Shell's LNG Canada moves ahead as Asian partners give approval

Jasmine Wang, Stephen Stapczynski and Aibing Guo September 28, 2018

HONG KONG and TOKYO (Bloomberg) -- Two of Royal Dutch Shell’s Asian partners in a liquefied natural gas venture in western Canada approved their share of the investment, pushing the multibillion-dollar development one step closer to a final approval.

The board of PetroChina, the nation’s largest oil and gas company, approved its $3.46 billion share of the LNG Canada project, the company said in a filing to the Hong Kong stock exchange Friday. Korea Gas Corp. made a similar announcement in Seoul about its stake.

All the partners, including Malaysia’s Petroliam Nasional and Japan’s Mitsubishi Corp., need to make similar moves for the venture to approve a final investment decision. Shell declined to comment. Petroliam Nasional, known as Petronas, didn’t immediately respond to requests for comment. A Mitsubishi spokesman said Friday it hasn’t yet made a decision.

“LNG Canada looks like it is pretty much getting over the line, so deciding not to go ahead with it now would be a big surprise,” said Trevor Sikorski, an analyst at Energy Aspects Ltd.

Shell said in 2014 that the project could cost as much as C$40 billion ($31 billion). PetroChina’s announcement Friday about its 15% share implies a total investment of roughly $23 billion across all partners, according to Bloomberg calculations. With the capacity to eventually export as much as 26 MM metric tons/year, primarily to Asia, it could be the biggest new LNG terminal to be sanctioned in years.

Next Wave

The decision may be the start of a wave of investments for major gas export projects after a supply glut and a price collapse forced the three-year hiatus. Booming demand growth means that 11 projects, including LNG Canada, are likely to receive final investment decisions by the end of 2019, according to Bloomberg NEF.

“We expect this to be the first of many in a new wave of projects which will be developed to meet the market shortfall in the early 2020s, after several years of under-investment,” said Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein.

Shell and its partners are set to announce an FID on the project as soon as next week, Bloomberg News reported Wednesday. Preparations for an Oct. 5 announcement followed by an LNG Canada event at a local golf club the next day are underway in Kitimat, British Columbia, the site of the proposed project, said people with direct knowledge of the activities, who asked not to be identified.

Shell holds 40% of LNG Canada, with Petronas at 25%, 15% each for PetroChina and Mitsubishi, and Kogas with 5%.

"PetroChina’s board approving their portion of funding for the project is a clear sign that the project is sprinting toward FID now," BNEF analyst Fauziah Marzuki said by email.