Shell still thinks Canada LNG project could be a go, says CEO

Natalie Obiko Pearson 7/28/2017

VANCOUVER (Bloomberg) -- Royal Dutch Shell Plc said it hasn’t written off its Canadian liquefied natural gas project in Kitimat, British Columbia, yet as a global supply glut killed off a competing project earlier this week.

LNG Canada, which is also backed by Mitsubishi Corp., PetroChina Co. and Korea Gas Corp., is still weighing an investment decision that’s expected by early 2019, Shell’s CEO Ben Van Beurden said on a conference call Thursday.

"We need to get the timing properly right -- we think we can," he said. "If we look at an investment decision in the next 18 months or so, this is going to be a project that could start producing right at the moment when the spot market, the short-term market is getting very tight again."

The comments follow the cancellation of a $27-billion LNG project in the same region on the northern British Columbia coast by Malaysia’s Petroliam Nasional Bhd earlier this week -- the latest casualty in a growing list of projects quashed in recent months. Plummeting prices have thrown the economics of export terminals from Russia to Mozambique into question as increasing volumes of gas from Australia and America’s shale formations hit the water, inundating the market with so much supply that analysts say demand may not catch up until the next decade.

Shell and its partners had in July 2016 delayed for the second time a decision on their LNG Canada project, which aims to export fuel to Asian markets, citing global industry challenges and capital constraints.

Lowering costs

Van Beurden, who said he’d once considered the project the company’s best in Canada, added that Shell is trying to get costs down to a "break-even price that is very resilient - this needs to be a project that can survive also under downcycles."

The concept has "many fundamental advantages" including a "feed gas position that is somewhat more stranded than anywhere else in North America," as well as proximity to premium markets, he said.

Still, Shell has some concerns about potential “escalation cycles” in the Canadian industry, he added.

More than two-thirds of the LNG terminals proposed to come online in the mid-2020s probably won’t get built, Sanford C. Bernstein & Co. said in May. Van Beurden sounded more bullish about LNG Canada’s prospects.

"If you have the best possible project on the cost of supply curve for new projects, then you are a little less obsessed with the timing because you will be able to get it into the market," he said.

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