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 offer amounts 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. Related: Shell’s Arctic Ambitions Held Up In Seattle
LNG prices in Asia have fallen by more than half over the past year. With spot prices in Asia still largely tied to the price of oil, the collapse in oil prices have brought down LNG prices as well. Moreover, there is a massive wave of new LNG export capacity coming online over the next three years. Petronas’ Pacific Northwest LNG project would be a greenfield facility, with the high costs that come with building an export terminal from scratch.
Other projects around the world that have a leg up on Petronas are projects at existing facilities, which are merely undergoing an expansion, or are currently import terminals that are getting turned around. In that context, Pacific Northwest LNG appears to be less competitive. Instead, places such as the Gulf of Mexico, Australia, or Qatar, are better positioned than a greenfield project in western Canada. Related: A Potentially Massive Win For Fracking In Texas
At the same time, the oil and gas industry just received a shock from the oil province of Alberta. Voters delivered a historic result, sweeping out the Progressive Conservative party after several decades of rule. In comes a much more leftist government that is open to the idea of new taxes on oil and gas. The incoming NDP party, led by Rachel Notley, will drop the explicit support for oil and gas pipelines, including Keystone XL. It also means that companies building the necessary pipeline infrastructure that must be constructed to move gas from Alberta to the Pacific coast just lost an ally in Calgary.
Still, Petronas is getting its affairs in order should it decide to pull the trigger. But recent court cases have elevated the land title rights of First Nations tribes in Canada, making their support for Pacific Northwest LNG a prerequisite.
By Nick Cunningham of Oilprice.com
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