The former president of the deferred LNG project led by Malaysian national oil company Petronas says he’s confident its partners will give a final investment decision to proceed within the next three to six months despite plunging oil prices.
Greg Kist, who left the $36-billion Pacific Northwest LNG project in October, told a Toronto lunch meeting hosted and broadcast by RBC Dominion Securities on Wednesday that the project must be sanctioned soon to meet its targeted startup date in 2019.
“What you have to remember is that every one of these partners, whether it’s Japex or IOC or Sinopec or Petroleum Brunei, has a requirement for the delivery of those volumes at a certain time,” said Kist, noting construction and commissioning is expected to take 50 to 54 months (four to four and a half years).
“To the extent that this project doesn’t get kicked off, they’ve got to line up those volumes from somewhere else.”
Petronas stunned industry observers last week by announcing it would not make a decision by its targeted deadline of year-end even though it was pleased with recent moves the British Columbia government had made to make the nascent industry more competitive.
Kist said the move had a lot to do with federal environmental approval decisions that are not expected to be received for a few months, adding that from Petronas’ point of view, the decision cannot be made until the project is “shovel-ready.”
“If Petronas were to go ahead and make a conditional FID decision now, it would be my view they would lose some of the leverage that they have in terms of trying to drive down the capital costs as it relates to the plant development or the pipeline side of things,” he said.
The $36-billion price tag covers the 12-million-ton-per-year first phase of the LNG plant, development of shale gas fields in northeastern B.C. and a pipeline to connect the two. Petronas is the majority partner, with minority partners China Petrochemical Corp., or Sinopec, Japan Petroleum Exploration Co., Indian Oil Corp. and Brunei National Petroleum Co.
In an e-mail interview last week, Bill Gwozd, a senior vice-president at consultancy Ziff Energy, said he didn’t agree that low oil prices had anything to do with Petronas’ decision.
“The low oil price in late 2014 is not related to the oil price in 2019 to 2049, the timing for LNG, so when I hear folks mentioning ‘low oil price’ I wonder why they use that as an explanation for deferral,” he wrote.
Kist agreed Wednesday, noting project economics have been calculated assuming there will be many low-price market cycles and Pacific Northwest LNG is expected to deliver “double-digit returns” over its lifetime.
Kist said he decided to leave the project because it was about to enter the construction phase and he didn’t feel he had the expertise required to lead that part of the development.
He said Canadian LNG projects have three negatives working against them as seen by foreign builders: high taxes, high costs and issues of First Nation rights.
He said B.C.’s decision to impose a special liquefied natural gas tax was recognized as a political necessity to convince the public the industry would be beneficial. That cost, he said, is balanced by the government’s continuing offer of royalty credit programs such as the deep drilling credit on the upstream side of the equation.
The project is to be located on Lelu Island on the West Coast. Kist pointed out it will be located in a federal port but the builders also count two local native groups as its co-landlords.
The liquefaction facility is to be built with modules from overseas yards which will be shipped to Canada and reassembled on site. The peak construction workforce is expected to be roughly 4,000-4,500 people on site, meaning it is critical to secure labour early.
Dan Healing, Calgary Herald