McCreath: Investors pessimistic on Shell's LNG Canada after Trans Mountain ruling
The debacle over Canada’s oil pipeline nationalization and trade tensions with the U.S. won’t affect the final investment decision on Royal Dutch Shell Plc’s $40 billion liquefied natural gas project, according to the head of the venture.
Shell-led LNG Canada proposes to export as much as 26 million tons per year to Asia, making it potentially the nation’s largest-ever infrastructure project and one that could transform Canada’s energy fortunes. Shell and its four partners -- Mitsubishi Corp., Malaysia’s Petroliam Nasional Bhd., PetroChina Co. and Korea Gas Corp. -- are set decide whether to build the complex by the end of this year.
"The overall conditions for LNG Canada to go ahead in 2018 are quite good," Andy Calitz, chief executive officer of the project, said in an interview in Vancouver. "That is, and feels, so very different to 2016 when the project was delayed."
The final decision was put off twice that year. Calitz said that since then, the project has become more competitive, reducing by 6 per cent the price at which a unit of gas can be delivered to Asia from its proposed site in Kitimat, British Columbia. Meanwhile, global LNG demand is booming, particularly from China and other Asian nations.
Going ahead with LNG Canada would be a welcome boost for Canada’s energy sector. In May, Prime Minister Justin Trudeau agreed to pay $4.5 billion to buy the Trans Mountain oil pipeline from Kinder Morgan Inc. after the company balked at proceeding with construction. In August, the Federal Court of Appeal nullified approval of the project. All that follows years of tortured regulatory reviews -- 35 per cent of Canada’s proposed LNG capacity has been canceled and an additional 40 per cent is under review, Bloomberg New Energy Finance said in a Sept. 10 note.
"The Trans Mountain decision, impactful as it has been in Canada on the regulatory scene, has not in any way stopped the LNG Canada project, which is ongoing," Calitz said.
Trudeau is also scrambling to see that Canada remains part of the North American Free Trade Agreement. "It is a really important Canadian-U.S. bilateral issue but does not stand in the way of a final investment decision on this project," Calitz said.
One factor in the project’s favor is its flexibility, as it doesn’t need to lock in a long-term buyer from the outset. In contrast, most of the 15 U.S. projects nearing final investment decisions probably won’t go ahead because there’s a "scarcity of offtakers," Bloomberg New Energy Finance said earlier this month.
Still, risks remain. LNG Canada has sought an exemption from duties on the roughly 140 steel modules to be made in China for the project. The Federal Court of Appeal -- the same one that quashed Trans Mountain’s approval -- is expected to issue a decision by the end of the month.
Calitz cautions that final approval isn’t a given, as each LNG Canada partner has at least four or five competing projects to which they could allocate their investment dollars instead.