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Robert M Cutler

Robert M Cutler

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Canada to get Biggest-Ever Foreign Direct Investment in Energy from Malaysia

As U.S. President Barack Obama turned his airplane back home away from the Asia-Pacific Economic Cooperation (APEC) summit in Bali, Asian countries continued to express their material interest in importing energy from Canada, which has been long exclusively dependent upon exports to the American market.

Stopping in Kuala Lumpur ahead of the APEC summit, Canada's Prime Minister Stephen Harper greeted the announcement by his Malaysian counterpart Najib Razak that the state-owned enterprise Petroliam Nasional Berhad (Petronas) plans to spend US$36 billion to develop shale gas assets in Canada and build a liquefied natural gas (LNG) export terminal for their export to Asia.

Newspapers quoted Najib as saying that the project would make his country Canada's largest foreign investor. The total investment would be spread out over a 30-year period. A spokesman for Harper's government announced that since the new investment represents expansion of activities by a company incorporated in Canada, rather than a purchase of an existing company by a foreign entity, it is unlikely to be subject to foreign-investment regulatory review.

Related article: Malaysian National Energy Company to Invest $35 Billion in Canadian LNG

Last year, Petronas acquired the Canadian company Progress Energy Resources for $5 billion. Observers had been expecting Petronas to increase its investment in Canadian resource extraction, but only by about half of the sum announced. Petronas had already announced plans to build two LNG trains (refrigeration plants for liquefaction) on Canada's Pacific Coast within the next six years at a cost of $20 billion, including a TransCananda Corp pipeline.

The figure of $36 billion was a significant surprise to most observers. A Petronas spokesman said that a final investment decision on the entire project is foreseen by the end of next year. The Malaysian company is to be expected to sell parts of its stake in the project to end-consumers of the LNG. It has already concluded one such agreement with Japan Petroleum Exploration Co Ltd (JAPEX).

Japan desperately needs to plan for increased LNG imports in the wake of the 2011 Fukushima meltdown and other reactor shutdowns. The country's LNG imports increased 11% in 2012 over 2011 and represent about one-quarter of Japan's primary energy supply.

Related article: Texas Set to Become One of the World’s Largest Oil Producers by 2020

This will make price an issue. LNG has long been linked to the price of oil, because there has been no real world market for natural gas as there is for petroleum. However, with increased production and consumption, larger tankers and new technologies, this is becoming less the case.

Nevertheless, there remains significant variation in LNG prices among the North American, European, and Asian markets.

Many Asian importers are trying to sever the pricing mechanism from oil, but world exporters have been resistant. Such disagreements have the potential to delay a final investment decision. Petronas's strategy of bringing end-consumers into the project as equity stake-holders is designed to mollify or eliminate such difficulties.

By. Robert M. Cutler


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