Shell-led LNG Canada eyes FID in 2016

OREANDA-NEWS. October 16, 2015. The Shell-led LNG Canada export project still expects to make a final investment decision (FID) in 2016 despite low oil prices, the head of the project said.

"A world in which oil is at \\$50/bl is really tough from the perspective of making a mega-investment decision," LNG Canada chief executive Andy Calitz said on the sidelines of the International LNG in BC Conference in Vancouver.

The construction period is expected to last five years, so LNG Canada could start exporting in 2021, he said.

Previously, LNG Canada said it expected to make an FID by April 2016.

The planned LNG Canada liquefaction terminal in Kitimat, British Columbia (BC) will cost an estimated C\\$25bn-\\$40bn (\\$19bn-\\$31bn), and the proposed 419 mile (675km) Coastal Gas Link pipeline to bring gas from the western Canadian sedimentary basin is expected to cost an additional C\\$4.7bn.

BC has two price advantages that will help overcome the current low oil price environment, Calitz said. First, the cost of shipping LNG from BC to premium markets in Asia will be about half of shipping cost from US Gulf coast projects to the same markets. Secondly, spot gas prices in western Canada are significantly lower than US Henry Hub benchmark prices. Prices at the NIT/AECO trading hub in Alberta are often about 50?/mmBtu less than the US benchmark, he said.

For delivery today, Henry Hub was \\$2.44/mmBtu while NIT/AECO was \\$2.07/mmBtu.

The reason that NIT/AECO prices are important to the project is that some of the partners are exploring buying all their feed gas at the hub while other partners plan to produce all their gas in the western Canadian sedimentary basin, he said, declining to elaborate.

"It will be a mixture between the two, so AECO is important," he said.

Many industry experts say Canadian LNG exports will still be at least \\$1/mmBtu more expensive than exports from US brownfield projects under construction, because of the significantly higher construction costs in Canada.

The economics of LNG Canada are still promising despite low oil prices, but the current environment is reducing the cash flow of the partners, making it difficult for them to commit to spending billions of dollars on construction, Calitz said.

Shell owns 50pc of the project, state-controlled PetroChina owns 20pc, and South Korea's state-owned Korea Gas and Japanese trader Mitsubishi each own 15pc. Each partner would secure its own gas and pipeline capacity, and have offtake rights corresponding to its equity.

Each partners must make a separate FID, and Shell has significantly different financial considerations because it will have to sell its supplies, while the Asian partners could bring LNG Canada supplies to their respective countries and pass on costs to consumers, Calitz said.

Only the projects that are most competitive and best connected to markets will make FIDs in the current low-price environment, he added.

Dozens of LNG export projects have been proposed in Canada, but none has made an FID because of competition from cheaper US projects and low oil prices.

The Pacific NorthWest LNG project on Lelu Island, BC, earlier this year made what it called a conditional FID and said it would finalize that decision after it gets Canadian environmental approval. BC officials expect the project to get that approval by early 2016 and begin construction soon after that.