Pacific Northwest LNG just needed a “re-think”

In retrospect, it will be seen as a good decision. Petronas is pulling out of the US$29 billion Pacific Northwest LNG project in British Columbia, Canada. The Malaysian state oil company cited ‘prolonged depressed prices and shifts in the energy industry' as the reasons for exiting the long-gestating project. The former refers to the current slump in LNG prices, which shows no sign of improving, and the latter refers to America's LNG renaissance, founded not on mammoth expensive projects but nimble, dynamic plays. The decision to admit defeat has not been an easy one, but it is the right one.

The initially announced cancellation of Pacific Northwest LNG in the press, is the fifth major LNG export casualty in the last 18 months, joining Fisherman's Landing and Browse in Australia, Oregon LNG in the USA, and Prince Rupert, also in British Columbia, to be shelved. The projects that would have joined Wheatstone, Gorgon, Ichthys and Prelude are now victims of the painful rebalancing the LNG industry has to undergo, as suppliers yield power to buyers, who for the first time in LNG history have a luxury of choice and are exerting their rights.

It might have been different, but Pacific Northwest also came under much pressure of local politics. Located in an environmentally sensitive area of British Columbia, environmentalists have railed against the project from the start, even as the Canadian federal government and the BC state government gave their approvals after extensive environment impact studies. Then in May, the ruling NDP lost their majority in BC state elections, forcing them to form a support coalition with the Green Party, vehemently opposed to the project. When that happened, the writing was always on the wall for PNW.

It is for the best. The nature of the geography at the PNW site required high costs to build the necessary infrastructure and pipelines, far higher than those smaller, more deft producers along the more established US Gulf. High costs require high prices to recoup. In the past, this would be solved by locking buyers into long-term contracts at fixed prices. That is no longer a popular option; not with US producers like Cheniere offering short, flexible contracts that countries like Japan, South Korea and China find extremely enticing. Then, battling hostile neighbours, Qatar lifted its moratorium on the vast North Field – planning to double production at the source of some of the cheapest gas in the world. You also have to consider all the African LNG projects being developed, many with stakes held by major Asian buyers, cutting off routes for Canadian supplies.

This is not the end of LNG in Canada. But it is a refocusing. The other partners in Pacific Northwest are looking at re-purposing the project, or parts of it, into a more cost-effective solution. Indian Oil has already said it will talk with the other partners – Sinopec, Japan's Japex Montney and Petroleum Brunei - to scout for an alternative and cheaper site. Even Petronas reiterates that this is not the end of its presence in Canada, aiming to continue to develop natural gas assets and possibly even participate in Shell's Kitimat LNG project, also in British Columbia. All players will be careful and approach new opportunities with caution. Expect more of this over the next five years, which will be a period of consolidation and recalibration of major LNG projects into a few golden eggs rather than a whole basket. It is better that a few projects stay on hold for now, then obstinately push ahead and cause a collapse of the industry.

Visit source site


More items from easwaran

Supermajors – The State of Q417 Earnings

  With the last of the financial statements from major producers out, it is clear that 2017 has been a much better year for the oil & gas industry, with profits for the fourth quarter and the full year on the upswing as the year-long gain in oil prices (thank you, OPEC) swelled revenue and profi ...

Easwaran Kanason

Posted 15 days agoOpinion > nrgedgeTotalShell +4

Geopolitical Eruptions in the Eastern Mediterranean

In the ancient world, the Fertile Crescent was a semicircle in the easternmost part of the Mediterranean that gave rise to some of the world's greatest civilisations, including the Egyptian, Mesopotamian, Assyrian, Babylonians and Anatolian empires. In modern times, this stretch of water has been t ...

Easwaran Kanason

Posted 15 days agoOpinion > nrgedgeIsraelEgypt +4

Oil Rush in Guyana

Traces of petroleum have been recorded in Guyana since the 1750s, back when Dutch explorers were mapping the country. Wells drilled in 1916 produced some natural gas that powered local utilities for several decades, while Shell and the California Oil Company made exploratory drills in the 1950s and ...

Easwaran Kanason

Posted 1 month agoOpinion > GuyanaExxonStabroek +1

China’s Petrochemical Boom

By some reports, China is expected to account for  50% of all growth  in the petrochemical sector through 2025. As the country rushes to attempt petrochemical self-sufficiency – China remains deficit particularly in ethylene and benzene, as also derivatives, as its domestic demand booms – its petro ...

Easwaran Kanason

Posted 1 month agoOpinion > ChinaPetrochemicaldownstream +2

New Era, or Same Old Game in Indonesia’s Upstream Sector

Last week, Indonesia announced five winning bids in the 2017 oil and gas block tender. The Energy Ministry declared this as a ‘new era' in Indonesia's upstream industry. But is it really? Is it a brand new era promising success, or is it a sign of deeper problems in the industry that have still not ...

Easwaran Kanason

Posted 1 month agoOpinion > oil priceIndonesiaOil Blocks +1
All posts from easwaran