of Pacific NorthWest LNG’s proposed export terminal on Lelu Island, near Prince Rupert in northwestern British Columbia.

Pacific NorthWest LNG.

Malaysia's state-owned Petronas will set the tone in 2015 for British Columbia's fledgling liquefied natural gas industry in what is shaping up to be a make-or-break year for the Pacific NorthWest LNG joint venture.

The Petronas-led Pacific NorthWest LNG project is widely viewed by industry analysts as the most promising among 18 proposals to export LNG from the West Coast to energy-thirsty customers in Asia.

Petronas and its four Asian partners decided in early December to indefinitely delay their final investment decision on whether to build an $11.4-billion B.C. export terminal.

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But the project will gain a new lease on life if the consortium is able to reduce construction costs, secure aboriginal support and overcome environmental hurdles.

"We're trying to be a first mover and be out in front of these other LNG projects because we know there will be competitive forces," Pacific NorthWest LNG president Michael Culbert said in an interview.

The project, planned for Lelu Island in northwest British Columbia, finds itself in a race provincially against LNG ventures that are positioning themselves to vie for skilled construction workers.

Having a labour shortage would be a pleasant problem for the nascent B.C. LNG sector, which has yet to see any proponents make the decision to forge ahead.

Globally, British Columbia trails other countries in the LNG sector. New exports are set to hit the market over the next five years from rival producers such as Australia, the United States and Papua New Guinea.

The $11.4-billion cost estimate for the export terminal is part of huge investments forecast by Pacific NorthWest LNG from the wellhead to the Lelu Island facility. Pacific NorthWest LNG estimates that $36-billion will need to be spent to attain export capability in 2019. The budget includes $6.7-billion of spending by TransCanada Corp. on two pipeline projects, Petronas's $5.2-billion acquisition of Progress Energy Canada in 2012 and the consortium averaging more than $2-billion annually in spending from 2013 through 2018 on northeast B.C. natural gas drilling projects.

Petronas alone has already spent billions of dollars in the effort to turn LNG into a reality in British Columbia, and it would be painful to abandon the project. "To walk away from that kind of investment is quite challenging," said Leah Lawrence, an LNG industry watcher who is president of consulting firm Clean Energy Capitalists Inc. "Petronas has a bunch of hurdles. Costs need to be lower."

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Analysts warn that the window of opportunity for B.C. exports will be closing within a couple of years as a flood of LNG supplies is set to reach the global market by 2020.

Mr. Culbert said the North Montney Joint Venture – Progress Energy and its partners – spent almost $2-billion on natural gas development in northeast British Columbia in 2013, $2.5-billion in 2014 and another $2.5-billion is predicted for 2015. "It's pretty healthy spending," he said.

A new plan to build a suspension bridge across Flora Bank will avoid damaging salmon habitat while consultations continue with First Nations, Mr. Culbert said.

But opposition to the fledgling B.C. LNG industry is expected to rise from environmentalists and some First Nations in 2015.

Vancouver resident Claire Hume wrote her master's thesis at the University of Cambridge on the province's dream to export "clean" LNG. She interviewed 13 environmental scientists and 13 aboriginal leaders as part of her research. "Subjects feel that 'clean' LNG is an illusory, politically loaded term used to further an economic agenda rather than reflect any true environmentally beneficial qualities," Ms. Hume wrote.

Despite looming protests, B.C. Natural Gas Development Minister Rich Coleman sees the year ahead as a turning point economically for the province. "I am really optimistic for 2015, actually. I think it's going to be a great year for us," he said. Mr. Coleman said he still views Pacific NorthWest LNG as the B.C. front-runner. "Petronas is still very much in the game as being possibly the first in B.C. to reach a final investment decision," he said.

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One smaller-scale project that could press ahead in 2015 is Woodfibre LNG near Squamish, located 65 kilometres north of Vancouver. Woodfibre LNG is privately owned by Singapore-based RGE Pte. Ltd.

Mr. Coleman welcomed the pending entry of Australia's Woodside Petroleum Ltd. as the co-owner of the Kitimat LNG project with San Ramon, Calif.-based Chevron Corp. Woodside will be acquiring Houston-based Apache Corp.'s 50-per-cent stake in Kitimat LNG by the end of the first quarter in 2015.

"I do look at it as pretty positive because Woodside is a global player," said Mr. Coleman, who believes the Australian firm will be placing its other B.C. proposal, an LNG terminal at Grassy Point near Prince Rupert, on the backburner.

He lists Pacific NorthWest LNG, Kitimat LNG and Royal Dutch Shell PLC-led LNG Canada (in Kitimat) as three major proposals to watch. He sees potential in the West Coast Canada LNG venture, slated for the Prince Rupert area, that is co-owned by Exxon Mobil Corp. and its Canadian unit, Imperial Oil Ltd.

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About the Author

Brent Jang is a business reporter in The Globe and Mail’s Vancouver bureau. He joined the Globe in 1995. His former positions include transportation reporter in Toronto, energy correspondent in Calgary and Western columnist for Report on Business. He holds a Bachelor of Commerce degree from the University of Alberta, where he served as Editor-in-Chief of The Gateway student newspaper. Mr. More

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