Shell makes LNG Canada FID; Coastal GasLink pipeline advances

Shell Canada Energy has taken a final investment decision on its 14-million tonne/year liquefaction joint venture, LNG Canada, in Kitimat, BC, allowing work to begin immediately. TransCanada Corp. will build, own, and operate the 2.1-bcfd Coastal GasLink pipeline that will deliver gas to the plant. Coastal GasLink is a 420-mile project extending from Montney shale production near Dawson Creek, BC, to the LNG Canada facility. It will be expandable up to 5 bcfd. Construction is expected to begin early 2019 to meet a planned 2023 in-service date.

LNG shipped from LNG Canada will target Asia’s natural gas market. “Global LNG demand is expected to double by 2035 compared with today,” said Royal Dutch Shell PLC Chief Executive Officer Ben van Beurden, “with much of this growth coming from Asia where gas displaces coal.” The company believes the cost to deliver LNG into Asia from LNG Canada is structurally advantaged compared with greenfield developments on the US Gulf Coast, citing a roughly 50% shorter shipping distance to North Asia.

A JV of JGC and Fluor Corp. will serve as the project’s engineering, procurement, and construction contractor. The plant will be built under a single lump-sum EPC contract on a partially developed industrial site with existing deepwater port, roads, rail, and power supplies at an estimated cost of $14 billion.

Shell owns 40% of LNG Canada. Other participants are Petronas subsidiary North Montney LNG LP 25%, PetroChina Canada Ltd. 15%, Mitsubishi Corp. subsidiary Diamond LNG Canada Ltd. 15%, and Kogas Canada LNG Ltd. 5%.

Each participant will be responsible for providing its own gas and will individually offtake and market its own LNG. Shell said its Groundbirch asset in northeast British Columbia can provide most of its equity share of gas or that it will buy gas from the market, depending on which option provides the most value. LNG Canada has a 40-year export license in place as well as all major environmental permits for both the plant and the associated pipeline.

Shell’s FID “signals the return of megaprojects,” according to consultants Wood Mackenzie Ltd. After the Shell announcement, Dulles Wang, WoodMac director, North America gas, said, “This is the first LNG export project to reach FID in Canada and the first greenfield LNG export project globally in 5 years.”

WoodMac estimates initial project costs at $18 billion for the LNG plant and $3.5 billion for the Coastal GasLink pipeline. Upstream costs will be incurred by each of the project partners.

“This would make LNG Canada the biggest project sanction globally since the Tengiz expansion was approved in 2016 and the biggest greenfield project to be sanctioned since Yamal LNG in 2013,” Wang said. “It seems that megaprojects are back.”

The analyst noted “drastic improvement in the LNG market over the past 12 months, driven by buoyant demand in China.” He cited several projects approaching FID, including Qatar Petroleum’s four megatrains, Total and Novatek’s Arctic LNG-2, at least one development in Mozambique, and several US projects.

“We believe 2019 could be the busiest year of LNG FIDs ever,” he said.

Contact Christopher E. Smith at [email protected].