OREANDA-NEWS. April 02, 2014. China Petroleum & Chemical Corp., or Sinopec, is in talks with Malaysia's Petroliam Nasional Bhd, or Petronas, to buy up to 15% in a liquefied-natural-gas project on Canada's west coast, people familiar with the matter said.

The project, known as Pacific Northwest LNG, is being built from scratch on an undeveloped island in northern British Columbia, which was acquired by Petronas in 2012 as part of its USD5.2 billion purchase of Canada's Progress Energy Resources Corp. Commercial operations at the facility on Lelu Island near Prince Rupert, B.C., could start as soon as late 2018, Petronas has said.

The talks, which were originally reported by Reuters, come as China looks to double the share of natural gas in its energy mix to 10% by 2020 from less than 5% now. Although China has ambitious plans for unconventional fuels such as shale gas, large-scale production is at least a decade away, creating opportunities for importers of LNG--the chilled and exportable form of natural gas. Sinopec is China's largest refiner by output.

Meanwhile, Canada is trying to transform its underdeveloped northern Pacific coast into a major hub for LNG by using a glut of natural gas from untapped reserves inland. The Canadian government has also been trying to shift gas exports away from the saturated U.S. market and into LNG-hungry Asian markets such as China.

Corrections & Amplifications

This item was corrected at 1:11 p.m. ET (1711 GMT) because it misstated in the second paragraph that the project was acquired in December. The project was acquired in 2012.

By Cynthia Koons and Wayne Ma

China Petroleum & Chemical Corp., or Sinopec, is in talks with Malaysia's Petroliam Nasional Bhd, or Petronas, to buy up to 15% of a liquefied-natural-gas project on Canada's west coast, people familiar with the matter said.

The project, known as Pacific Northwest LNG, is an export terminal being built on an undeveloped island in northern British Columbia, which was acquired by Petronas in 2012 as part of its 5.5 billion Canadian dollar (USD 4.9 billion) purchase of Canada's Progress Energy Resources Corp. The terminal could begin operating as soon as 2018 and will have the capacity to export 12 million metric tons of LNG a year, Petronas has said.

Petronas has been selling stakes in Pacific Northwest LNG to raise funds for its development, which could cost as much as CAD11 billion. The Malaysian energy company already has sold 10% stakes to Japan Petroleum Exploration Co. and Indian Oil Corp. and will supply them each with 1.2 million metric tons of LNG annually from the project. Petronas also has sold a 3% stake to Brunei National Petroleum Co. in exchange for 3% of Pacific Northwest LNG's annual output.

Petronas previously said it would announce the sale of another 15% stake to an Asian buyer by the end of this month, and it still hasn't disclosed the name of the company. The value of the stake isn't known.

The talks between Sinopec and Petronas, which were first reported by Reuters, comes as China looks to double the share of natural gas in its energy mix to 10% by 2020 from less than 5% now. Although it has ambitious plans for unconventional fuels such as shale gas, large-scale production is at least a decade away, creating opportunities for importers of LNG--a chilled form of natural gas that can be shipped.

China has yet to begin importing LNG from Canada, but Chinese energy companies are planning to diversify their LNG supplies, which for now come from a only a handful of suppliers that include Qatar, Australia, Malaysia and Indonesia.

Last year, the Canadian subsidiary of China's primary offshore energy producer, Cnooc Ltd., was awarded exclusive rights to proceed with a proposed terminal to export LNG from Canada's Pacific coast. PetroChina Co., China's largest energy producer, is also part of consortium led by Royal Dutch Shell PLC to develop another Canadian LNG project.

Canada is trying to transform its underdeveloped northern Pacific coast into a major hub for LNG by using a glut of natural gas from untapped reserves inland. The Canadian government has also been trying to shift gas exports away from the saturated U.S. market and into LNG-hungry Asian markets such as China, South Korea and Japan.

If agreement between Sinopec and Petronas is reached, it would be Sinopec's first entry into a Canadian LNG project. Sinopec has a history of investment in Canada. In 2010, it bought ConocoPhillips' stake in Syncrude Canada Ltd., a large oil sands producer in northern Alberta, for USD 4.65 billion.

Corrections & Amplifications

This item was corrected at 1:10 p.m. ET (1709 GMT) because it misstated in the second paragraph that the project was acquired in December. The project was acquired in 2012.

China Petroleum & Chemical Corp. is in talks with Malaysia's Petroliam Nasional Bhd. to buy up to 15% of a liquefied-natural-gas project on Canada's western coast, people familiar with the matter said.

The Pacific Northwest LNG project is an export terminal planned for an undeveloped island in northern British Columbia, which was acquired by Petronas in 2012 as part of its 5.5 billion Canadian dollar (USD 4.9 billion) purchase of Canada's Progress Energy Resources Corp. The terminal could begin operating as soon as 2018 and will have the capacity to export 12 million metric tons of LNG a year.

Petronas has been selling stakes in Pacific Northwest LNG's reserves and output to raise funds for its development, which could cost as much as CAD11 billion. The company has sold 10% stakes to Japan Petroleum Exploration Co. and Indian Oil Corp. and will supply them each with 1.2 million metric tons of LNG annually from the project. Petronas also has sold a 3% stake to Brunei National Petroleum Co. in exchange for 3% of Pacific Northwest LNG's annual output.

Petronas has said it would announce the sale of another 15% stake to an Asian buyer by the end of this month but hasn't disclosed the company. The value of the stake couldn't be determined.

The talks between Petronas and the Chinese company, or Sinopec, come as China looks to double the share of natural gas in its energy mix to 10% by 2020. The negotiations were first reported by Reuters news service. Although China has plans to use unconventional fuels such as shale gas, large-scale production is at least a decade away, creating opportunities for importers of LNG--a chilled form of natural gas that can be shipped.

China has yet to begin importing LNG from Canada, but Chinese energy companies are planning to diversify their LNG supplies, which for now come from only a handful of countries, such as Qatar, Australia, Malaysia and Indonesia.

The Canadian subsidiary of China's primary offshore energy producer, Cnooc Ltd., last year was awarded exclusive rights to proceed with a terminal to export LNG from Canada's Pacific coast. PetroChina Co., China's largest energy producer, is part of a consortium led by Royal Dutch Shell PLC to develop another Canadian LNG project.

Canada is trying to transform its underdeveloped northern Pacific coast into a hub for LNG by using a glut of natural gas from untapped reserves inland. The Canadian government also has been trying to shift gas exports away from the saturated U.S. market and into LNG-hungry Asian markets such as China, South Korea and Japan.

If a deal between Sinopec and Petronas is reached, it would be the Chinese company's first entry into a Canadian LNG project. Sinopec investment in Canada. In 2010, it bought ConocoPhillips's stake in Syncrude Canada Ltd., a large oil-sands producer in northern Alberta, for USD 4.65 billion.