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Vol. 23, No.29 Week of July 22, 2018
Providing coverage of Alaska and northern Canada's oil and gas industry

LNG Canada revving up

Signs point to FID as Kitimat housing snapped up, workers move from aluminum project

Gary Park

for Petroleum News

All the signs point increasingly to a formal announcement by Shell and its partners that they will proceed with their mammoth LNG Canada project, which is designed to provide about 10 percent of global LNG supply.

Kitimat, the deep-port site on the northern British Columbia coast of a terminal that could ship 28 million tons a year of LNG to Asia, is abuzz as facilities that have sat unused and quiet for the past two years spring back to life.

Accommodation is filling up and workers have moved from a nearby Rio Tinto smelter to join the construction consortium of U.S.-based Fluor and Japan’s JGC that has the prime C$14 billion contract for the export plant, the key final link in a C$40 billion venture.

Operator Shell has promised a final investment decision this year which now hangs on a resolution of concerns over steep import tariffs on some steel components that could still render the project as uneconomic.

That issue hangs in the balance, awaiting a decision from the Canadian government on a request to exempt the project from duties on steel modules.

David Keane, president of the B.C. LNG Alliance, said the modules can be as tall as a 10-storey building and weigh as much as 10 large jets - a scale that no assembly plant has the experience or the facilities to handle.

Shell remains coy, with Jessica Uhl, chief financial officer, noting three months ago that her company has “got a number of build options” in its world-leading LNG portfolio, adding that LNG Canada “is one of the many good options that we have.”

Political feuding in British Columbia, environmental opposition, high labor costs and unexpected provincial taxes on LNG exports have damaged Canada’s reputation as an attractive place for foreign investors.

Uhl said all of those elements “come into play. So it’s not just one variable that you need to consider when trying to think about the delivered cost (of LNG) to a given customer.”

Optimism in Kitimat

However, Kitimat Mayor Phil Germuth is brimming with optimism, telling Bloomberg: “I would put money on it ... it’s going ahead.” He based that view on a recent meeting with a representative of Barclays Bank from the United Kingdom and a visit by officials from Mitsubishi, a 15 percent partner, along with Malaysia’s Petronas (25 percent), PetroChina (15 percent) and Korea Gas (5 percent), leaving Shell with 40 percent.

Carol Leclerc, the mayor of Terrace, 40 miles north of Kitimat, joined the chorus, saying she’s 99.9 percent certain LNG Canada will proceed, generating a “tidal wave” of development in northwestern British Columbia.

Patrick O’Rourke, an analyst with AltaCorp Capital in Calgary, said the hopes for LNG have been bolstered a “second wave” for LNG over the next decade as Asian markets absorb the current oversupply.

If all goes to plan, the first shipments could happen in 2022-24.

One of the strongest selling features of LNG Canada is the time it would take off normal shipping from other North American LNG operations to Asia.

LNG Canada Chief Executive Officer Andy Caditz noted in a recent posting that the proposed investment would triple the size of Canada’s largest single infrastructure to date.

But LNG Canada does not have exclusive access to a suddenly revived LNG market, with analysts at Sanford C. Bernstein & Co. noting that new supplies are rapidly being “mopped up,” although US$150 billion worth of ventures are expected to go ahead over the next 18 months.

During the project lull, Shell used the chance to win over support from First Nations communities, while the British Columbia government has claimed LNG Canada would have the lowest carbon emissions per ton of LNG produced.

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