Last week, Malaysian-owned energy giant Petronas announced they were putting final plans for an LNG export terminal on B.C.’s coast on hold until at least 2015.
Although their decision on whether to invest in the estimated $31 billion project was expected to come down before the New Year, North Peace MLA Pat Pimm and other officials caution skeptics not to bet against B.C.'s nascent LNG industry.
“At this point I’m not disappointed,” Pimm said. “As far as I’m concerned, we’re right on track. They’ve made it clear that they have to dot a couple more ‘i’s and cross a couple more ‘t’s and that’s just good business sense.”
He said the province has done all it can to woo the companies, all that’s left is to have them sign their final investment decisions, which is “out of our hands.”
The company has been collecting bids for the engineering and design of the facility over the past year and a half, and so far those have come in at too high a price, they said in a release issued last week.
“Costs associated with the pipeline and LNG facility remain challenging and must be reduced further,” read the statement from Petronas.
Richard Neufeld, a member of the Canadian Senate and chair of the Energy, Environment and Natural Resources committee, agreed with Pimm that this was not a setback.
“It’s not like building a condo in Fort St. John, it’s billions of dollars,” he said. “I guess what they’re doing now is they’re going back to see if they can dicker everybody down a little bit, which is kind of the way the word works.”
Neufeld also pointed to the fact that Petronas has already spent a great deal of money on the project to date, as well as the number of other projects from other LNG proponents that are being seriously considered, as reasons for measured optimism.
“I can understand why some would be nervous, they’ve got a lot on the line, but I think a little patience here to let these guys figure out just how they want to spend their 30 some billion dollars is fair enough, it’s their money.”
As for possible reasons why they’ve delayed, he guessed that the recent drop in the price of oil might have given the company reason to pause and consider where it lies. “I can’t imagine that they’re not looking at those numbers too,” he said.
Oil is often used as a benchmark to determine LNG import prices. Lower oil prices means lower LNG prices, which makes the economics of exporting natural gas more challenging for proponents in places in British Columbia, the United States, Australia and others.
But Bill Gwozd, Senior Vice President of Ziff Energy, said the short-term price of oil would not have affected Petronas’ decision to delay.
Analysts say it's the long-term price of oil that's important, not a temporary drop.
“When I hear financial analysts and some, what I would call ‘reasonably astute’ consultants yapping and chatting that the oil price is not right for LNG exports, well maybe that’s for a current project that’s operating in Yemen or North Africa or Australia, but has nothing to do with the Canadian projects on the West Coast,” he said.
Rather, they would be concerned with those prices from when the projects are scheduled for completion and for the following decades.
“They may have an interest in what is happening in 2018, as a starting point, maybe 2019, but they’re really concerned about the oil price in the year 2020 to the year 2050, because that’s the time when they’re actually going to sell the gas.”
Gwozd added that not only do today’s oil prices have little to no effect on the decision, when that price actually becomes relevant, they would be looking particularly to the price in the Asian market, since that is where they would be selling LNG.
So why the delay? Like Pimm, Neufeld, and Petronas, Gwozd said he suspects that they’re simply looking to make a deal and cut costs.
“Maybe the B.C. government can do something, maybe a producer or service guy can do something, maybe something can be done to drive the guy’s cost down, which is a huge captured value, just for a phone call, just for a one-day press release, just for a one-day