LNG Canada green light heralds breakthroughs

In one of the landmark LNG decisions of 2018, Shell and its partners in the proposed LNG Canada project in British Columbia have given a green light to the scheme. LNG Canada is the LNG market’s first export project to reach a financial investment decision this year and the first of over a dozen proposed world-scale Canadian liquefaction plants to receive a go-ahead. Canada’s LNG production aspirations surfaced in 2005 when Chevron and Apache Corp announced plans for their Kitimat LNG project, and many other proposed schemes, mostly for British Columbia, soon followed. The financial crisis of 2008 curtailed energy demand worldwide and put paid to these hopes. Many Canadian projects were cancelled and others put on the back burner, pending improved market conditions. LNG Canada is effectively an amalgamation of two separate LNG export project proposals, tabled by BG Group and Shell. Shell’s acquisition of BG in 2015 created the opportunity for a combined project. The US$31Bn LNG Canada initiative involves constructing two liquefaction trains capable of producing an aggregate 14M of LNG at a terminal at Kitimat on the British Columbia coast about 1,400 km north of Vancouver. Shell’s partners in LNG Canada – Petronas of Malaysia, PetroChina, Japan’s Mitsubishi Corporation and Korea Gas Corporation (Kogas) of South Korea – hold the promise of significant regional market sales in Asia. In view of the current escalating US/China trade war, and the recent imposition by China of a 10% surcharge on US LNG exports, the access PetroChina would gain to tariff-free Canadian gas is particularly topical. The fact that the Canada-China voyage times are half that of those from the US Gulf, even with the benefit of the enlarged Panama Canal locks, is an added bonus, as is the avoidance of waterway transit fees. Canada is rich in natural gas, with vast reserves in Alberta and British Columbia. The country has traditionally been a supplier of pipeline gas to the US but the shale revolution that its southern neighbour is currently enjoying has reduced the need for Canada’s gas. The LNG Canada project will provide an outlet for some of western Canada’s gas reserves and set the country up as a competitor to the US in the drive to meet the growing needs of Asia’s LNG importers. It should also help strengthen Canadian gas prices, which have taken a nosedive in recent years. TransCanada will now build its Coastal GasLink gas pipeline across British Columbia to feed the terminal and Shell has promised to commence LNG exports by “the middle of the next decade”. Based on the traditional four-year LNG export terminal construction schedule, the first LNG carrier loadings could be made by late 2022/early 2023. The LNG Canada participants point out that, subject to market demand, two further trains could be built at a later date. Shell holds a 40% stake in LNG Canada, followed by Petronas with 25%, PetroChina and Mitsubishi hold 15% each, and Kogas 5%. Each joint venture participant will be responsible for providing its own natural gas supply to the plant and will individually offtake and market its own LNG. Yesterday, the day the LNG Canada FID was announced, Pacific Oil & Gas revealed it had signed a heads of agreement with China’s CNOOC Gas and Power Trading & Marketing for supplying 0.75 mta of LNG for 13 years from its Woodfibre project in British Columbia. Woodfibre LNG is one of a handful of small to medium-scale export projects put forward for British Columbia. It calls for the construction of a 2.1-mta liquefaction facility on the previous Woodfibre pulp mill site near Vancouver.

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