Royal Dutch Shell has suspended development of a liquefaction unit at Canada's Jumping Pound facility in Alberta, which was to be used to develop the emerging gas for transport market.

Gas liquefaction is increasingly being produced for use in transportation of large road vehicles, in trains, and as a shipping fuel.

"We believe LNG (liquefied natural gas) in transport is a considerable opportunity for Shell, but it is an emerging market and we must have a balanced approach to its development, (so) we have suspended development of the liquefaction unit at the Jumping Pound facility," a Shell spokseman said on Friday.

Shell is the major owner of the Jumping Pound complex in the southern Alberta foothills near Calgary,  which has produced natural gas since 1951 and has an overall production average of 300 million cubic feet per day.

Natural gas prices down

Shell said it was continuing work in the Canadian Green Corridor LNG project and the retail LNG program with Shell Flying J in Canada.

"This as another sign that the new CEO (Ben van Beurden) is applying a greater degree of discipline in allocating capital than was previously the case and is actively streamlining the 'options' in the portfolio which are to be pursued," Deutsche Bank said in a note.

The shale gas production boom has pulled down natural gas prices in North America, while at the same time new maritime environmental laws are raising the cost of oil in the shipping sector, making LNG competitive with oil in transport.  However, development costs remain high.

"This means making tough choices around the projects we develop in order redeploy our resources, focus our efforts and our capital to create the greatest value for our business," Shell said.

Too little infrastructure

Although shipping analysts say that the use of LNG to power ships is expected to dramatically increase by 2020, they also point to high development and maintenance costs as factors that are scaring off investors.

"Based on current investment levels and prices, retrofitting a vessel's engine to burn LNG produces a payback period longer than a vessel's asset life. In addition, availability of LNG and methanol as a bunker fuel remains scarce and the infrastructure simply isn't in place yet for bulk trades," ship broker ACM said in a report.