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Petro-Canada Pulls Out of Yamal

Today’s news that the national champion hailing from my native Canada is pulling out of its $3.5 billion Baltic LNG project with Gazprom on the Yamal Peninsula offers a reminder of the perils of the energy business in Russia. According to CEO Ron Brenneman, “There’s a lot of gas up in the Yamal Peninsula and at one time we were in discussions with the licence holder, but subsequent to that the licence holder got bought out by a consortium of Russian businessmen. So we are no longer in those discussions.” Yikes – that sure is an unfortunate and unexpected turn of events for Petro-Canada, which is still looking to lock up LNG suppliers for its planned Gros Cacouna regasification plant in Quebec. No doubt Gazprom is driving an exceptionally hard bargain against the Canadians, who appear to have at least stopped denying that they are considering major asset swaps of heavy oil licenses in Canada with Gazprom. Looks like the Shtokman Syndrome is still alive and well.

From the Financial Post:

Petro-Canada gives up on Yamal project in RussiaCALGARY — Petro-Canada is staking its ambitions in Russia on Gazprom’s $3.5-billion Baltic liquefied natural gas project, having given up on a venture on the Arctic Yamal Peninsula, the company’s chief executive said on Friday.Petro-Canada had previously said it was interested in Yamal gas reserves and might consider swapping heavy oil assets for a development opportunity.”There’s a lot of gas up in the Yamal Peninsula and at one time we were in discussions with the licence holder, but subsequent to that the licence holder got bought out by a consortium of Russian businessmen. So we are no longer in those discussions,” Petro-Canada chief executive Ron Brenneman said in an interview.The company, Canada’s No. 4 oil producer and refiner, has also been mentioned as interested in joining development of the giant Shtokman field in the Barents Sea, but Mr. Brenneman said that is more the domain of the world’s largest oil majors.”We don’t have anything we can bring to the party,” he said.Petro-Canada is on Gazprom’s short-list for participating in the Baltic LNG plant near St. Petersburg, which could be built by 2013. Other potential partners include BP PLC, Spain’s Iberdrola and Mitsui and Co of Japan, Gazprom officials have said.Gazprom must also still decide on whether to proceed with front-end engineering work for the liquefaction facility, Mr. Brenneman said.”So that’s what we’re waiting on. The ball’s entirely in their court. They’ve got all the information – proposals from us on commercial terms that they have said from their perspective are satisfactory,” Mr. Brenneman said.Petro-Canada is aiming to secure LNG supply for its proposed $1-billion Gros Cacouna regasification plant in Quebec, a joint venture with TransCanada Corp.Mr. Brenneman, who announced on Thursday his company will boost capital spending 28% to $5.3-billion in 2008, said he is still prepared to hold off on developing the Quebec plant until Petro-Canada can secure long-term supply.Since proposing Gros Cacouna, the market has turned to the point where it is far more lucrative for LNG suppliers to sell to European and Asian markets than to North American ones, he said.Shares in Petro-Canada were 45 cents lower at $51.45 on the Toronto Stock Exchange on Friday afternoon.© Reuters 2007