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Petronas committed to further LNG export development in Western Canada

Highlights

Exec says company wants to tap Montney resource

'Nothing material' in terms of interest in US projects

Vancouver — Malaysia's Petronas is focused on Canada over the US in its LNG export growth goals as it seeks outlets for the significant natural gas resources that it holds in the Montney play in northeast British Columbia, an executive said Wednesday.

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Through the stake the company has in the LNG Canada project in Kitimat, only about 10% of the 60 Tcf of proved and contingent gas resources that Petronas and its partners control in the region would be absorbed over 40 years, Petronas Canada CEO Mark Fitzgerald said in an interview on the sidelines of an industry conference in Vancouver.

That means Petronas will have to find expansion opportunities or another LNG export project in which to invest to move that gas. Lack of sufficient pipeline infrastructure in the area makes it difficult to move larger quantities of Western Canadian Sedimentary Basin gas eastward across the country or southward to the US. Exports westward to Asia via tanker remain the best long-term answer, Fitzgerald said.

"Our focus is entirely right now on how do we monetize the resource that we have, and that strategy is clearly centered on an integrated development," he said. "The US is certainly more advanced in its LNG strategy than Canada is, but long-term Canada has the factors that will be necessary for success."

The road to that reality has been an uneven one for Petronas and other Canadian developers.

Unfavorable economic and market conditions forced Petronas in 2017 to cease work on its Pacific NorthWest LNG project on Lelu Island near Prince Rupert. Also, a Shell unit nixed plans for an LNG facility on Ridley Island at the Port of Prince Rupert.

Then, in May 2018, Petronas jumped back into the market, taking a 25% stake in LNG Canada. Backed by a consortium of portfolio players and end-users, including Royal Dutch Shell, PetroChina, Japan's Mitsubishi and South Korea's Kogas, that project, with a pricetag of up to $32 billion (C$43 billion) including an affiliated feedgas pipeline, made a positive final investment decision in October and has since started early construction work.

Looking ahead, with Pacific NorthWest LNG off the table, the company is talking to other market participants about how to grow the Western Canada export market, Fitzgerald said. As far as he knows, Fitzgerald said, there is "nothing material" in terms of interest by Petronas in US projects right now.

The executive would not disclose who Petronas was talking to. But he explained what Petronas was looking for from projects: an integrated model that balances risk versus reward. That invariably would mean several equity partners, and the ability to tap its Montney supplies.

A handful of developers are actively pursuing LNG export projects in Western Canada - in addition to a similar number in Eastern Canada.

But even with favorable pricing for feedgas and a prime location that offers a shorter shipping distance to East Asia than from terminals on the US Gulf Coast, none of the projects in Western Canada besides LNG Canada appear ready to move forward in the near-term.

PROJECT FINANCING

At the Canada Gas & LNG Exhibition and Conference on Wednesday, financing experts said the Canadian government can play a role in getting more export terminals over the line through regulatory and legislative maneuvers. But, in terms of providing money to projects, the government's involvement is likely to be relatively limited, said Frank Kelly, a project finance official for Export Development Canada, a state-owned credit agency that was set up to aide trade between Canada and other countries.

"We've had continued engagement with the primary stakeholders associated with some of the projects," Kelly said. "The reality is even smaller size projects are going to require the same fundamentals, and that starts with the sponsorship group."

Petronas' Fitzgerald said he remains enthusiastic about the Western Canada export opportunity over the long term.

"I think there's probably more momentum than we sometimes see visibly," he said. "What the industry is trying to do properly I would say is create that balance between the development of the resource and regulators and with stakeholders and First Nations. And, that's complex."

Fitzgerald added, "The industry will develop, but it will develop in a way that stakeholders can support."

-- Harry Weber, Harry.Weber@spglobal.com

-- Edited by Richard Rubin, newsdesk@spglobal.com