Shell approves LNG Canada investment

The Hague-based LNG giant Shell has taken a final investment decision on LNG Canada, a major liquefied natural gas export project in Kitimat, British Columbia.

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 said in a statement on Monday.

Besides Shell, LNG Canada JV partners include Malaysia’s Petronas, PetroChina, Japan’s Mitsubishi Corporation and Kogas of South Korea

Shell has a 40 percent interest in the C$40 billion ($31 billion) LNG project via its unit Shell Canada Energy.

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

LNG Canada will initially export LNG from two trains totaling 14 million tonnes 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% shorter than from the US Gulf of Mexico and avoids the Panama Canal, according to Shell.

The joint venture of JGC-Fluor Corporation has been previously selected as the project’s engineering, procurement and construction (EPC) contractor.

“We believe LNG Canada is the right project, in the right place, at the right time,” Ben van Beurden, Shell’s chief said in the statement.

“Supplying natural gas over the coming decades will be critical as the world transitions to a lower carbon energy system. Global LNG demand is expected to double by 2035 compared with today, with much of this growth coming from Asia where gas displaces coal,” he said.

According to van Beurden, LNG Canada is “well positioned” to help Shell meet the growing needs of customers at a time when the company sees an LNG supply shortage in its 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%, while the cash flow it generates is expected to be significant, long life and resilient,” van Beurden said.

$1,000 per tonne

The LNG Canada plant will be constructed under a single EPC lump-sum contract at an estimated cost of some $1,000 per tonne of LNG, Shell said.

According to Shell, the cost to deliver LNG into Asia is expected to be” structurally advantaged” compared to a greenfield development on the US Gulf coast.

Regarding the feed gas to the plant, each joint venture participant will be responsible for providing its own natural gas supply and will individually offtake and market its own LNG.

Shell’s Groundbirch asset in Northeast British Columbia can provide the majority of Shell’s equity share of natural gas or the company will buy gas from the market, depending on which option provides the most value, it said.

TransCanada Corporation will build, own and operate the Coastal GasLink pipeline that will be built to connect upstream gas supply to the LNG Canada plant.