Petronas considers minority stake in LNG Canada

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Malaysia's Petronas is considering acquiring a South Korean firm's minority stake in a B.C. liquefied natural gas project led by Shell after cancelling its rival venture in the province last month.

State-owned Petronas had led the Pacific NorthWest LNG proposal on B.C.'s north coast but scrapped it in July. The Malaysian energy giant is now seeking ways to move natural gas from its properties in northeast B.C. to foreign markets, an industry source familiar with Petronas said.

Options for Petronas include acquiring the 15-per-cent interest held by Korea Gas Corp. (Kogas) in the LNG Canada project led by Royal Dutch Shell PLC in Kitimat in northwestern B.C. Petronas is also exploring the economic viability of transporting B.C. natural gas through existing pipelines to the U.S. Gulf Coast.

Shell holds 50 per cent of LNG Canada. South Korea's Kogas and Japan's Mitsubishi Corp., each have a 15-per-cent stake, while PetroChina Co. Ltd., owns a 20-per-cent stake in the consortium. LNG Canada forecasts that it would need to invest up to $40-billion on construction for the export terminal.

Petronas declined to comment on what it specifically has in mind but confirmed its strategy of searching for ways to unlock the value of natural gas from its properties in B.C.'s North Montney region.

"As a normal course of business, Petronas continues to look at opportunities to monetize its resources in North Montney, northeast British Columbia," Petronas said Monday in a statement from Kuala Lumpur. "Petronas's business commitment and long-term investment strategy in Canada continues via its subsidiary Progress Energy Canada Ltd., and its world-class inventory of natural gas resources."

Petronas is studying existing pipelines from Canada to the U.S. Gulf Coast, where petrochemical plants and LNG export sites are located, an industry source said. By contrast, LNG Canada is considered a long shot by industry analysts, who point out that the project would require TransCanada Corp. to build the $4.7-billion Coastal GasLink pipeline from northeastern British Columbia to Kitimat.

A global glut of LNG and depressed prices for the fuel in Asia have effectively squashed the dreams of the vast majority of B.C. LNG proposals. Only one project, Woodfibre LNG, has indicated that it is willing to forge ahead with construction. Next year, Woodfibre LNG hopes to start building its Squamish-area terminal, located 65 kilometres north of Vancouver.

Last year, LNG Canada delayed its final investment decision (FID), but on Monday, the group confirmed in a statement that it continues to scrutinize the project, including conducting a review that will lead to the appointment of a prime contractor in charge of engineering, procurement and construction (EPC).

"We do not comment on the commercial discussions of our joint venture participants," said Susannah Pierce, external affairs director for LNG Canada. "LNG Canada is very focused on delivering a commercially competitive project for a future FID that includes continuing to progress discussions with four consortium of EPCs, completing outstanding permit authorizations, and maintaining the support and collaboration of the local community and First Nations."

Four groups are in the running to serve as the prime contractor: Bechtel Canada Co., and Chiyoda Canada Ltd.; JGC Corp., and Fluor Canada Ltd.; SaipemSpA and Chicago Bridge & Iron Co. BV; and Technip FMC and KBR.

Kogas didn't return a call for comment, while Progress Energy referred questions to Petronas.

LNG Canada hired about 45 people last month to begin dismantling infrastructure such as storage tanks left on the Kitimat industrial site by the previous occupant, Methanex Corp. Another 100 people in Kitimat, Vancouver and Calgary remain assigned to the project.

LNG Canada's proposed export terminal in Kitimat is slated to be on the site of the former Methanex methanol plant, while the planned dock for LNG tankers is a wharf that once belonged to a pulp and paper mill.

The LNG joint venture received environmental assessment approvals provincially and federally in mid-2015. The new NDP government in B.C. has said LNG projects in the province "must complete a made-in-B.C. environmental assessment and respect provincial commitments to combatting climate change."