Copyright of the Daily Oil Bulletin 2018
PETRONAS Committed To LNG Long Game In Canada: CEO
Kuala Lumpur, Malaysia — Petroliam Nasional Berhad (PETRONAS) is the largest holder of contiguous, natural-gas-rich North Montney land in British Columbia. In turn, Canadian assets hold the second-largest spot in PETRONAS’s portfolio, second only to Malaysia, the state-owned oil and gas company’s home.
Last year, PETRONAS cancelled its Pacific NorthWest LNG project tentatively slated for northwestern B.C., citing changing market conditions. Despite that outcome, Anuar Taib, executive vice-president and CEO of upstream at PETRONAS, says the multinational is committed to being in Canada for a “very, very long time.” Where PETRONAS once used to avoid the West, he says the company is squarely looking at the Americas for growth, with a 300-to-400-person team at Calgary-based subsidiary Progress Energy Canada Ltd. serving as the company’s global hub for unconventional resources.
Taib spoke to Business in Vancouver reporter Hayley Woodin from the 78th floor of PETRONAS Tower 1 in Kuala Lumpur. The following is a condensed conversation that covers the demand PETRONAS sees in Asia for natural gas and how the company would like to meet it with resources from its world-class North Montney asset.
Q: Looking at the natural gas industry, where do you see the greatest challenges? Where are things heading from a macro point of view?
A: We see energy in transition. Because of population growth, because of GDP growth, people moving from rural into urban areas, demand for energy will grow.
In our estimation, by about 2040 or so, the population will go up to about nine billion. So demand for energy will continue, and today up until then, we see a significant inroad being made by renewables, but it is not enough. What we see is gas — natural gas will continue to grow as well.
As of today, we see natural gas as the energy source that is reliable. I think it is also one of the most affordable ones if you look at the options. For us in PETRONAS, we see no competition. First we need oil. Secondly, we see there will be future growth for renewables. We are part of it too, but we also see a significant demand in gas. Gas will grow, especially now driven by the climate agreements that people have made.
The challenge with gas is that the demand centres for gas are not endowed with indigenous gas, so you will see a lot of trans-nation trade to allow for demand to be fulfilled by supply.
In this part of the world, at least in our industry, we see it as an opportunity. That’s why we invested in Canada. We are not here to buy, make a little bit of money, sell. We’re here to really develop the resource in Canada. We like the resource in Canada. We see it as an opportunity for Canada, especially with our resource, together with many other players, to show leadership, for Canada to show leadership to the world to help in this climate change agenda. Countries like India and China, Pakistan, Bangladesh, they all want to have better quality, and they want to help in the climate change agenda.
But they don’t have gas, and renewables in many of them are still quite expensive. It will take time. So for us, this is an opportunity for Canada to help the world with the climate change agenda.
Q: What are your challenges ahead, specifically with your holdings, and in meeting the demand you see in the years ahead?
A: I think in the short term, it’s: how do we bring gas, which is prolific in the North Montney Joint Venture area, down to the market?
That’s why we’ve become the foundation shippers with 11 others for TransCanada [Corporation] under the Nova Gas Transmission Line to file a new extension so that we can bring 1.5 bcf a day. Then afterward, we’ll see what we can do from there.
The potential is huge. We are now, I think, the third-largest LNG [liquefied natural gas] supplier in the world based on the production that we have in Bintulu [Malaysia] and Australia. There is a lot of things that we could do with gas. And we’ve been in the gas business since 1983.
Q: How do your experiences in Canada compare with your work in Australia or other countries?
A: I think each country has its own challenges, and each country has its own opportunities. I think we had a good plan with Pacific NorthWest LNG [PNW LNG]. The market just changed completely so because of that we had to cancel the project. But we’re not stopping. We continue to look for different opportunities.
We have spent a significant amount: one is to purchase Progress; second, for us to proof the reserves. I think today we know that we have [proved] resources up to 22 trillion cubic feet, and we only produce 600 million standard cubic feet per day. And if I were to look at the whole gross volume that we have, we think we could have all the way up to around 52 trillion cubic feet.
We see it as a long-term position for us. We want to make sure that we can monetize it, but monetize it not through shorter-term actions. We want to really look at: can we couple it with LNG production? can we couple it with supply to petrochemical projects —maybe ours, maybe others’ — can we couple it with other people’s demand?
Q: What’s the strength and nature of your partnerships in Canada?
A: The partnership that we have in North Montney Joint Venture, what I like about it is they challenge us in terms of making us more efficient.
I’m hopeful that one of these days we’ll continue and be able to go and mature some of the LNG opportunities. They could actually bring to Canada a list of foreign trade partners. When we did our Pacific NorthWest, we were thinkingSinopec [China Petroleum & Chemical Corp.] will be bringing their volume back to China, IOC [Indian Oil Corp. Ltd.] will be bringing back to India, Japex [Japan Petroleum Exploration Co. Ltd.] would bring some of the volume to Japan. That’s an addition of trade between Canada and those countries.
The past few years we have been learning a lot from Canada. We have had very good support from the previous B.C. government, the current B.C. government, the federal government.
Q: Is the door permanently closed to the PNW LNG project?
A: We have stopped the project, but then again, we continue to look for opportunities. So we leave it at that.
Q: What could the B.C. government’s new proposed LNG incentives around the LNG Canada project potentially bring to LNG production and facilitation in the province?
A: It’s still very new. We are aware of the incentives that [were] provided. We’re still studying it; we see it in a positive light, but again, these are the kind of things that you always review, and find what opportunities can be maturing with the information that we have.
I’m really grateful with all those positive steps that are being made by the government in Canada.
Q: How do Canadian pipeline and resource politics factor into PETRONAS’s decisions, and how much attention is paid to what is happening on the ground?
A: We always start with the resource. We see what kind of resource that we have, the kind of projects that we have. And we have to work with many governments. In the upstream alone, we have positions in 23 countries. Even in Malaysia, we work with the same government, but many leaders, and this is part and parcel of it.
We put a lot of attention into it. We have our CEO and president of Progress Energy Mark Fitzgerald. He’s doing his work making sure that we’re connected with and continue to work with the government. One of these days hopefully we’ll have a breakthrough. But in the short term, we do look forward to the application for the North Montney line extension to be approved by the NEB [National Energy Board] so that we can grow the production from the North Montney Joint Venture area.
Q: Is Chevron’s potential sale of its Kitimat LNG stake an opportunity that PETRONAS might review?
A: We look at every opportunity that is available. Too early to say anything or to give any views on any of those. We will update our position as we have a more firm position.
Q: From your perspective, what does it take to successfully bring resources to market in a way that meets the needs of all stakeholders?
A: It has to be competitive, first of all. What we’ve learned about this market is that it has to be competitive enough that it is affordable to the customers in China, Japan and Korea, and India.
No. 2, we’ve got to go and work with all the stakeholders — government, First Nations, contractors, suppliers, partners — to make sure that we have a competitive project that has a lot of certainty. Because sometimes, what we want, what we’re looking for, is certainty of schedule, certainty of cost, so that we can be able to go and assure ourselves that the project that we started could have a positive outcome.
The plant alone the size of PNW, that’s $14 billion to $15 billion, and the pipeline, you know … all of those take quite a significant investment over maybe five years or so. But now you have to regroup, so that’s why you really have to be assured about your competitiveness.
I think we’re making headway. I think a lot of rework, a lot of rethinking has been done. I remain in my positive outlook. If I were to make a comparison, it took a long while as well for our plant in Bintulu to start. Gas was started in the ’70s; it’s only 1983 we have the first drop of LNG being exported to Japan. How it started was it required a lot of support and understanding from the market, which was Japan at the time, and also in Malaysia to invest in LNG.
Q: What allows a company like PETRONAS to have that security? What needs to be in place?
A: For us, it’s the same for any of our projects. We have fiscal terms, we have fiscal regimes that are clear, regulatory processes that are consistent and predictable, and, of course afterward, it’s figuring out the normal project development perspective.
We also learned that we have to do a lot more in terms of engaging with the community that we want to work with. We talk about X billion of investment. To some communities, it is not important. It’s about how my grandchildren will live, what kind of life will they have. Can they retain their traditional way of life? As we go along, we have to balance that.
Q: What is your long-term vision for your work in Canada?
A: From our perspective, Canada remains important. It is the second-largest resource holder in our books, other than Malaysia, so that’s how important it is. We see ourselves there for many, many years investing, and that’s why it’s important for us to put connectivity to the main grid through the North Montney extension line. We want to build the ability to bring gas from the North Montney into the main market.
Thinking about long term, there will be further development. Our ambition to have an integrated gas supply, LNG, or gas supply to petrochemical will remain. Where we end up, when we end up with, I think it’s something that we’re working on. But at the end of the day, we really intend to make Canada one of our heartlands. We have Malaysia, of course; we have South Sudan as a heartland. We are looking for a few more to build upon, and Canada has all the attributes to be able to be that.
We will see bumps. If it’s smooth, we are not in this business. So we will see road bumps here and there, but in the end if we stay long enough and work with maturing opportunities, I kind of look forward to five or 10 years down the road when we look back and say, ‘Ah, that was a really good decision that we had. And I’m really glad that we took some of those [opportunities] and that Canada will be part of the growth story of PETRONAS.’”