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LNG exports from Canada - maybe

September 30, 2016

The federal government has given Pacific NorthWest LNG, led by Malaysia’s state-owned Petronas, the go-ahead to export liquefied natural gas from Lelu Island (Prince Rupert). There are 190 conditions attached to Ottawa’s approval. 

In total, roughly $36-billion will need to be spent to make Pacific NorthWest LNG’s planned exports a reality in 2021. The plan includes $11.4-billion for the LNG export terminal on Lelu Island and $12-billion related to drilling and natural gas production, of which $5-billion already has been spent on northeast B.C. operations from 2013 to 2015. TransCanada Corp. plans to build two pipelines at a cost totalling $6.7-billion to move natural gas from northeast B.C. to Lelu Island.

Eurasia Group, a New York-based political risk firm, said Petronas will likely delay a final investment decision until late 2017, and will then encounter a tough market. The environmental conditions are fairly onerous compared with what many international competitors face. Pacific NorthWest LNG is seeking to overcome the shaky economics of exporting LNG. Prices for the fuel have plunged in Asia over the past couple of years.

While the federal Liberal cabinet’s project approval clears the way for construction of the export terminal, the Petronas-led group will need to pare costs just to break even on its operations if LNG prices in Asia stay in doldrums, industry experts say.

Commentary

The LNG market economics is much less attractive for exporters than three years ago. It remains to be seen whether investors will go ahead with this large investment project with shaky economics.

Sources

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Source: Pacific LNG, Globe and Mail,Google Earth