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Australia’s Mega LNG Projects are in Serious Trouble
Australia’s Mega LNG Projects are in Serious Trouble
In the US, natural gas is dirt cheap. The price peaked in 2008 and has since collapsed. It remains below the cost of production, even today. Two natural gas drillers have recently buckled and declared bankruptcy.
In the international markets, natural gas is traded as Liquefied Natural Gas (LNG). There was a time, after Japan shut down its nuclear power plants in the wake of Fukushima, when prices, particularly for delivery in Japan and Korea, soared. And during this environment, a number of countries invested heavily into building LNG export terminals that convert natural gas into LNG.
In the US, this has been the story of Cheniere Energy, a company that has barely any sales. It’s mostly famous for always losing a lot of money and then raising even more money. It’s stock has soared from less than $2 a share in 2009 to over $80 a share late last year and earlier this year, giving it a ludicrous market capitalization of nearly $20 billion. And it has a breath-taking $18 billion in debt. But the dream is deflating, and it closed at $52.40 today.
It’s deflating because it’s a dream, and dreams always deflate sooner or later. And because prices in the rest of the world have collapsed as well.
And because in the US, current low prices are sending producers into bankruptcy. This works for a while, until it doesn’t. At some point – when the money runs out – they stop drilling. And they can’t restart until prices rise significantly. Rising gas prices in the US and dropping LNG prices in the international market crimps any possibilities for Cheniere’s math to work out.
Australia is in the same boat, but to an extent that dwarves US efforts. Here’s Mark Hansen in Australia to shed light on just how ugly the LNG debacle is getting down under.
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Global Demand Picture For Natural Gas Looks Increasingly Sour
Global Demand Picture For Natural Gas Looks Increasingly Sour
Bearish moods seemed to have permanently settled in energy markets. The first and most obvious victim of the nosediving oil prices has been natural gas.
Once seen invincible, liquefied natural gas (LNG) growth could now be racing to the edge of a cliff. Falling natural gas prices and fears about slowing demand in European and Asia all point to the return of a buyers’ market. Meanwhile, as crude prices fall, the oil-indexed European and Asian LNG contracts are plummeting in value, making upcoming LNG projects unsustainable. The pessimistic scenario seems to be reinforced by slumping demand in Asia, where the majority of new and existing LNG volumes were heading.
Last week Japan’s Kyushu Electric Power Company hooked its Sendai-1 nuclear power plant to the grid and expects to ramp up its generation to 95 percent in the following months. Other plants are soon to follow. Analysts predict that Japan could bring back to life 11.5 GW of nuclear generation capacity by 2017, cutting the natural gas demand by around 11 million tonnes of LNG, or 12 percent of the country’s gas imports.
Up until recently, Japan’s incredible demand for imported energy kept a floor beneath LNG prices. Japan imported a record 120 bcm of gas in 2014 or close to 36 percent of world’s total LNG exports. Not surprisingly JCC (Japanese Crude Cocktail) LNG oil-indexed prices remained above the $15/MMBtu mark for most of 2014.
However, the situation has changed dramatically since the winter of 2015. With Brent losing more than half of its value, gas prices in Asia have plummeted to around $8/MMBtu, or less than half of peak prices seen just a few years ago. The situation could get worse as Japan is expected to scale back imports, and China is seeing a fall in consumption signaled by this month’s decision by PetroChina to skip a planned LNG delivery and shift it for later during the winter season.
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LNG Project Would Affect ‘Grand Central Station’ for Salmon, Researchers Say
LNG Project Would Affect ‘Grand Central Station’ for Salmon, Researchers Say
Science letter asks gov, industry to acknowledge ‘full impacts’ of BC project.
The proposed Pacific Northwest LNG project and related pipelines located at the mouth of the Skeena River in northern British Columbia would affect more than 40 different salmon populations harvested in at least 10 First Nation territories, according to a letter published in Science.
That is twice the number of First Nations groups that industry proponents identified as needing to be consulted about the impacts of the project, add the researchers who signed the letter.
Pacific Northwest LNG is an international consortium led by Malaysia oil giant Petronas. If approved by an ongoing federal environment assessment, its $11-billion liquefied natural gas terminal would be built on Lelu Island near Prince Rupert.
The waters surrounding the proposed project are critical for the rearing of millions of wild B.C. salmon — an estuary that Allen Gottesfeld of the Skeena Fisheries Commission calls “the Grand Central Station for salmon.”
The letter, penned by fisheries biologists, First Nations leaders from throughout the Skeena River watershed, and Simon Fraser University professor Jonathan Moore, cites research that shows “industrialized estuaries depress salmon survival.”
Moore, an aquatic ecologist, explained that the purpose of the letter was to get the Canadian Environmental Assessment Agency (CEAA) to properly consider the new data on the importance of the estuary for one of the world’s great salmon watersheds.
“This little local spot supports all of these fish from all around,” said Moore. As a consequence, he said, the LNG terminal could “affect populations of salmon 10 kilometres away or 400 km away in the headwaters. What happens in the ‘Central Station’ affects the whole transportation system for salmon.”
In addition to presenting new biological data, the letter asks that government and industry acknowledge the full impacts of the project on salmon, the watershed, and aboriginal communities that depend on both.
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Enviro Assessment Review for Proposed $1.7-Billion LNG Plant Resumes
Enviro Assessment Review for Proposed $1.7-Billion LNG Plant Resumes
Woodfibre LNG approved to continue process after 40-day delay.
The B.C. government-led environmental assessment review for a proposed liquefied natural gas plant in Howe Sound has resumed.
The 180-day process was paused June 30, after the Squamish Nation issued a 25-point ultimatum to address concerns about potential air, land and water pollution and spills at Woodfibre LNG, the proposed $1.7-billion LNG plant and terminal at a former pulp and paper mill near Squamish.
Michelle Carr, assistant deputy minister of Environmental Assessment Operations, wrote Aug. 10 to Byng Giraud, Woodfibre LNG’s vice-president of corporate relations, to approve the restart of the process, which came to a halt with 12 days remaining.
“The time limit was suspended on day 168 of the 180-day review period in order to allow the proponent additional time to complete a review of Squamish Nation’s proposed conditions and to submit a report to [the government] that fulfills the Section 13 requirements with respect to Squamish Nation’s aboriginal interests,” Carr wrote, referring to the proponent’s required report on public and aboriginal consultation activities.
In a news release, Woodfibre LNG said it has accepted all the Squamish Nation’s conditions “and is committed to reaching a formal agreement.”
“At the same time, Woodfibre LNG Ltd. also has been working to fulfill the requirements of the provincial and federal environmental assessment processes,” said Giraud. “We believe we have now fulfilled these requirements and can restart the environmental review period.”
What an agreement between Woodfibre LNG and the Squamish Nation would look like is not immediately known. If all environmental concerns were resolved, the Squamish Nation’s 25th and final condition would be a revenue-sharing agreement.
On July 27, Squamish Nation Council decided to postpone a vote on the facility until “sometime this fall” because negotiations continue with Woodfibre LNG, FortisBC and the B.C. government.
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Is Natural Gas As Clean As We Think?
Is Natural Gas As Clean As We Think?
This week U.S. President Barack Obama took aim at the American coal industry as part of a comprehensive climate change plan to limit air emissions from what many consider the country’s worst polluter.
Under the plan, states will have until 2030 to cut CO2 levels by a third from what they were in 2005. Outside the United States, Europe is using less coal, the Canadian province of Ontario shut down its coal-fired power generation (albeit in favor of more expensive renewables), and the World Bank last week rejected the notion that coal can cure poverty.
Even coal-hungry China has banned coal-fired power plants in Beijing, finally cowing to health and environmental concerns in the smog-choked capital.
Having turned their backs on coal, many countries are looking to natural gas as an alternative power source. China is plunging headlong into building liquefied natural gas import terminals, and countries are lining up to export it, including Australia, Russia and the United States, which in 2014 approved its fourth LNG export terminal, Dominion Cove Point in Maryland.
Related: Global Oil Supply More Fragile Than You Think
British Columbia’s governing Liberal Party has staked its political future on developing LNG terminals to receive natural gas from the Canadian province’s northeast region, telling voters in the last election it would use revenues from LNG production to wipe out the provincial debt.
Part of the sales job was to characterize natural gas as a clean fuel whose use will actually help decrease global fossil fuel emissions, since nations that switch to it are typically moving from dirty coal-fired power to clean LNG.
But is natural gas really as pristine as its proponents claim?
Not according to a new report released by the Environmental Defense Fund (EDF) in June. The report estimated the amount of gas that is leaked, vented or flared from natural gas and oil production on U.S. federal and tribal lands. It found that 65 billion cubic feet was released in 2013 – the equivalent of the greenhouse gases produced by 5.6 million cars. In New Mexico, a methane “hot spot,” was detected by NASA satellites and in one drilling-heavy part of Wyoming a town measured air pollution readings that rivaled Los Angeles.
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Petronas’s Silence on BC LNG Act Sends Disquieting Signal
Petronas’s Silence on BC LNG Act Sends Disquieting Signal
Busy passing project terms, BC forgot to check on events abroad.
As the British Columbia legislature passed its “historic” Liquefied Natural Gas Project Agreements Act on July 21 after a lively eight-day debate, the most important player for which the special summer session of Parliament was convened kept an aloof — and worrying — silence.
Petronas, the Malaysian state energy firm with a 62 per cent stake in a consortium proposing to build a US$36-billion LNG project near Prince Rupert, did not offer a public thank you or congratulatory statement to the B.C. government of Premier Christy Clark for its efforts and hard-earned legislative victory.
The Pacific NorthWest LNG (PNW) consortium’s other shareholders, Sinopec (10 per cent), Indian Oil Corp (10 per cent), Japan Petroleum Exploration (10 per cent), China Huadian (five per cent) and PetroleumBrunei (three per cent), have been equally quiet.
It was left to PNW to issue a brief statement that the act — followed by the July 23 ratification of 25-year agreement terms covering royalty, income tax credits and carbon emissions — “brings us one step closer to building Canada’s first world-scale LNG facility.”
“The remaining condition of our final investment decision, environmental approval from the government of Canada, is being worked on diligently with First Nations, stakeholders and government representatives.”
Petronas’s silence is significant as B.C.’s elaborate undertaking to create, debate and pass the LNG act had been made in direct response to the company’s high-profile complaints and threats to call off the project if it did not receive legal certainty and the offer of generous investment terms. Petronas did not reply to a request for comment on B.C.’s new act.
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Will ‘Corner Office Syndrome’ Be The Downfall Of Canada’s Oilfield Services?
Will ‘Corner Office Syndrome’ Be The Downfall Of Canada’s Oilfield Services?
No sector of the economy should be considering the urge to merge more than Canada’s beleaguered oilfield services (OFS) business. The signals are powerful: overcapacity in virtually every product and service line; prices down to slimmest of margins; bankers are unhappy and getting twitchy; shareholders are morose and OFS operators have to do something because doing nothing is no longer an option.
The short- and medium-term outlook is not promising. Oil prices are going down, not up. The recent nuclear deal with Iran will continue to overhang well-supplied world crude markets into next year. Even if oil rose sharply tomorrow, Alberta would still suffer from heightened uncertainty until the royalty issue is clarified.
New oil sands projects are dead. LNG is paralyzed by price, cost and global market turmoil. E&P companies looking to drill are demanding the lowest prices possible. Bankers who have been patient for months cannot kick the forbearance letter can down the road forever.
Because of a collapse in business, along with oil prices, oilfield service managers have been cutting costs since late last year. Workers have been laid off by thetens of thousands. Capital spending and maintenance programs have been slashed or postponed. Discretionary expenditures like travel and entertainment have been cancelled. Pay cuts have been instituted. Dividends reduced or eliminated. Principal payments postponed where possible.
Related: Toxic Waste Sullies Solar’s Squeaky Clean Image
The last major expense not yet addressed in any meaningful way is a measurable reduction in administrative (non-revenue generating) costs per dollar of revenue. This is the CEO, COO, CFO, VP marketing, HR manager, safety officer and corporate head office. Reduced expenses for field service locations and product and service delivery. Increased purchasing power in other words.
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BC’s Gas Export Hopes Face ‘Scandal that Ate Malaysia’
BC’s Gas Export Hopes Face ‘Scandal that Ate Malaysia’
Asian nation’s PM, key to $36 billion LNG bid by Petronas, in corruption probe.
The prime minister of Malaysia, who is central to British Columbia’s liquefied natural gas development ambitions, is the subject of a major financial corruption scandal rocking his country.
Earlier this month The Wall Street Journal, citing documents from government probes, reported that investigators suspected that almost $700 million in cash had been wired through state agencies, banks, and companies linked to 1Malaysia Development Berhad (1MDB).
The company is a state-owned development vehicle chaired by Malaysian Prime Minister Najib Razak, who also serves as the country’s treasury minister.
Investigators believe the $700 million eventually found its way into Najib’s personal accounts and served as a slush fund for the last election. Malaysia has few rules on campaign donations or election spending.
Najib is the top authority overseeing Malaysia’s state-owned oil company Petronas, whose massive potential investment in B.C. liquefied natural gas (LNG) was greenlit by the provincial legislature earlier this month.
Now, The Australian and other news sources are saying reports of corruption have paralyzed the Malaysian government. “The scandal that ate Malaysia” is how U.S. business news agency Bloomberg is dubbing the financial brouhaha.
The debacle threatens to undermine the nation’s economy, according to an expert writing for East Asia Forum: “Malaysia’s international credibility is on the line, as is its currency, access to foreign capital and future economic prosperity.”
To date a task force investigating the 1MDB allegations has already frozen half a dozen bank accounts in Malaysia.
Petronas key to Clark’s LNG ambitions
In May of 2014, Premier Christy Clarksat for a photograph with Najib, central to any deal she sought with Petronas. The meeting was part of an eight-day trip to Malaysia and Hong Kong to promote LNG development after Clark made election campaign promises that LNG would create 100,000 jobs and erase the province’s debt.
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Nine LNG Questions for British Columbians to Ask Their Politicians
Nine LNG Questions for British Columbians to Ask Their Politicians
Pressing queries in light of high-stakes Petronas agreement just passed.
Pacific Northwest LNG, a consortium that includes Petronas and Chinese refining giant Sinopec, intends to build an export terminal on Lelu Island near Prince Rupert. The Lax Kw’alaams have opposed the project as a threat to salmon and the Skeena River.
The unprecedented agreement, which critics havecharacterized as a crass economic giveaway, guarantees Malaysia’s state-owned company low royalties and low taxes for LNG over a historic 25 years.
Martyn Brown, former chief of staff to B.C. premier Gordon Campbell and a top strategic advisor to three provincial party leaders, has described the agreement as “environmentally reckless, fiscally foolhardy and socially irresponsible.”
The deal effectively makes it difficult for future governments to set LNG-specific carbon taxes or to impose new environmental rules aimed at curbing greenhouse gas emissions. It locks in tax credits for 25 years. And it offers no job guarantees for British Columbians.
In addition to the terms of the agreement, politicians and citizens should now be asking nine critical questions about any LNG development in the province.
1. Have LNG projects become uneconomic?
Many LNG analysts now think the world is oversupplied with the product and that price volatility warrants project deferrals, especially for high-cost proposals in North America. Othersreckon that capital for major projects is rapidly drying up. Carbon Tracker, a non-profit group of financial analysts concerned about climate change, justreported that investors will likely mothball tens of billions of dollars in LNG investment because “there is a finite amount of fossil fuels that can be burnt over the next few decades if we are to prevent dangerous levels of climate change.”
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BC LNG Deal Lets Petronas off Hook for Two Kinds of Emissions
BC LNG Deal Lets Petronas off Hook for Two Kinds of Emissions
Carbon ‘free pass’ imperils BC’s climate targets, say critics.
The B.C. government plans to subsidize Malaysian gas giant Petronas to the tune of $16 million, in part due to a promise to exclude a significant chunk of the greenhouse gas emissions from the Pacific NorthWest LNG project from compliance penalties, DeSmog Canada has learned.
British Columbia’s politicians are in a special summer sitting at the legislature right now to debate Bill-30, the Liquefied Natural Gas Project Agreements Act, which will allow the government to enter into a $36-billion agreement with Petronas and pave the way for B.C.’s first major liquefied natural gas export plant, located near Prince Rupert.
Under the terms of the 140-page deal, the province would compensate Pacific NorthWest LNG if future governments raise income tax rates for LNG operations, add carbon taxes that specifically target the industry, or make changes to rules on greenhouse gas emissions. That could result in the provincepaying out $25 million a year or more.
While the compensation clause has commanded the lion’s share of attention, DeSmog Canada has learned that the B.C. government has quietly excluded two sources of Petronas’ carbon emissions from compliance standards, which will result in the province paying out millions of dollars in subsidies.
‘Under the radar’ change
In promising the world’s “cleanest” LNG facilities, Premier Christy Clark set benchmark requirements for the facilities’ carbon emissions. If a company fails to meet the benchmark, they must pay compliance penalties into a climate offset or green technology fund.
However, the province has also created an incentive program, which promises to pay a significant portion — between 50 and 100 per cent — of those compliance fees if companies come close to meeting the benchmark.
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Greenwash: Shell May Remove “Oil” From Name as it Moves to Tap Arctic, Gulf of Mexico
Shell Oil has announced it may take a page out of the BP “Beyond Petroleum” greenwashing book, rebranding itself as something other than an oil company for its United States-based unit.
Marvin Odum, director of Shell Oil’s upstream subsidiary companies in the Americas, told Bloomberg the name Shell Oil “is a little old-fashioned, I’d say, and at one point we’ll probably do something about that” during a luncheon interview with Bloomberg News co-founder Matt Winkler (beginning at 8:22) at the recently-completed Shell-sponsored Toronto Global Forum.
“Oil,” said Odum, could at some point in the near future be removed from the name.
Odum’s comments come as Shell has moved aggressively to drill for offshore oil in the Arctic and deep offshore in the Gulf of Mexico, while also maintaining a heavy footprint in Alberta’s tar sands oil patch.
Image Credit: Bloomberg News Screenshot
Shell also recently acquired BG (British Gas) Group, a company that owns numerous assets in the global liquefied natural gas (LNG) industry, transforming the company into what Forbes hailed as a “world LNG giant.”
Winkler quipped in Toronto that due to this major asset purchase, it might be more accurate to call Shell Oil, “Shell Gas.”
In October 2011, BG Group signed a major contract with the U.S.-based LNG giant Cheniere to ship its gas product obtained via hydraulic fracturing (“fracking”) to the global market. That LNG will begin to flow by the end of the year.
Just a week before Odum told Winkler that Shell may take “oil” out its company name, he appeared on Bloomberg News on the sidelines of the Aspen Ideas Festival to boast about his company’s big plans — plans to drill for oil in the deep offshore Gulf of Mexico Appomattox field. At Aspen, Odum called Appomattox a “world class oil and gas project.”
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BC LNG Lost Its Window of Opportunity, Study Finds
BC LNG Lost Its Window of Opportunity, Study Finds
Projects unlikely to be economic for another decade: Oxford Institute energy report.
The window of opportunity to capture Asian gas markets has eluded proposed liquefied natural gas projects in British Columbia, and as a consequence it is unlikely that any LNG projects will likely be commissioned or economic for another decade.
That’s the central conclusion of a new study on the prospects for natural gas extraction and export in Canada by the London-based Oxford Institute for Energy Studies released earlier this month. The institute operates as a non-profit charity that has looked at the economics and politics of energy since 1982.
Despite large volumes of shale gas and government hype over the industry, the study found that changing energy markets, global price volatility, increased competition, and LNG cost overruns have dramatically changed the demand picture for high-risk and capital intensive LNG projects around the world.
Even Asian demand for natural gas has softened significantly over the last year. Demand for imported gas in Japan is now “flat,” and in Korea it has “dampened,” the report says.
China’s thirst for natural gas has also slackened since 2010 due to pipeline expansions and the signing of long-term LNG contracts.
According to Cambridge Energy Associates, spot LNG imports into China dried up last summer, “and spot prices last winter, usually a peak demand season, were reported to be less than $7 per million BTU, from as high as $20 several years ago.”
(The BTU is a standard unit of energy which represents the amount of heat energy needed to raise the temperature of a pound of water by one degree Fahrenheit. It is equal to 1055 joules, another common energy measurement.)
Furthermore, LNG construction in the United States, Australia and other countries will be bringing more gas to global markets between 2015 and 2020, explains the Oxford Institute study.
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Who Is BC’s Big LNG Partner? A Petronas Primer
Who Is BC’s Big LNG Partner? A Petronas Primer
Group led by Malaysia’s national oil company aims to build terminal near Prince Rupert.
Just one week after the Lax Kw’alaams band rejected a $1-billion offer by Petronas to build a liquefied natural gas terminal at the mouth of the Skeena River in British Columbia, Premier Christy Clark has signed an agreement with Malaysia’s national oil company to “establish the path to a final investment decision on the project.”
Part of that path includes a long-term commitment by the provincial government not to raise natural gas royalties, regardless of changes in global prices for the commodity.
Natural gas, like oil, is one of the world’s most volatile commodities in price.
“With this certainty, industry can plan their operations over a longer period of time and commit capital to jobs and production needs, while the Province has a guaranteed royalty revenue each year,” said a government news release.
Pacific NorthWest LNG, which is largely owned by Petronas, has yet to make a final investment decision, and the proposed multibillion-dollar project near Prince Rupert must still pass an environmental review.
Just what kind of company is Petronas, and what’s its relationship to the Malaysian government? The Tyee looked at the public record.
1. The government of Malaysia set upthe national oil company in 1974 when oil prices jumped from $1.50 to $12. The government did so with the goal of safeguarding “the sovereign rights of Malaysia and the legitimate rights and interests of Malaysians in the ownership and development of petroleum resources.” The company’s success has helped the government to reach out to the Muslim world.
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Canadian LNG Export Future Delayed, But Not Dead Yet
Canadian LNG Export Future Delayed, But Not Dead Yet
As the Lax Kw’alaams community rejected a $1 billion offer from Pacific NorthWest LNG as compensation for a proposed natural gas project this week, the global energy community took notice. With the native tribe turning down such an enormous sum of money, the rejection could put a chill on Canada’s energy investment prospects. Worse, it also raised the possibility that Canada would be shut out of the vast Asian markets that it needs to offload the natural gas the United States no longer wants. But the reality is more nuanced than that.
Community engagement has become far more important for oil and gas projects, and in accordance with international best practices, indigenous communities should be involved in a process of free, prior, and informed consultation. Cases in Canada, and across the Western Hemisphere, have shown that agreement between governments, private firms, and indigenous communities is possible. And when done well, everyone stands to gain.
Pacific NorthWest LNG, which is owned by Malaysian national oil company Petronas plus Sinopec, JAPEX, Indian Oil Corporation, and Petroleum Brunei, has been negotiating with the Lax Kw’alaams band council since 2011. The major point of contention is over the impact of the project on local fisheries, in particular salmon. Both sides have commissioned environmental reviews that come to different conclusions. Pacific NorthWest has offered to build a bridge it argues will protect the area, but the community is dissatisfied with the solution. The Canadian Environmental Agency’s own review is due later this year.
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Petronas Hoping To Buy First Nations Tribes’ Support For $1 Billion
Petronas Hoping To Buy First Nations Tribes’ Support For $1 Billion
Petronas is willing to pony up nearly $1 billion to secure the support of First Nations tribes in western Canada for its natural gas export project. The Malaysian state-owned oil company is offering C$1.15 billion (USD$950 million) to the Lax Kw’alaams tribe in order to build an LNG export facility at the Prince Rupert port.
The offer would consist of annual payments over 40 years. For example, Petronas would pay over $12 million in the first year, with payments rising by 1 to 5 percent annually (depending on production), culminating in a $50 million payment in the 40th year. Also, tribe members would have a sort of preferred status for open jobs at the Petronas’ Pacific Northwest LNG facility. The offeramounts to about $320,000 per person. The Lax Kw’alaams tribe will vote on the offer in May.
Related: Is This The Top For Oil Prices For Now?
The tribes argue the price is hardly exorbitant. When one considers it will be spread over 40 years and the project will result in large land use impacts on local communities, the $1 billion is a fair price. “This will be a real game-changer for many First Nations in terms of how they can build their future,” John Rustad, the Aboriginal Relations and Reconciliation Minister in British Columbia, told the Globe and Mail in an interview on April 30.
Interestingly, it could create a new benchmark for major fossil fuel projects on indigenous lands. For other projects to move forward, affected tribes could use the pending offer for the Lax Kw’alaams as leverage.
The big offer from Petronas is somewhat of an afterthought for the C$36 billion proposal. That steep price tag has forced a rethink within the Malaysian company. In December 2014, Petronas decided to put off a final investment decision, hesitating to commit that much money to an LNG export project during a period in which LNG markets are not doing so well.
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