News of delays to the Pacific NorthWest LNG Project have some Canadians concerned about Competitiveness

Malaysian oil giant Petronas announced earlier this week that it will delay its decision about proceeding with its Pacific NorthWest LNG terminal, saying that estimated construction costs were too high, especially as the company has to find even stronger justification for new projects as oil prices continue to fall, reports BNN.

The Petronas-led Pacific NorthWest LNG terminal proposed for Lelu Island is currently budgeted to cost $11.4 billion, representing just part of a $36 billion project to ship LNG form the West Coast to energy markets in Asia.

An estimated $8 billion of the $11.4 billion construction for the terminal is for imported goods and services spread over a five year period, reports The Globe and Mail.  Petronas hopes to find the most savings by lowering costs in that portion of the project, but is also exploring other options, such as having TransCanada Corp. (ticker: TRP) re-examine ways to increase the efficiency its proposed $5 billion natural gas pipeline project from northeast B.C. to Lelu Island.

Engineering firms bidding on the construction rights are expected to revise their plans with a greater emphasis on “high-value engineering” offices overseas, where the cost of supplies and labor is lower. The firms will have to press oversea connections in order to get the best prices for raw materials and make their plans as economical as possible.

Subcontractors will be asked to review their costs for their plans as well, including a work camp in Port Edward and a suspension bridge designed to avoid harming the salmon habitat in the area.

Many think that Petronas might be using the delay as a tactic to lower the cost of the project, but many in Canada are worried that the window of opportunity for the project may be closing. Michael Culbert, the president of Pacific NorthWest LNG, said in an interview, “We have LNG cargoes that are committed for early 2019 and it is important to keep them on track. Canada has to be competitive with the U.S.”

U.S. LNG Begins to Pull Ahead

“We’ve got real competition that is coming out of the Gulf Coast projects,” Culbert said by phone to BNN. NorthWest LNG’s president estimated that U.S. suppliers can deliver LNG to Asia for $1 to $2 less per MMBtu than Canadian projects.

Backers of LNG projects in British Columbia face higher costs than Gulf Coast proponents because of the pipelines required across two Canadian mountain ranges, the lack of existing infrastructure on the Pacific Coast and negotiations with aboriginals.

Although Canadian LNG projects received export approvals to line up buyers before their U.S. counterparts, LNG projects in the U.S. are beginning to pass those in Canada as many companies decide to hold off construction.

In addition to Petronas, BG Group (ticker: BG) has also decided to push back a decision on its plans in Canada as oil trades close to five-year lows. BG cited competition from U.S. supplies when it deferred its decision.

Octavio Simoes, president of Sempra Energy (ticker: SRE), a Gulf Coast LNG company, says that Canadian LNG has already missed the boat. Due to the complexity of the project, Petronas will not be able to start operating before the end of the decade, according to Simoes. “The window of opportunity is missed,” Simoes said.

Culbert still hopes to be able to avoid delays, despite the recent setback. Petronas and its partners are moving “aggressively” on a decision next year for Pacific NorthWest LNG, which requires four years of construction, he said.

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