Those dredging for positives in a heap of negatives that accompanied Shell’s decision to stall its final investment decision on LNG Canada until late 2016 from this spring found little comfort.
For British Columbia Premier Christy Clark, ever the beacon of hope in her province’s floundering LNG sector, there was reassurance in the 2016 commitment.
“What I was pleased to see was Shell reconfirm its intention to make a final investment decision this year,” she told reporters.
“Even in these very uncertain times, which I acknowledge, that have affected their timeline, they have reconfirmed the fact that they want to go ahead with this project.
“When you see energy projects getting cancelled all over the world and you see producers cutting their capital investment in Alberta, LNG Canada announced that it is recommitting,” Clark said. “The date has changed but their commitment to the project hasn’t and you see that they’ve put it in writing.”
Fundamentals sound
There was also a dose of hope from Andy Caditz, chief executive officer of LNG Canada, who said the “fundamentals of the project are really sound,” allowing the partnership to promise a decision based on “good faith.”
But he also hinted there could be even more delays because of the turmoil in global energy markets where oil’s slump has acted as a drag on LNG prices.
“Can you and I conjure up a set of conditions that could make a positive decision difficult?” he asked “Yes. But I could also see that they (Royal Dutch Shell as 50 percent operator, along with PetroChina 20 percent and Korea Gas and Mitsubishi, each 15 percent) take a decision in the fourth quarter? Absolutely.”
He said the four partners have decided “they want to remain with the project,” although Korea Gas has said it is ready to spin off part of its stake.
Caditz said LNG Canada has made good progress in its advance planning, including some success in reaching agreements with some First Nations and in gaining an export permit for an initial 12 million metric tons a year, with an option to double those volumes.
One of the leading supporters among First Nations is the Haisla Nation, whose Chief Councillor Ellis Ross said LNG development is “critical for economic development and for jobs” in his community.
He also said that climate change assessments of LNG operations should credit the role the commodity can play in displacing coal and diesel in Asia.
Gathering gloom for government
Even so, there is concern that the gathering gloom for Clark’s government, which faces an election in 2017 that could hinge on her failure to deliver at least three operating LNG projects by 2020, could extend to the Petronas-led Pacific NorthWest LNG which accompanies LNG Canada as one of the two mega-LNG ventures that is closest to embarking on construction.
Dirk Lever, an analyst with AltaCorp Capital, said an LNG supply glut, the low commodity prices and opposition from British Columbia First Nations now suggest Pacific NorthWest is “more likely to be postponed.”
“Let’s just say the odds are higher today than they were yesterday that (Pacific NorthWest) will postpone,” he said.
Robert Fitzmartyn, managing director of FirstEnergy Capital, tersely summed up the state of the LNG sector as “paralysis by analysis,” compounded by the Canadian government’s decision to require the impact of greenhouse gas emissions to be evaluated by regulatory agencies.
Capital an issue
For Shell, the prospect of launching a project that could require C$40 billion in capital spending and jobs for up to 7,500 workers, including C$10.5 billion for a terminal at Kitimat on the northern British Columbia coast, has been tripped up by the company’s scheduled takeover of United Kingdom-based BG Group on Feb. 15.
Shell officials have openly expressed concern about what they will find when they “get under the hood” of BG’s operations and are able to assess its financial state, indicating that could result in further spending cuts on top of the US$12.5 billion shelved last year.
“Many potential projects have been purposely delayed, re-phased or cancelled altogether and this is to manage affordability and get better value,” executives told investors, noting that the world is beset by a glut of natural gas and doubts about a continued slowdown in the target markets in Asia, especially China. “Only the most competitive projects are going ahead.”
Chief Executive Officer Ben van Beurden said “it will be one decision at a time. Whatever we can postpone we will.”
However, Shell’s plans to unload US$10 billion of its global assets have made no mention of LNG Canada.
But the difficulties facing the project carry an echo of warnings issued in 2011 when then president of Shell Canada, Lorraine Mitchelmore, raised concerns about the “very short window” of opportunity available to LNG Canada.
“I’m not sure (governments) understand the sense of urgency in front of us,” she said.
