Straight writer foreshadowed trouble Petronas would have financing B.C. LNG project
Today, Vancouver morning radio newscasts were dominated by what sounded like a significant business story.
The CEO of Malaysian state-owned energy giant Petronas, Shamsul Abbas, poured cold water on a $10-billion liquefied-natural-gas project and pipeline proposed for northwestern B.C.
“The way things are developing the project remains uncertain and I doubt we will be able to make a positive [final investment decision] by year-end,” Shamsul Abbas told the Financial Times.
He also told the Financial Times that his company is prepared to "call off" the project because of a new LNG tax and insufficient incentives to proceed.
Petronas reportedly owns 62 percent of the project in partnership with state-owned companies in India and China, as well as the Canadian subsidiary of Japan Petroleum Corporation.
The story appeared not long after the Wall Street Journal's Eric Yep blogged that Asian countries are trying to enable Singapore to become the leading centre for setting prices for LNG.
"The main grievance among Asian LNG buyers has been that most gas supply contracts in the region are benchmarked against oil, resulting in significantly higher prices," Yep wrote. "However, this pricing model is starting to erode, in line with natural-gas markets in the U.S. and Europe."
This year, LNG prices in Asia have been quite volatile, creating difficulty for companies considering investment decisions in this capital-intensive industry.
But what hasn't received nearly as much attention in the Canadian media is the state of Petronas's finances.
Last year, Vancouver energy writer Ng Weng Hoong wrote a long article in the Georgia Straight outlining some concerns after Petronas took over Canadian-based Progress Energy. Malaysian prime minister Najib Razak has announced that Petronas will invest $36 billion in our country.
"To realize the full potential of Progress Energy’s assets, Petronas, which provides 45 percent of the Malaysian government’s revenue, will have to make long-term massive investments in Canada that will stretch both its financial and managerial resources," Ng wrote.
He also pointed out that Petronas's plans meant that a significant portion of its planned capital investments from 2012 to 2017 would be made in Canada.
"Clearly, this would carry too much risk for a company that reported a profit of just 59 billion ringgit ($18.6 billion) last year and whose cash flow is under increasing pressure from rising costs, declining oil exports, and weak commodity prices," Ng noted. "The $36-billion sum is equal to about 12 percent of Malaysia’s GDP of $305 billion for 2012."
Today, the big story is that Petronas may not proceed with its multibillion-dollar investment in B.C.
That shouldn't come as a huge surprise to anyone who read Ng's article in the Straight in November 2013.
Comments
6 Comments
Xavier
Sep 25, 2014 at 11:59am
Would you praise a queer reporter above the fold in the same way? I've never seen it
wanda-lee
Sep 25, 2014 at 12:16pm
"..... too much risk for a company that reported a profit of just 59 billion ringgit ($18.6 billion) last year". Just? $18.6 Billion, in profit. Just!
I'm confused. How much did they anticipate making if $18.6 billion is a "just"?
Sounds like someone's angling for a better deal from Clark. Threatening to yank away billions in revenue right before an election and after wasting hundreds of millions on a totally avoidable teachers strike must have her scrambling.
sceptic
Sep 25, 2014 at 3:06pm
looks like petronas took the corporate welfare 101 course. first you make a bunch of bs promises then you get the politicians to repeat them and add a bunch of their own. then you threaten to kill the project until you extort a ridiculous amount of the taxpayer's money in order for the project to proceed.final result, huge government shortfall gets transferred into debt for the grandkids.
OMG
Sep 26, 2014 at 8:58am
Every media analyst is saying the same thing as Clark, that Petronas are negotiating for a better deal. I'm sure they will get at least one of the major companies to buy in, but we'll probably make little profit off of it. However, creating a ton of jobs (temporary) always looks good before an election, so expect BC to bend over backwards to make a deal.
let them eat...
Sep 26, 2014 at 11:10pm
Anyone who has been following the global moves in LNG investment in the past 12 months could see that BC is moving further to the margins. Clark's election blather worked. The gap between fact and blather won't cost them a minute's worry. Voters of BC, you rock.
A. M. Haaretz
Oct 6, 2014 at 2:53pm
Hey! Does anyone remember what James Garner sued that motion picture giant, Universal Studios, for? Garner was supposed to receive a *Percentage of the Net Revenue* for his series. There never was any *Net Revenue* owing to Universal's "creative accounting."
So HOWCOME Christy Clark and Rich Coleman are proposing Petronas pay B.C> (thee and me) "1 1/2% of the Net Revenues UNTIL the (LNG Plant) building costs are paid for, and 7% of the Gross Revenues after that"?
Did anybody negotiating for B.C. take Financial Accounting 101?
We're giving up a NON-RENEWABLE Resource (not like fish or forests, which will grow back after harvesting); we're giving up our waters ("fracking" may destroy acquifers until the End-of-History); we're putting our wilderness and our waterways and our shores at risk. AND if you've figured out the "1 1/2% of the Net Revenues until Building Costs are paid off", you'll see that WE are paying for the LNG Plant(s)!!!
Petronas sells B.C. LNG and uses that money to pay for the Plants, until they are paid off! That's money they get for selling OUR Non-Renewable Resource that they apply to their building costs. If you are following this smoke-and-mirrors process, WE are paying for the LNG Plant(s).
And (if there's any money left for us--it will be their creative accountants doing the accounting), we will get 1 1/2% of the Net Revenues, till Petronas pays for its plants selling our LNG. THEN we will get a percentage of the GROSS REVENUES.
IT SHOULD ALWAYS BE A PERCENTAGE OF THE GROSS REVENUES!
Do shopping centers rent space to businesses that pay their rent from "Net Profits"? (Huh?) Does Jimmy Pattison sell fleets of cars to companies that pay for them "out of Net Revenues"? (Huh?) Does CKNW sell advertising to companies that pay for their ads "out of Net Revenues"? (Huh?)
Christy Clark and Rich Coleman seem to be a couple of bumpkins (Christy DID study Religion and Politics at the University of Edinburgh, and she was a Talk Show Host at CKNW--are those qualifications for dealing with Financial Giants and Financial Wizards like Petronas, et al?) giving away our NON RENEWABLE RESOURCES to see Jobs Happen (oh, there'll be jobs alright--like, I'll pay for your factory if you'll hire my kids).
No wonder Shamul Abbas at Petronas is applying pressure--he just needs to keep the bumpkins dizzy with worry, till they sign.