Malaysia's state-owned Petroliam Nasional Bhd., or Petronas, struck a deal to acquire a 25% equity stake in the C$40 billion Royal Dutch Shell PLC-led LNG Canada export facility in British Columbia.
The agreement, executed through Petronas' subsidiary North Montney LNG Ltd., marks a major re-entry into Canadian LNG export projects for the Malaysian energy company after it shelved its C$36 billion Pacific NorthWest LNG project last summer due to low LNG prices and local challenges. Petronas hopes the project will help it monetize its natural gas resources in the North Montney shale region of northeast British Columbia, owned by subsidiary Progress Energy Canada Ltd. In a May 31 release, Petronas said it owns 52 Tcf of reserves and contingent resources in Canada.
LNG Canada is expected to reach a final investment decision by the end of the year. The project is located in Kitimat, British Columbia, and is planned to have two LNG liquefaction trains, with an option to expand to four trains.
"Petronas is in Canada for the long-term and we are exploring a number of business opportunities that will allow us to increase our production and accelerate the monetization of our world-class resources in the North Montney. LNG is just one of those opportunities," said Petronas President and Group CEO Tan Sri Wan Zulkiflee Wan Ariffin.
At deal closing, scheduled in the next few months, Shell's Shell Canada Energy Ltd. would own a 40% stake in LNG Canada, Petronas' North Montney LNG would own 25%, PetroChina Co. Ltd.'s PetroChina Canada Ltd. and Mitsubishi Corp.'s Diamond LNG Canada Ltd. would each hold 15% ownership, and Korea Gas Corp.'s KOGAS Canada LNG Ltd. would hold 5%.
A Wood Mackenzie analyst called the development "an interesting turn of events" for Petronas, but said costs remain a major issue. "Before LNG Canada can take [a final investment decision], it will need to lower costs and take advantage of the latest tax breaks announced by the BC government," said Prasanth Kakaraparthi, senior analyst for Wood Mackenzie.
LNG Canada has the potential to add up to 7 million tonnes of equity LNG into Petronas' portfolio, making up about 20% of its 2023 supply, Kakaraparthi said. While the global LNG market is expected to tighten after 2022, several project are nearing FID which could increase project costs.
British Columbia's government is offering tax breaks and other incentives to LNG projects as a means to entice them toward a final investment decision.
