Petronas may have to write off up to $800 million for work already done at the $29 billion Canadian liquefied natural gas (LNG) project, but scrapping the project brings long-term benefits, analysts said on Friday.
State-owned Petroliam Nasional Bhd (Petronas) announced on Tuesday it would not proceed with its proposed Pacific NorthWest LNG terminal in British Columbia mainly due to depressed prices.
"A rough gauge indicates that Petronas holding a 62 percent stake (in the project) would probably see a write-down of $600-800 million as it has been the lead developer since 2012," said Chong Zhi Xin, principal Asia LNG analyst at energy consultancy Wood Mackenzie.
"There has been significant investments in the environmental impact assessments, engineering design studies and commitments to build a pipeline," Chong said.
Japan Petroleum Exploration Co (Japex), which had a 10 percent stake in the project, said it would take a loss of about C$102 million ($82 million).
Petronas launched Canadian LNG project five years ago when gas prices were at a high and the market was bullish about such investments. Since then, global gas prices have fallen by around 70 percent.
Petronas did not disclose its losses from the pullout. But in an email response to Reuters' questions, it said "significant investments" had been made since the project began in 2012.
The company would continue developing its gas assets in Canada, it said.
Malaysia's only Fortune 500 company, Petronas has driven the country's modernisation push over the last two decades. It is one of Malaysia's biggest employers, and accounts for nearly a third of the government's oil and gas-related revenue.
Its headquarters in the towering Petronas twin towers in Kuala Lumpur is symbolic of the company, and with it Malaysia's, oil-driven growth over the last few decades.
But as the oil boom turned to bust, Petronas slowed down.
In 2016 Petronas announced widespread job cuts, its first ever of that scale, and also said it would cut spending by $50 billion over a four-year period.
Dividends from the company, which accounted for about 12 percent of Malaysian government's revenue in 2015, have also shrunk. Petronas is expected to give a dividend of 13 billion ringgit this year, half of the 26 billion ringgit contributed just two years ago.
The pullout from the Canada project means Petronas can prioritise domestic projects, a pressing need for Malaysians frustrated with rising costs, unemployment and a deflated currency.
One of them is the Refinery and Petrochemical Integrated Development (RAPID) project in the Pengerang Integrated Complex (PIC) development in Malaysia's southern state of Johor. The PIC is Petronas' biggest downstream project, worth $27 billion in total investment. Prime Minister Najib Razak, who is expected to announce economic stimulus measures ahead of general elections that must be called by mid-2018, has said RAPID will create jobs, raise standards of living and boost the economy in Johor, a key electoral state.
"That is where I expect funds to go into, said Peter Lee, Asia oil and gas analyst at BMI Research. "The focus is domestic first. They would always like to invest in and maintain production at home before going overseas," Lee said, adding he doesn't expect Petronas to make any significant new investments in the near term.
RAPID, which includes a 300,000-barrel-per-day oil refinery producing gasoline and diesel, is targeted to begin operations in the first quarter of 2019.
Petronas is also expected to focus on other large-scale domestic projects, such as its second floating LNG vessel and developing gas fields in offshore East Malaysia, which could boost jobs and projects within the local oil and gas industry.