Skip to main content

LNG, like grief, may prove to have five stages. If so, Petronas is somewhere between stage two, anger, and stage three, bargaining, as it nears a decision on proceeding with a massive West Coast project.

Shamsul Azhar Abbas, chief executive officer of the Malaysian energy company, has taken to playing hardball, at least publicly, as the B.C. government gets down to putting finishing touches on a much-anticipated tax regime for the liquefied natural gas industry.

His message this week to B.C. Premier Christy Clark: Finalize a fiscal package that's got just the right incentives for building multibillion-dollar plants, and do it soon, or we'll shut down development of our project, and $36-billion in spending, for 10 to 15 years. While you're at it, do what you can to speed up the federal-provincial regulatory approval process.

Story continues below advertisement

The tactic is not unlike those used by pro sports team owners when they demand tax breaks and other government goodies to build new stadiums, and threaten to move the team if they get rejected. It's really the fans who will lose out in the end, they assert.

Mr. Shamsul knows Ms. Clark's weak spot on the public stage. It's in the promise she held up during the last provincial election of a supercooled gas industry to rival others around the world. She said British Columbians could expect three operating plants by the end of the decade, something that now looks highly unlikely, given regulatory and construction timelines.

That was the first stage of LNG – denial, among some in government and industry alike, of the many risks facing the launch of a new industry. It involved big ambition and the promise of jobs and massive economic benefits as B.C. taps into the potential to turn its massive northeastern natural gas reserves into a lucrative exportable commodity.

The risks include competition from the earlier movers, such as Qatar, Australia and now the United States; struggles to secure supply contracts with customers who would much rather tie prices to North American gas than richer world oil markets; the rising costs of labour, materials and getting both to West Coast locations currently off the beaten path. Many executives have said B.C. has a window of maybe five years to get its LNG businesses up and running.

There are 17 proposals to build LNG plants, though no would-be developer has made a final investment decision and only a handful of facilities may actually get built. The Petronas-led Pacific NorthWest LNG joint venture is seen as closest to a potential go-ahead, having set a target of the end of this year.

At one time, Kitimat LNG appeared to be the front-runner, but now Chevron Corp., the project's leader, has said much rides on the search for a new partner after Apache Corp. decided to bail. LNG Canada, led by Royal Dutch Shell PLC, has said it could make a go-ahead decision in 2015 or 2016.

Of course, Petronas has much riding on a West Coast LNG industry succeeding. The company went through an arduous federal approval process two years ago to complete its $5.2-billion takeover of Progress Energy. Last year, it spent more than $2-billion drilling into its massive land spread in northeastern B.C. and has said it is even more active this year. It is downright difficult to imagine the state-owned enterprise, and its partners, opting to just walk away from the investment for a decade or more.

Story continues below advertisement

B.C. has proposed a tax of 7 per cent on income from LNG facilities following the payout of capital costs, a burden Mr. Shamsul says is too high. That, along with the rising estimated costs to develop in the region and charges for shipping and liquefying, make the economics of the project "marginal," he said.

Ms. Clark said on Monday that the "really hard" negotiations with the industry are getting under way as her government shoots for a release of the fiscal package later this month. In its Throne Speech, the government blunted its message about the prize of LNG, saying it is "a chance – not a windfall."

That's a sensible message and long overdue. It may set the stage for good-faith bargaining that could lead to benefits for both sides, rather than ultimatums by one company. The final two stages of the LNG story have yet to be written, but let's assume the last one is acceptance. The coming weeks could determine whether B.C. avoids the second-last of grief's five stages: depression.

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter