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Malaysia's Petronas has cancelled plans for an $11.4-billion liquefied natural gas terminal on the B.C. coast, dealing a major blow to Canada's hopes of becoming a global LNG supplier.

The move to scrap the Pacific NorthWest LNG plant, which had been slated for Lelu Island near Prince Rupert, comes after five years of study and debate among politicians, environmentalists and First Nations. During the period, LNG prices fell sharply as other countries such as Australia and the United States started up multibillion-dollar facilities and demand weakened.

Petronas and its partners have spent $400-million in preparation at the site and an average of $2-billion a year drilling for natural gas on lands in northeastern B.C. acquired when Petronas bought Progress Energy Canada Ltd. for more than $5.5-billion in 2012. The overall project, including a pipeline, was expected to eventually cost $36-billion.

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Nonetheless, board chairman Anuar Taib ruled out any chance that the project would ever be revived.

"For us the Pacific NorthWest LNG venture has ended," he told reporters.

LNG exports have long been a hot-button issue in British Columbia and doubts have dogged would-be developers. Former Liberal premier Christy Clark had held it up as a cornerstone of the province's economic future, at one time promising three operating plants by 2020 and the creation of 100,000 jobs. Cancelling the Pacific NorthWest project all but kills that dream, at least on her timeline.

Industry supporters – including natural-gas producers that have hoped for a new outlet as prices have stagnated – blamed a lengthy regulatory process and public debate over energy development for the halt to the project. It had been slated to create 4,500 construction jobs.

British Columbia's new NDP energy minister Michelle Mungall said her government respects the company's decision and will pivot to encourage other LNG prospects. The NDP, which during the spring election campaign criticized Liberal enthusiasm for the sector, said it seeks job-creation prospects in LNG as long as it meets environmental and other standards.

However, the BC Green party, whose three MLAs are supporting the NDP so it can govern in the minority legislature, is firmly opposed to LNG development, citing environmental concerns.

Mr. Taib said the change in government in B.C. did not factor into the decision to pull the plug. Instead, he said market conditions turned unfavourable since the company first proposed plans for the major export plant in 2013.

"Unfortunately for us we don't believe that we have that mix of where the sweet spot can be hit," he said. "Because of that we decided to stop the project."

When Petronas and other companies first began efforts to develop projects in B.C., global LNG prices were lifted by rising demand as Japan rethought electrical generation in the aftermath of the Fukushima nuclear disaster and the Chinese economy was growing at a predictable clip. LNG prices were also closely linked to global oil prices, which were hovering around $100 (U.S.) a barrel. However, since the middle of 2014, prices have been halved, squelching the economics of large new liquefaction plants.

Last week, the National Energy Board (NEB) issued a bleak assessment of Canada's LNG prospects, saying new projects in other countries were only adding to a market brimming with supplies, which has pressured prices in key markets such as China and Japan. "The majority of the near- to medium-term increases in supply will come from capacity already under construction in Australia and the U.S., which combined account for 75 per cent of capacity under construction worldwide," the NEB said.

Of the more than dozen LNG proposals that have been floated in B.C., only one – the small Woodfibre LNG project – has said it plans to proceed.

The Royal Dutch Shell PLC-led LNG Canada venture postponed a final investment decision on its $40-billion Kitimat plant and has gone back to the engineering and construction contractors in an effort to drive down costs. The company is a consortium of Royal Dutch Shell PLC, South Korea's Kogas, PetroChina and Japan's Mitsubishi.

Other major companies that have delayed LNG plans include Chevron Corp. and Exxon Mobil Corp.

The Minister said she would be reaching out to other LNG stakeholders to declare the province is ready to work with them. "We have a road map to get them to full realization of their projects," Ms. Mungall said.

Last September, the federal cabinet approved Pacific NorthWest LNG's proposal, subject to meeting a wide range of environmental conditions. But court challenges, shaky economics and opposition in some First Nations communities had complicated matters for the consortium, which also includes companies from China, Japan, India and Brunei.

A spokesman for federal Natural Resources Minister Jim Carr noted the federal government approved the project based on the evidence, consultations with Indigenous people and the views of the affected communities.

"Once a project is approved, it is then up to the proponent to decide how to proceed," Alexandre Deslongschamps said in an e-mailed statement. "Today's announcement concerning the Pacific NorthWest LNG project was a business decision made by the proponent."

For its part, TransCanada Corp., which had been contracted to build the $5-billion, 900 km Prince Rupert Gas Transmission pipeline from northeastern B.C. to supply the project, said it will be reimbursed for the estimated $500-million it has spent.

With files from Ian Bailey in Vancouver, Shawn McCarthy in Ottawa and Jeff Lewis in Calgary

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