Malaysia’s Petroliam Nasional Bhd. is seeking to move ahead with a proposed $27 billion liquefied natural gas project in western Canada after identifying a new site for shipping the fuel, a shift that may help reduce costs and quell local opposition.

Petronas’s Pacific NorthWest LNG project would continue as planned with the liquefaction plant on Lelu Island in British Columbia. The company would move the docking facilities to neighboring Ridley Island, where ships would berth to take deliveries of the fuel for export, according to two people familiar with the negotiations.

Such a re-design would eliminate the need for a costly suspension bridge that was part of the original plan and also circumvent an environmentally sensitive marine area that’s been a flash point of controversy.

Petronas and its partners -- China Petrochemical Corp., Japan Petroleum Exploration Co., Indian Oil Corp. and Brunei National Petroleum Co. -- are expected to decide whether or not to proceed with the project in early 2017. The facility would produce as much as 19.2 million metric tons a year of LNG and open up a new trade route for Canadian gas to be shipped to Asia.

“Pacific NorthWest LNG is conducting a total project review over the coming months," spokesman Spencer Sproule said in an e-mail. “During this time, the project is continuing to work with area First Nations, stakeholders and regulators to manage any potential impacts through mitigation measures and design optimization."

Construction Schedule

It’s unclear how changing the design might impact the construction timeline -- the Kuala Lumpur-based company is in talks with the government and stakeholders to see if the modification could be carried out without sparking fresh regulatory delays, according to the people. Construction of the facility and shipping terminal, which is estimated to cost $11 billion, is the final step in the $27 billion project that also included Petronas’s 2012 acquisition of Progress Energy Canada Ltd.

Canada’s Environmental Assessment Agency hasn’t received any information yet about potential changes, the agency said in an e-mail. “If ‎we receive any new information from Petronas, we will review it and determine the appropriate next steps, including any potential environmental assessment requirements," it said.

The project won Canadian government approval in September following more than three years of regulatory review. In that time, the global LNG market tanked with spot prices for the fuel falling by more than two-thirds amid a supply glut.

Flora Bank

Canada Prime Minister Justin Trudeau won power in 2015 with pledges to balance heightened environmental standards and economic growth for the oil and gas exporting country. Trudeau has introduced a carbon price and a ban on crude oil tankers along the northwest coast where the Petronas gas facility is proposed. He also approved two new crude pipelines last month.

Petronas is reassessing the project’s costs before it goes to the partners to make a final investment decision, a process it expects to complete by about April, Rich Coleman, British Columbia’s minister of natural gas development, said in a Nov. 15 interview. It would be the first major onshore LNG project to be built from scratch since 2013, according to Wood Mackenzie Ltd.

Petronas chose a highly contentious site for its proposed terminal near an ecologically sensitive islet called Flora Bank -- a breeding ground for salmon and considered sacred by local indigenous groups, who have joined with environmental activists to block the project.

‘Concern’ Remains

Moving the shipping facility would only partially address concerns about project, said Greg Knox, executive director of the SkeenaWild Conservation Trust, one of a number of groups that filed a legal challenge against the government’s approval of the project.

"The ideal situation is if they move from Lelu Island altogether," Knox said, although the redesign "would significantly reduce concerns over the potential collapse of the Flora Bank."

Petronas has still not formally proposed anything to the indigenous communities who jointly submitted their request for judicial review with Knox’s group in October, he said.

"It seems as though they’re leaving some key aboriginal groups out of these discussions again," he said. "We will wait until we see Petronas come out publicly, or contact us personally, to assess how serious they are about altering their design or moving sites."

Save Costs

The company modified the project in 2014 to minimize the impact on Flora Bank by agreeing to build a 1.6-kilometer (1 mile) long suspension bridge linking the LNG plant to marine berths further out at sea.

The new proposal would save as much as $1 billion by eliminating the need for that suspension bridge, according to one of the people. Instead, the LNG could be transported by pipeline across a less contentious route to Ridley Island to be shipped from there, according to both people.

Petronas has identified an available spot on Ridley Island that was formerly held by Canpotex Ltd., according to both people. Canpotex relinquished its lease for a potash export terminal on Ridley earlier this year, according to the Prince Rupert Port Authority, which oversees the area.

Source:
courtesy of BLOOMBERG

by Natalie Obiko Pearson and Josh Wingrove

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