Providing coverage of Alaska and northern Canada's oil and gas industry
June 2018

Vol. 23, No.23 Week of June 10, 2018

LNG giants teaming up

Shell, Petronas now lead partners in LNG Canada, nudging project closer to FID

Gary Park

for Petroleum News

One more building block has fallen into place to secure the future of LNG Canada, putting the C$40 billion project in sight for a final investment decision before year’s end.

Petronas, Malaysia’s state-owned energy giant, announced it is taking an equity position - without disclosing the investment amount - in the Shell Canada-led project, meaning the venture now has the backing of two LNG powerhouses.

As a result of the transaction, the ownership interests are now Shell at 40 percent (down from its earlier 50 percent), Petronas 25 percent, PetroChina 15 percent (previously 20 percent), Japan’s Mitsubishi 15 percent (unchanged) and South Korea’s Kogas 5 percent (previously 15 percent).

The partnership said the timing and outcome of the FID will be based on global energy markets and the overall competitiveness and affordability of the project.

Pacific NorthWest abandoned

Petronas, which abandoned its own C$36 billion Pacific NorthWest LNG project 10 months ago, blaming a weak global market outlook and the “extremely challenging environment” in Canada, said it is keen to join LNG Canada to take advantage of the export outlet for its vast natural gas reserves in northeast British Columbia’s North Montney resource which is operated by its subsidiary Progress Energy Canada.

Petronas said its role in LNG Canada includes the design, construction and operation of a gas liquefaction plant, facilities for the storage and export of LNG and marine facilities.

The estimated costs include TransCanada’s proposed C$4.7 billion Coastal GasLink pipeline from the Montney region to Kitimat on the northern B.C. coast.

Shell has argued that LNG Canada would help reduce greenhouse gas emissions by replacing more carbon-intensive commodities such as coal with LNG.

Federal tariffs unresolved

Still to be resolved is an issue for federal tariffs as Shell awaits a response from Canada’s Finance Department to exempt the project from anti-dumping duties of up to 45.8 percent on imports of fabricated industrial steel components, notably from China and South Korea.

LNG Canada Chief Executive Officer Andy Caditz said in early May he is confident the consortium will be ready to start construction this year. Initial shipments have been targeted for the 2022-24 period.

British Columbia’s New Democratic Party, at odds with its own resistance to Kinder Morgan’s Trans Mountain pipeline expansion, has offered significant tax relief to LNG Canada totaling C$6 billion over 40 years, although it still estimates revenues to the province will reach C$22 billion over the same period.

The project has considerable buy-in from aboriginal communities, led by the Haisla Nation Council, although the council has yet to sign a final commercial agreement.

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