Petronas threatens to pull their BC LNG project – Why?

Petronas made headlines today with their announcement that they may pull out of their LNG facility. They stated frustrations with delays in the regulatory process and a “lack of financial incentives.” See story: http://www.cbc.ca/news/business/petronas-may-pull-out-of-b-c-lng-project-reports-suggest-1.2777535 

What motivation was behind this announcement and what does it really mean?

Petronas needed to go public on these issues. Settling the fiscal regime is a very high stakes poker game between the developers of the projects and the government.

The developers want to meet certain required returns on their capital and the government wants to extract as much tax revenue as possible for a legacy fund. Discussions have been dragging on and on.

Originally the government was supposed to announce the tax regime last November or “absolutely by December” at the latest.

By going public Petronas is cranking up the pressure on the government. Most people believe the BC government will get the fiscal regime right, however, in the eyes of Petronas and others like them there is a chance the BC Government will get it wrong. This would lead to project deferrals until the government realizes that developers are not kidding about required returns on their capital, other alternatives to BC LNG, and amends their mistake.

The government needed to be reminded that these projects have VERY long planning horizons and they are willing to wait out governments. Exxon once said, “Governments come and go, but we are here to stay.”

Today’s announcement by Petronas may be just the reminder the government needed heading into the legislature in October.

Chris Biasutti is the Managing Partner of Bluewater Investments and the Director of Sales and Marketing for Western Canadian Properties Group. Chris is an expert on high-growth resource based markets, particularly the Northeast BC Real Estate Investment market. Chris and his team have assisted over 200 clients acquire over $40 million worth of investment property in Northeast BC over the last two years. Reach him at: chris@westerncanadianproperties.com