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Shell Takes FID on LNG Canada

By MarEx 2018-10-02 03:18:20

Shell Canada Energy, an affiliate of Royal Dutch Shell, has taken a final investment decision (FID) on LNG Canada, a major LNG project in Kitimat, British Columbia, Canada, in which Shell has a 40 percent working interest. 

With LNG Canada’s joint venture participants also having taken FID, construction will start immediately with first LNG expected before the middle of the next decade.

Shell’s 40 percent share of the project’s capital cost is within the company’s current overall capital investment guidance of $25-$30 billion per year.

Ben van Beurden, Chief Executive Officer of Royal Dutch Shell, said: “Global LNG demand is expected to double by 2035 compared with today, with much of this growth coming from Asia where gas displaces coal. LNG Canada is well positioned to help Shell meet the growing needs of customers at a time when we see an LNG supply shortage in our outlook. With significant integration advantages from the upstream through to trading, LNG Canada is expected to deliver Shell an integrated internal rate of return of some 13 percent, while the cash flow it generates is expected to be significant, long life and resilient.”

LNG Canada will initially export LNG from two trains totaling 14 million tons per annum (mtpa), with the potential to expand to four trains in the future. It is advantaged by access to abundant, low-cost natural gas from British Columbia’s vast resources and the relatively short shipping distance to North Asia, which is about 50 percent shorter than from the Gulf of Mexico and avoids the Panama Canal. The LNG export facility will be constructed on a large, partially developed industrial site with an existing deep-water port, roads, rail and power supplies.

The project has a 40-year export license in place and all major environmental permits are in place for the plant and the pipeline.

The project has been designed to achieve the lowest carbon intensity of any LNG project in operation today, aided by the partial use of hydropower.

Royal Boskalis Westminster will be executing the dredging scope for the project. Dredging activities are expected to continue into 2020.

Upturn in LNG Mega-projects

The project is the first LNG export project to reach FID in Canada and the first greenfield LNG export project globally in five years.

Wood Mackenzie's Dulles Wang, director, North America gas, said: “We estimate initial project costs at $18 billion for the LNG plant investment and $3.5 billion for the pipeline. Upstream costs will be incurred by each of the project partners.

“This would make LNG Canada the biggest project sanction globally since the Tengiz expansion (FGP-WPMP) was approved in 2016, and the biggest greenfield project to be sanctioned since Yamal LNG in 2013. It seems that mega-projects are back.”

For all the partners, it is a signal of growing confidence in the LNG market. “The momentum behind LNG Canada reflects the drastic improvement in the LNG market over the past 12 months, driven by buoyant demand in China,” says Wang. “A clutch of projects are vying for FID, including four mega trains in Qatar, Arctic LNG-2 in Russia, at least one development in Mozambique and several U.S. projects.

“We believe 2019 could be the busiest year of LNG FIDs ever.”

LNG Canada is a joint venture comprised of Shell Canada Energy (40 percent) and Petronas, through its wholly-owned entity, the North Montney LNG Limited Partnership (25 percent); PetroChina Canada (15 percent); Diamond LNG Canada, a subsidiary of Mitsubishi Corporation (15 percent); and Korea Gas Corporation, through its wholly owned subsidiary Kogas Canada LNG (five percent).