by Yadullah Hussain, Financial Post, May 5, 2016
Royal Dutch Shell Plc. has cast doubts its liquefied natural gas export project in British Columbia will secure a final investment decision (FID) by the end of this year, further dashing the province ’s hopes of shipping LNG by 2020.
Shell’s LNG Canada in Kitimat is competing for funding dollars with two other company LNG projects, both in the United States, as well as with a chemicals plant in Pennsylvania, within the next 12 months, chief financial officer Simon Henry told investors during a conference call Wednesday.
“It’s highly unlikely that more than I would say two, maybe only one,… will actually go ahead in that timeframe,” Henry said. “…The chemicals plant is probably the first one because of the timing of certain commitments that are already in place.”
However, the company has “not yet pulled the trigger on it one way or the other,” Henry stressed. Vancouver-based LNG Canada, which represents Shell and its three Asian partners, did not respond to requests for comment.
LNG prices have fallen dramatically in tandem with oil prices during the past year, forcing companies to shelve large projects. A supply glut from the U.S. and Australia is also forcing companies to review appetite for multi-billion projects.
With most of its regulatory applications in hand, LNG Canada is ahead of rival Petronas Bhd, which is planning to build a project on Lelu Island off the B.C. coast with its Asian partners. The Malaysian company’s Pacific NorthWest LNG Project faces First Nations opposition and is struggling to secure an environmental certificate from the Canadian Environmental Assessment Agency.
The lack of progress on major projects points to “growing possibility that no LNG projects get FID this side of 2020,” according to Martin King, vice-president at FirstEnergy Capital Corp.
“The collapse of LNG prices has left Canadian LNG export projects in limbo and looking uneconomic,” King said in a presentation to investors in Calgary this week.
B.C. Premier Christy Clark had hoped for three LNG projects on the West Coast by 2020, which now seems a distant dream and may hurt her as she seeks re-election in May next year.
“The electorate has no understanding of economics so she will face their wrath on that, but there’s not much she could have done about what’s happened in the market,” said Dirk Lever, managing director, institutional equity research at AltaCorp Capital Inc.
Shell, which recently completed a transformative acquisition of its key LNG rival BG Group, is cutting spending to US$30 billion this year from US$35 billion in 2015, and has scrapped a number of projects over the past year.
Dirk said it will be “tough” for Shell to get a decision by the end of the year. “But they have done all the work, so with companies like Shell a project is never dead.”
On Thursday, TransCanada Corp. said it had secured all the permits to build the Coastal Gaslink Pipeline Project, connecting LNG Canada to shale basins in northeastern British Columbia, and will commence work in 2017 if LNG Canada takes a decision by late 2016.
Meanwhile, Petronas Bhd. has appointed two senior executives from its Kuala Lumpur headoffice to its Pacific Northwest LNG project in British Columbia.
However, David Austin, associate counsel at Vancouver-based Clark Wilson believes the executive moves are not as significant as a final environmental certificate from Ottawa.
“You need customers, you need willing banks, and you need regulatory approvals. A this point, it’s not clear whether Petronas’ consortium has the appetite for LNG in a timeframe that’s being proposed, and we don’t know what the financial institutions are willing to provide at this time.”