BG deal affects B. C.’ s LNG

Shell unlikely to build competing export terminals

Royal Dutch Shell PLC’s $ 70- billion US takeover offer for BG Group will likely mean one fewer LNG project for Canada’s West Coast.

In investor presentation documents related to its mega- deal with BG released Wednesday, Shell has identified BG’s proposed Prince Rupert LNG facility in British Columbia as an asset that overlaps with its own LNG Canada project.

Analysts believe it is unlikely the combined company will build both multibillion- dollar facilities.

In a conference call announcing his company’s massive deal, Shell chief executive Ben van Beurden said, “The BG portfolio also brings important new LNG optionality to Shell. In Canada, for instance, both companies have plans on the drawing board for LNG exports from the West Coast of British Columbia. There is clearly some scope for review there, as you can imagine.”

The boards at both Shell and Reading, U. K.- based BG Group endorsed the cash and stock takeover announced late Tuesday.

The deal would turn Shell into one of the most dominant players in the global LNG market.

RBC Capital Markets analyst Biraj Borkhataria said in a note that “BG’s LNG portfolio combined with Shell’s would represent ( 40 megatonnes per annum) or roughly 16 per cent of the global LNG market, further propelling Shell’s position as a leader in this area.”

However, the transaction could make BG’s B. C. LNG project redundant.

In October, BG said it would delay a final investment decision on the Prince Rupert proposal beyond 2016, but insisted it wasn’t abandoning the project. BG declined a request for comment Wednesday.

The company has publicly said that, if built, Prince Rupert LNG would produce 21 million tonnes of LNG for export annually and create 3,000 jobs during the construction phase along with a further 400 to 600 permanent jobs.

In the meantime, said Noel Tomnay, the head of Wood Mackenzie’s LNG research team, “in the last six months, all the senior folks in the BG Canadian organization have all left.”

Once the Shell- BG deal closes in 2016, Tomnay expects Shell’s $ 40billion, 24 million- tonne- per- year LNG Canada project near Kitimat, B. C. to be built while Prince Rupert LNG is shelved.

“The Shell project has got buyers in the partnership, it’s developing the pipeline, it’s well ahead with the engineering — so the Shell project is well advanced,” he said.

Similarly, Warwick Business School associate professor Christian Stadler said it was unlikely Shell would build competing LNG projects in Canada.

LNG Canada includes plans for a pipeline built by TransCanada Corp. to connect the liquefaction plant with natural gas fields in northeastern B. C. and is currently in the middle of a regulatory review process.

“We see no signs of Shell putting down the tools at all on that project. As a matter of fact, Shell has come out publicly and said North American LNG projects are some of their priorities globally,” TransCanada president of natural gas pipelines Karl Johannson said in an interview at a Toronto energy conference. “We are still pretty confident that we are attached to a winner.”

LNG Canada and Shell Canada declined requests for comment.

This week, Moody’s Investors Service said in a report that most of the LNG projects proposed in B. C. would be nixed as a result of the oil price collapse because crude prices are used to negotiate LNG delivery contracts with buyers in Asia.