Canada approves $27 billion LNG complex; Petronas in no rush to start

Wed Sep 28, 2016 8:08am EDT
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By Nicole Mordant and A. Ananthalakshmi

RICHMOND, British Columbia/KUALA LUMPUR (Reuters) - Malaysia's Petronas said it would review a proposed C$36 billion ($27.25 billion) liquefied natural gas (LNG) project in western Canada after Ottawa approved the project with conditions to limit the environmental impact.

The green light for the Pacific NorthWest LNG project in northern British Columbia comes after a 3-year wait for Petronas and its partners, but analysts are skeptical about the project's prospects given low gas prices and cost-cutting at the Malaysian oil giant.

The decision on the project was seen as a major test for Canada's Liberals, juggling the needs of an energy industry suffering from job losses and the concerns of environmentalists, courted by Prime Minister Justin Trudeau in last year's election campaign.

The approval came with 190 conditions that Petronas and partners in China, India, Japan and Brunei would have to meet, after a review found the project would have a significant environmental impact.

"We need time to look at the conditions and then we will have a review of the project," Petronas CEO Wan Zulkiflee Wan Ariffin told reporters on the sidelines of an event in Kuala Lumpur.

Petronas' investment in the project would depend on LNG prices that have dropped by over a third in two years amid worries about oversupply and faltering Chinese demand.

"The economics (of the project) require much higher LNG prices than currently and than are forecast for the next few years," said Wood Mackenzie analyst Alex Munton. "That's what we think will cause Petronas to pause investment until it's more confident about future gas prices."

Other LNG projects also face delays: In July, Royal Dutch Shell and its partners pushed back a decision on building an LNG export terminal in British Columbia, and Chevron has delayed the scheduled 2017 start of its Kitimat LNG project, also in British Columbia.   Continued...

A logo of a Petronas fuel station is seen against a darkening sky in Kuala Lumpur, Malaysia February 10, 2016. REUTERS/Olivia Harris/File photo