The Petronas LNG project might be about to end – and then, maybe not! It has been reported that Petroliam Nasional Bhd, the Malaysian state oil company, might shortly sell its majority shareholding in a Canadian LNG (liquefied natural gas) plant. The plant is valued at $27 billion. The company is best known to most people as Petronas
Petronas denied on Saturday that a decision had been made. It stated that the company was considering options for the LNG project. The group’s profits have been significantly reduced since mid-2014 when the industry was hit by the fall in crude oil prices of over 50%. This resulted in job losses and reduced capital expenditure.
The Canadian plant took three years to get approved by the Canadian government. The delay was due to environmental concerns. Due to LNG prices falling by over 70% over the past two years, the economics of the project are being investigated by Petronas and its project partners. The company insists that no decision has yet been taken on its future.
Options available, other than simply carrying on with the Petronas LNG project, are to sell it or simply put it on ice for a while. The latter option would be costly. This is the largest foreign investment Petronas has made. Leaving it would be a hard call, and would highlight this state-run company’s financial constraints.
The C$36 billion project ($27.34) was finally approved by the Canadian government early last week. The Canadian authorities had listed 190 conditions that must be followed. Petronas is reviewing these before making a decision.
The sources of the report stated that among the factors that Petronas will be considering are gas prices, costs and returns. In other words, the profitability of the project in the current economic climate where crude oil and LPG prices are low. In other words, The Petronas LNG project might no longer be profitable enough to continue.
August’s second quarter profit for Petronas was 85% down. This was highlighted by the 16 billion Malaysian ringgit it has committed to the government this year. This is almost 40% down on its contribution last year.
If Petronas decides to sell its stake, it may find it difficult to find a buyer. Any buyer would face the same issues as Petronas has in the current economic climate with depressed oil and LPG prices. There are also the environmental issues associated with oil and gas exploration in northern Canada. Only Petronas knows the likely decision. The future of the Petronas LNG project is in doubt – that is now very evident.
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