Asian investors lose trust in Canadian gas projects after aboriginal snub

By REBECCA PENTY
Bloomberg

Asian investors are losing confidence in Canada’s ability to send oil and natural gas across the Pacific as another major export project gets bogged down in aboriginal opposition.

A West Coast aboriginal community rejected almost $1 billion in compensation from Malaysia’s Petronas on Wednesday, imperiling the future of one of Canada’s most advanced gas export ventures. It’s the latest setback blocking Asian access to Canadian energy as pipelines and terminals needed to ship crude overseas meet resistance from the nation’s indigenous communities.

The rebuff puts into sharp focus the hurdles Canada faces in its efforts to compete with the US Gulf Coast and Australia to capture rising Asian demand for fuel, as 19 proponents try to advance Canadian Pacific Coast gas exports.

“It sends a very bad signal to the world that’s looking at Canada,” said Gord Nettleton, a Calgary-based partner at law firm McCarthy Tetrault. The rejection prompts the question, “How are you going to get your house in order?”

The Lax Kw’alaams Band, whose ancestral lands overlap the site of the gas shipping terminal planned by the Malaysian state-owned company, known as Petronas, voted in overwhelming numbers to reject the project, according to the Lax Kw’alaams mayor. Petronas said it will push ahead to resolve the differences, but the rejection is another scar on Canada’s fledgling efforts to export liquefied natural gas, or LNG.

‘More Work’

“We’ve said all along that if a project is going to go forward in British Columbia, it needs to be respectful of First Nations and it needs to be respectful of the environment,” said John Rustad, British Columbia’s minister of aboriginal relations. “We have more work to do.”

Canadian gas projects had been expected to sidestep many of the environmental issues that hit its crude industry as it pushed ahead on projects to export bitumen from the oil sands. Instead, the gas projects are facing some of the same challenges, raising concerns among Asian investors, said Geoffrey Cann, a partner at Deloitte based in Brisbane.

“They have been vocal in their frustration with the very slow pace of environmental approvals,” Cann said. “The Asians do want to diversify their energy security portfolio and seek supplies from a range of countries so they aren’t beholden to any one geography or supplier.”

Avoiding Risk

Japan’s biggest energy trader Mitsui & Co. wants to buy LNG from Canada but isn’t investing in developments because of the risks tied to opposition from minority groups, the head of the company’s energy planning group Kaoru Umehara said in a November interview.

Petronas has a vested interest in making its LNG project a reality, after paying C$5.19 billion ($4.34 billion) to buy a Canadian gas producer in 2012. Canadian gas producers are running out of customers as the US supplies more of its own needs, and are also frustrated by delays in export projects.

“It’s a national priority,” said Darren Gee, the CEO of Peyto Exploration & Development Corp. in Calgary. “We want to be able to access all markets so we’re not beholden to the one buyer that, more and more so, doesn’t want our product.”

In spite of the setback for Petronas, winning support for Canadian gas export projects will still probably be easier than oil, said Steven Paget, an analyst at Calgary-based investment bank FirstEnergy Capital. Some aboriginal groups have agreed to compensation for gas pipelines while they’ve rejected oil lines.

Final Decision

Petronas expects to make a final decision on its project this year. It’s focused on securing a key environmental permit by September and continues to consult with aboriginal groups, some of which already support a project that was redesigned to reduce environmental impact, said Michael Culbert, who heads the company’s Canadian division and LNG project.

Canadian coastal gas export projects need to move forward soon, or they’ll lose out to global competitors, said McCarthy Tetrault’s Nettleton.

“LNG is by far a golden goose in Canada,” Nettleton said. “Time is ticking, investors are impatient and I think it’s fair to say that at least from my meetings, we’re seeing interest waning.”

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