Chevron slows Kitimat LNG project

Gary Park

For Petroleum News

With Chevron’s decision to cut spending this year on LNG worldwide by 20 percent to US$8 billion, its Kitimat LNG project in British Columbia has inevitably felt the pain.

But the company will continue its hunt for sales contracts with prospective buyers from Kitimat, which was previously scheduled to be in service by late 2017 or early 2018, and negotiate with the British Columbia government on its fiscal and regulatory policies, while working to secure permits and reach agreements with aboriginal communities, a spokesman said.

He also said front-end engineering and design work will push ahead as Chevron and its partner, Australia’s Woodside Petroleum (which paid C$2.75 billion in December for Apache’s 50 percent stake in the project), look for ways to reduce the costs of the planned terminal and pipelines.

Chevron also said it will press ahead with a program to develop natural gas fields in the Liard Basin of northeastern British Columbia, to ensure it has the feedstock to support Kitimat.

But Chevron has shown the same unease as two other leading players among the 18 proponents in the British Columbia LNG sector.

Malaysia’s Petronas said in December it was delaying a final investment decision on its C$36 billion Pacific NorthWest project, while the United Kingdom-based BG Group has slowed development of its Prince Rupert project.

“People are pretty cautious right now in the LNG market,” Chevron Chief Executive Officer John Watson told analysts.

He said it’s far from clear that all of the projects now under consideration can be profitable at current commodity prices.

However, Watson had said last fall he intended to look beyond the weak price environment when assessing the profit potential for future energy projects.

He echoed that thought Jan. 30, saying “we believe long-term market fundamentals remain attractive,” although Chevron will need to focus on lowering its expenses “throughout our supply chain.”

In lowering its overall capital spending plans by 12 percent to US$35 billion - its largest cut since 2003 - it has posted the largest dollar reduction among about US$40 billion in industry-wide cuts over the past two months.

It is likely Chevron would have taken even more drastic measures had it not been tied to projects that are too close to completion to postpone, said Brian Youngberg, an analyst at Edward Jones.

Of the company’s total remaining budget, about US$26 billion is pegged for its Gordon LNG project in Australia and to support existing production in aging fields in California and Texas.