Canadian natural gas project bucks trend
FID achieved without committing all or most of its output
KUALA LUMPUR: The developers of a C$40bil (RM129.1bil) project to export Canadian natural gas are taking on a bold strategy – build now and worry about buyers later.
After a decade of planning and negotiations, Royal Dutch Shell Plc and four partners, including Petroliam Nasional Bhd (Petronas), were said to have given formal approval to build the gas-liquefaction and export terminal in British Columbia.
The super-chilled fuel that is produced at the complex will be divided up among the partners, who will each be free to sell it however and to whomever they please, according to the joint venture LNG Canada’s chief executive Andy Calitz.
That this gas-export project achieved the key milestone known as final investment decision, or FID, without committing all or most of its output to 15 or 20-year supply contracts is a major departure.
From Australia to Africa, LNG developments typically have been underpinned by long-term sales contracts to minimise financial risk on multi-billion-dollar investments that can take half a decade or longer to construct.
“What you are essentially seeing is speculative development, of using a model that has not been traditionally the model for developing big LNG projects in the past,” said Jason Feer, head of business intelligence at Poten & Partners Inc.
“Most LNG projects that went to FID had pre-sold a significant percentage of their output via long-term contracts,” he said.
Shell commands the biggest stake in LNG Canada at 40%, with Petronas owning 25% through its unit, the North Montney LNG Ltd Partnership.
Mitsubishi Corp and PetroChina Co each own 15% respectively, while the remaining 5% is held by Korea Gas Corp.
In Kuala Lumpur, Petronas announced it had taken the FID on LNG Canada.
“The final investment decision with our joint venture participants is a significant milestone for Petronas and for the energy industry in Canada.
“The decision is a testimony of the strong collaboration among our partners and stakeholders who share the same aspiration of delivering long-term value via LNG, in line with our commitment to sustainable and responsible development of resources,” its president and group CEO Tan Sri Wan Zulkiflee Wan Ariffin said in a statement.
He said the project would pave the way for the group to add value to its gas resources in the North Montney area and strengthen its supply portfolio for LNG to the Asian markets.
The LNG export facility, which will be built in Kitimat, British Columbia, includes the design, construction and operation of a natural gas liquefaction plant and facilities for the storage and export of LNG, including marine facilities.
LNG Canada will initially consist of two LNG liquefaction processing units referred to as “trains,” for a total of about 14 million tonnes per annum with the potential to expand to four trains in the future.