CALGARY – Petronas and its would-be Canadian takeover target Progress Energy Resources are pressing ahead with plans to ship liquefied natural gas from the West Coast, although the size of the project will depend on Ottawa.
The Pacific Northwest LNG project is in an early stage as the the fate of the $6-billion acquisition of Progress (TSX:PRQ) by Malaysia’s state-owned energy company remains in limbo while the federal government decides its fate.
Industry Minister Christian Paradis, who has the job of deciding whether the foreign takeover is of net benefit to Canada, rejected the deal in October, but left the door open to the companies to re-file their proposal.
Petronas and Canadian companies announced Tuesday they have completed a feasibility study into the LNG facility on Lelu Island near Prince Rupert, B.C., and work is now underway to determine timelines, costs and labour requirements.
As it stands now, the project will include two trains — or plants to chill natural gas from northeastern B.C. into a liquid state — with 3.8 million tonnes capacity each per year.
If the acquisition wins federal approval, throughput at the facility is expected to increase by about 60 per cent to six million tonnes annually.
The LNG plant is part of a partnership the two companies announced in mid-2011 to jointly develop Progress’ natural gas lands in northeastern B.C. The two firms agreed on a takeover about a year later.
Only 20 per cent of Progress’ land in the North Montney shale formation is covered in the joint-venture agreement, but an all-out takeover would provide full access to all that gas, Progress CEO Michael Culbert said in an interview.
“You can imagine that the economies of scale of having a larger project actually improve the per-unit costs of increasing the size of that, which ultimately makes us more competitive,” Culbert said Tuesday.
If the project proceeds, the estimated investment is expected to be $9 billion to $11 billion — 80 per cent of which would be covered by Petronas under the current joint venture.
If the takeover deal gets done and the project winds up being larger, upfront costs will go up accordingly.
The companies aim to file for regulatory approval in early 2013. Culbert said they do not necessarily need to have the takeover deal sewn up by then, though he expects there will be an Industry Canada decision by year-end.
“We’ll be moving forward with the project description, which initiates the environmental assessment process and within that, we’ll have the ability to adjust as we move forward,” Culbert said.
Progress shares fell 13 cents to $20.25 in afternoon trading on the Toronto Stock Exchange.