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Indian Oil Corporation (IOC) set to buy 10% stake in Petronas' LNG project for $900 mn

Wednesday, 26 February 2014 - 6:00am IST | Place: Mumbai | Agency: dna

Indian Oil Corporation (IOC) is set to buy a 10% stake in Malaysian firm Petronas' shale gas and liquefied natural gas (LNG) projects in British Columbia for $900 million, sources said.

At a conference in Singapore on Tuesday, Shamsul Azhar Abbas, president and chief executive of Petronas, said the company had agreed to sell a 25% stake in its Canadian shale gas assets to an Indian company and an Asian gas buyer, reports said.

The Malaysian firm is planning to build an LNG terminal off Canada's Pacific Coast for exporting natural gas to Asian markets. Progress Energy Resources Corp, the firm developing the project, has more than 1.9 trillion cubic feet of proved and probable gas reserves in British Columbia.

While Abbas declined to disclose the identity of the buyers, sources said state-run IOC has been in discussion with Petronas for a 10% stake. On February 13, the Cabinet Committee on Economic Affairs (CCEA) had deferred nod to the company's proposal to acquire the stake.

An IOC spokesperson neither confirmed nor denied the report.

This acquisition would mark IOC's maiden entry into North America.

Gagan Dixit, an analyst with Quantum Capital, said the move is in line with all the other state-owned oil and gas companies, which are looking to diversify.

BPCL has diversified into exploration, while GAIL has signed a deal with the US for LNG imports. Although the move is positive for the state- owned refinery, it will take at least four years to develop the resources.

"West coast of Canada lacks pipeline and road infrastructure. So, IOC may just buy the equity stake and sell it later to Japan or China," he said. Gas transportation cost to India is much higher at $6 per mmbtu, compared with $3 for Japan. Canada is a very stable nation unlike Mozambique, hence the transaction risk is much lesser.

IOC could also be securing LNG supply for its upcoming LNG terminal at Ennore in Tamil Nadu. The company is building a 5 million tonne per annum (MTPA) LNG terminal at Ennore near Chennai, to be completed by 2017.

Plus, the company also needs LNG for its 60 MT refinery network. It is currently dependent on Qatar for its spot and long-term requirements.

The Malaysian firm has already sold a 10% stake in Progress Energy and the integrated shale gas development and LNG project to Japan Petroleum Exploration and another 3% to Petroleum Brunei.
According to some reports, IOC has already lined up a one-year bridge loan of $900 million for the transaction.

Petronas wants to offload another 12% stake in the Canadian project and is in advance talks with likely buyers.

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