From Kitimat to Calgary, the implications of Petronas’ decision last week to pull the plug on its $36 billion Pacific NorthWest LNG project are still being calculated, if not yet felt.
The decision’s most immediate impact will be felt by the 44 employees, many of them in Vancouver, who will be laid off.
But there are many other ramifications that have yet to be felt.
What does the decision mean for the permitted, shovel-ready Prince Rupert Gas Transmission project that TransCanada Corp. (TSX, NYSE:TRP) planned to build to supply the liquefied natural gas (LNG) plant, and for the First Nations along the corridor who signed revenue-sharing agreements?
What does the project’s cancellation mean for the cash, Crown land and revenue-sharing agreements offered to the Lax Kw’alaams, Metlakatla and Kitselas First Nations in exchange for their support for the project?
And what kind of signal does it telegraph to other potential LNG developers, like Shell, Nexen and Chevron Corp. (NYSE:CVX)?
In announcing the project’s cancellation, Anuar Taib, chairman of the Pacific NorthWest (PNW) LNG board of directors, said the decision was based solely on market conditions and economics.
PNW LNG suffered delays in getting federal environmental approval. The industry was then hit by an oil price crash that was followed by falling international LNG prices, as new supplies came into the market from Australia.
Petronas had also warned the BC Liberal government in 2014 that the new LNG tax it was planning could make LNG projects in B.C. uneconomic.
Asked if the new BC NDP government coming to power had anything to do with the decision, Taib said it had not.
“It really boils down to whether or not the project could be competitive in the market conditions of the day.”
Taib added that the company looked forward to working with the new NDP government as it continues to develop its natural gas assets in northeastern B.C.
But the BC Liberals and at least one industry analyst said the timing of last week’s announcement – coming just eight days after the new Green-backed NDP government formally assumed power – was an unmistakable signal.
Jas Johal, the new Liberal MLA for Richmond-Queensborough, pointed out that the NDP’s new environment minister, George Heyman, was part of an anti-fracking campaign in B.C. while he was executive director for the Sierra Club BC and that NDP Premier John Horgan lobbied the federal government against the PNW LNG project while he was in opposition.
“Would you invest $36 billion in this province when cabinet ministers and the premier are speaking out against this project?” said Johal.
Jihad Traya, manager of natural gas consulting for Solomon Associates, agreed.
“What’s happening now is very clear that there is somewhat of a non-confidence vote in British Columbia – period,” he said. “There will be a need for global LNG, but the investment’s saying, ‘Hey, we can go elsewhere and not have to deal with this headache.’”
Michelle Mungall, the NDP’s new energy, mines and petroleum resources minister, said Petronas made it clear that it wasn’t blaming her government for cancelling the project. She added that the NDP government is committed to working with the industry to see other LNG projects built.
But her government should not expect co-operation from the BC Green Party.
Green Party Leader Andrew Weaver said the Petronas decision confirmed his skepticism about the LNG industry’s prospects in B.C.
The Pembina Institute welcomed the project’s demise, saying the greenhouse gases it would have generated would have made it impossible for B.C. to meet its greenhouse gas reduction targets.
Ellis Ross, former chief of the Haisla Nation, who was elected the Liberal MLA for the Skeena riding, said opponents of LNG don’t realize how much First Nations in B.C. had been counting on the industry to provide jobs and revenue.
As recently as February and March, Petronas had signed multimillion-dollar revenue-sharing deals with First Nations, as did the provincial government.
“For those celebrating the demise of Petronas, and possibly celebrating the demise of the LNG industry, you haven’t been to a community that has suffered under 60% unemployment,” Ross said. “You haven’t been to a community that has suffered under poverty.”
He said Kitimat and Terrace boomed, providing jobs for First Nations and non-First Nations alike, when companies like Petronas began laying the groundwork for LNG projects in Kitimat and Prince Rupert.
Metlakatla Chief Harold Leighton also expressed disappointment in the Petronas decision.
“This project provided significant opportunity to improve the quality of life in our community.”
Taib confirmed his company spent $400 million just on the LNG site in Prince Rupert. Another $500 million was spent on the Prince Rupert Gas Transmission line. TransCanada last week stated that an agreement with Petronas ensures the company will be reimbursed.
PNW LNG would have represented a total capital investment of $36 billion, about a third of which is already invested in upstream assets in northeastern B.C.
The LNG plant in Prince Rupert would have cost $11 billion. The new gas pipeline would have cost another $5 billion. After spending roughly $1 billion on PWN LNG, Petronas decided to cut its losses.
TransCanada could find another partner to build the Prince Rupert Gas Transmission (PRGT) line. Nexen, for example, will need a new gas pipeline for its Aurora LNG project in Prince Rupert, if that project gets approved.
Asked it that is a possibility, TransCanada spokesman Shawn Howard last week said, “We really can’t speculate about next steps, as we’re focused on having discussions with people along the proposed pipeline route who have been so supportive and important to PRGT.”
One thing the new NDP government may have to wrangle with is what to do about the agreements that were signed between Petronas, the provincial government and the Lax Kw’alaams and Metlakatla First Nations.
While some of the benefits, like land offers, did not depend on the project going ahead, and could ultimately form the land parcels for an eventual treaty final agreement, cash payments and revenue sharing did depend on a final investment decision and construction.
“A band like the Lax Kw’alaams, for instance, were banking on that for employment,” Ross said. “I don’t know how you unravel all that because it was based on a real complicated process. I have no idea where it’s going to end up. In fact, I know there’s a lot of anxiety both in my riding as well as the Lax Kw’alaams right now in terms of where they go next.”
As for jobs that won’t be created, the Independent Contractors and Businesses Association estimates the PNW LNG project would have generated 4,500 construction jobs and 330 long-term operations positions.
Though his own company no longer sees any prospects for itself in the LNG space in B.C., Taib said he still thinks others could be successful here.
“I am a believer that there is a space for the LNG business in B.C. and there’s a space for it in Canada,” he said. “You just have to find the right project and at the right time.”
