Quitting Canada project may cost Petronas RM2 billion

petronas-canada-lng-1KUALA LUMPUR: Petronas may have to pay an impairment charge of about RM2.16 billion following its decision to abort the planned RM124 billion Pacific NorthWest liquefied natural gas (LNG) project in western Canada.

The Star reported that the impairment was estimated, based on the provisions made by one of the joint-venture partners in the LNG project.

Japan Petroleum Exploration Co (Japex), which has a 10% stake in the Pacific NorthWest LNG project consortium, stands to incur a loss of about RM349 million in the year to end-March following Petronas’ decision to abort its Canadian LNG project.

The Star quoted an industry analyst as saying: “Based on what Japex will provide, Petronas’ portion would be about six times the amount considering its 62% stake in the consortium.”

The pullout will have an effect on the profitability of Petronas but not its cash-flow situation,

Petronas told The Star that it would continue with its long-term strategy of developing its oil and gas asset in Canada through wholly owned subsidiary Progress Energy Canada Ltd.

“In view of the decision on Pacific NorthWest LNG, Progress Energy will be re-aligning its strategic approach to developing the world-class North Montney gas assets with its North Montney JV partner,” Petronas told The Star in an e-mail reply.

The Pacific NorthWest LNG project is a consortium consisting of Petronas with a 62% stake, Japex holding 10%, Petroleum Brunei 3%, Indian Oil 10% and China Petrochemical (Sinopec) 15%.

Pacific NorthWest LNG board chairman Anuar Taib said in a statement that Petronas and partners would continue to develop natural gas assets in Canada.

“We are disappointed that the extremely challenging environment brought about by the prolonged depressed prices and shifts in the energy industry have led us to this decision,” Taib said.

Reuters reported that Petronas appeared to have shifted its focus to the US$27 billion (RM116 billion) Refinery and Petrochemical Integrated Development (RAPID) in Johor, that received a US$7 billion investment boost from Saudi oil giant Aramco in February.

Reuters quoted Subbu Bettadapura, senior director, Asia Pacific, Frost and Sullivan as saying that with the general election expected in the coming months, the state firm might have decided to give priority to domestic projects.

“They would want to make sure the economy grows here and they have a good report card before the elections. Petronas would not want to squander away its capital,” Bettadapura was quoted as saying.

However, he added that it was a good decision not to invest in the Canada project, which he said was expensive and risky.