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Petronas drops US$29 billion western Canada LNG project

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Reuters are reporting that Petronas has dropped a proposed C$36 billion LNG project in western Canada due to weak prices, in a blow to both its global ambitions and Canada's hopes of becoming a major LNG player.

Pacific NorthWest LNG in British Columbia was meant to produce 12 million tpy and spur further development of Canada's largest shale play, but industry observers said the move was widely expected given years of delay.

Analysts had been sceptical about the project's prospects given current low gas prices and constraints facing state-run Petronas, which has been cutting costs to deal with lower profits and cash flow.

The decision is the latest setback for Canada's energy industry, already bruised by international oil firms selling off around C$23 billion in Canadian energy assets this year alone.

Pacific NorthWest LNG received approval from the Canadian government last year, but Petronas delayed its final investment decision on what would have been its biggest foreign investment.

The C$36 billion price tag included around C$11 billion for the export terminal, C$6.5 billion in pipelines, the C$5.5 billion Petronas paid for Progress Energy and its natural gas assets and around C$2 billion a year expected to be spent on producing natural gas.

TransCanada Corp, which was contracted to build the pipeline connecting gas wells to the LNG terminal, said it will be reimbursed for costs associated with the project. It had spent C$500 million as of April.

Japan Petroleum Exploration Co said it would take a loss of about C$102 million due to the scrapping of the project.

Petronas had planned to produce its own gas to supply Pacific NorthWest LNG, rather than buying it from other producers, but no LNG demand means companies like Painted Pony Petroleum and Seven Generations Energy will continue to see low gas prices.

Of more than a dozen projects proposed for British Columbia, only the C$1.6 billion privately held Woodfibre project has so far been given the green light by its developers.

Last July Royal Dutch Shell and partners pushed back a final investment decision on their proposed LNG Canada project, citing global industry challenges.

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