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Petronas encouraged by LNG commitment from BC

LNG Industry,

Petroliam Nasional Berhad (Petronas) has said it is encouraged by the commitment expressed by the British Columbia (BC) government regarding the Pacific NorthWest LNG (PNW LNG) project during the recent meetings between its President and CEO Tan Sri Dato’ Shamsul Azhar Abbas with BC Premier Christy Clark and Minister of Natural Gas Development, Rich Coleman.

Project competitiveness

Petronas and the government have agreed on clear milestones and action plans for both parties to support project competitiveness necessary to undertake a Final Investment Decision (FID) by mid-December 2014.

In addition, Petronas will also continue to work with the government of Canada and its agencies to advance the regulatory process and clarify the fiscal framework associated with this new industry in the country.

LNG price pressures

“Fundamentally, we believe that the PNW LNG project has the ability to monetise, add value and link BC natural gas to the global market; to the benefit and prosperity of Canadians, especially to British Columbians. Nonetheless, the reality of the global LNG market is that we are facing potential overhang and decreasing demand that creates downward pressure on LNG prices. In this market environment, the ability to secure market and customers is paramount,” commented Tan Sri Dato’ Shamsul Azhar Abbas, Petronas President and CEO.

“Coupled with softening crude prices, there is a need for international energy companies such as Petronas to seriously prioritise and reassess our investments. The proposed fiscal package and regulatory pace in Canada threatens the global competitiveness of the PNW LNG project. This is further exacerbated by preliminary project costs, which indicates cost of local contractors to be higher and not benchmarked to global contractor's cost,” he added.

Tax impact?

According to Petronas, the additional tax and high cost environment will negatively impact the project's economic viability and competitiveness. Without material cost reduction efforts across the project, the company will struggle to reach a positive FID by December 2014.

In order to remain competitive, Petronas needs to secure consensus on key principles essential to the success of this project by the end of October. Missing this date will have the impact of having to defer its investments until the next LNG marketing window, anticipated in 10-15 years. At this juncture, Petronas firmly believes on the urgent need for stakeholders to collaborate and come to an agreement, rather than act as opposing parties at the negotiation table.

Next steps

The company added that that the next few weeks will be crucial to ensure that commitments made during the last meeting are followed through, by creating a tangible environment that stimulates competitiveness and investor’s confidence in BC.

Adapted from press release by Katie Woodward

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