Thursday, August 10, 2017

Petronas CEO provides detailed glimpse into the cancellation of Pacific NorthWest LNG

Petronas President and CEO
Datuk Wan Zulkiflee Wan Ariffin
outlines some of the background
to the Petronas decision to
abandon it's Lelu Island plans for
an LNG terminal on the North Coast

An article just published in a Malaysian magazine is perhaps to this point, the most complete review of the decision making process that Petronas officials took on their way to the cancellation of the Pacific NorthWest LNG project last month.

In a Cover Story for the publication The Edge Malaysia published earlier today, Petronas President and CEO Datuk Wan Zulkiflee Wan Ariffin answers a number of questions related to how the company reached what the CEO labels as "negative final investment decision'.

Much of the discussion explores the range of energy holdings of Petronas in Canada and their still active involvement in the natural gas fields on Northeastern British Columbia, however for followers of the Pacific NorthWest story on the North Coast there are some interesting notes related to the proposed terminal for Lelu Island up for review.

When it comes to spending on the project prior to pulling the plug on the terminal development, the Petronas CEO noted that the company had spent 470 million dollars on engineering surveys and front end engineering requirements along with a range of agreements with First Nations as well as community engagement to move their proposal forward.

On the pipeline side of the project, Petronas had spent 650 million on development both in the gas fields and in planning for the pipeline route to Lelu Island, though with the cancellation of the  project the pipeline to the proposed LNG site has now been terminated.

The number crunching and financial details dominated much of the review of the project since the Federal government's approval of September 2016, with Petronas increasingly finding challenges in bringing down the cost of the project as they worked their way through the winter and in the spring and summer of this year.

"We did a lot of work — the front-end engineering — for the plant to be sited on Lelu Island in British Columbia. Then, we got the conditional FID from all our partners in June 2015. What was pending was Canadian approval, which we got in September 2016, along with a long list of conditions.

But while we were working through the conditions, taking a total review of the projects, [we looked at] how we could bring down the costs … but the market was very, very challenging. Today, the market is very weak, so that is why we decided not to proceed with the project.

We are disappointed with the market conditions, but this is something I have mentioned in the past. We go through a very stringent sanctioning process and definitely, we want to comfort ourselves — before we proceed with a project, it must be commercially viable.

We are very prudent and I think that it is very important for us to go into projects that we are really confident of making money." -- (an excerpt from an interview by the Malaysian news magazine The Edge with the CEO of the Malaysian energy Company Petronas, reviewing the decision by the Malaysian energy company to terminate their Canadian terminal development near Port Edward)

The article makes no mention of the political climate in British Columbia in the period following the Federal government's approval, though a suggestion that the push back from the environmental movement in the province might be able to claim a victory from the project's cancellation does make for a short topic of note.

Though even there, as he was when it came to any mention of politics back in July, the Petronas CEO is somewhat guarded in his approach, offering up an answer that points more to the energy company's belief in LNG as the cleanest fossil fuel available.

Some people may look at this as a victory for the environmental NGOs. 

" I look at LNG as the cleanest fossil fuel around, and there is no dispute about that. We are still bullish in the long term about the space that LNG will play in. I think it will be the fuel of choice among fossil fuels."

As an indication as to the fast changing nature of the LNG industry, it would appear that Petronas has already put the North Coast in their rear view mirror, currently the Asian energy giant is exploring new opportunities in Mexico, Vietnam and India.

You can review the full article here.

For more background on the Pacific NorthWest project compiled through the last half decade see our archive page here.

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