by MARK RAO and Pic by MUHD AMIN NAHARUL
Petroliam Nasional Bhd’s (Petronas) decision to halt the US$29 billion (RM124.12 billion) liquefied natural gas (LNG) project in British Columbia, Canada, has raised questions on how and when the energy firm will recover its multibillion investments.
Petronas purchased Progress Energy Resources Corp — the operator of the North Montney Joint Venture for the Pacific NorthWest LNG facility — for C$5.2 billion (RM17.79 billion) in 2012.
The state-owned firm had invested hundreds of millions in its hunt for gas in what is the company’s single largest investment abroad.
There are questions on Petronas’ upstream assets in Canada and the impact of the LNG project’s indefinite cancellation.
Petronas had also faced strong objections from the indigenous people, environmentalists and local politicians. Despite the approval for the project, the Canadian authorities had slapped 190 conditions before work could start in September last year, spurring speculation that the energy company may dispose of its stake in the project.
The national energy company is also expected to take financial charges for the Canada LNG project.
At the end of last year, Petronas’ accumulated amortisation and impairment losses for goodwill, exploration expenditure and other intangible assets was RM34.6 billion.
Exploration expenditure accounted for RM12.1 billion of the impairment.
Petronas had cited “extremely challenging environment” for the decision to abandon the Pacific NorthWest LNG project at Port Edward, British Columbia.
“We are disappointed that the extremely challenging environment brought about by the prolonged depressed prices and shifts in the energy industry have led us to this decision,” said executive VP and CEO for upstream Datuk Mohd Anuar Taib.
Petronas said the decision was made after a careful and total review of the project.
“We, along with our North Montney Joint Venture partners, remain committed to developing our significant natural gas assets in Canada and will continue to explore all options as part of our long-term investment strategy moving forward,” Mohd Anuar said.
Pacific NorthWest LNG is majority-owned by Petronas. Japan Petroleum Exploration Co Ltd, Brunei National Petroleum Co, Indian Oil Corp and Sinopec-China Huadian are partners in Pacific NorthWest LNG and its associated natural gas supply.
According to an oil and gas (O&G) analyst, the overall industry is presently not supportive of large-scale LNG projects — including the Petronas-led Pacific NorthWest LNG facility — due to the low gas prices.
“Petronas entered the project with the intention to develop the natural gas field themselves for the Asian export market,” said the analyst, who does not want to be named.
“With substantial decline in prices, the move no longer makes sense.”
The analyst said the return on investment from the project — situated on Lelu Island within the district of Port Edward — is not justifiable at current gas prices.
The O&G prices rout that began in the middle of 2014 had driven many global energy companies to abandon their ambitious exploration plans.
Oversupply also weighed down on LNG prices for the Northeast Asia spot market, performing below US$6 per million British thermal units (BTU) early last month compared to above US$14 per million BTU from July to October in 2014.
Petronas’ Pacific NorthWest LNG project was not the only casualty from the O&G rout.
The Prince Rupert LNG facility — also located in the British Columbia region — was terminated in March this year, while approximately US$23 billion in Canadian energy assets were disposed of by international oil firms in 2017 alone.
“Petronas can sit on their assets. When prices recover and the timing is right, the company can try again,” said the analyst.