Shell not ready to green light $40B LNG Canada project yet

Despite widespread speculation Shell would announce whether it will proceed with LNG project on the B.C. coast, its top executives told analysts Thursday that the company is still doing its homework.

Energy giant says project is "very promising" but competitiveness still under study

A rendering of the proposed project by LNG Canada near Kitimat, B.C. (LNG Canada/Flickr)

Global energy giant Shell is still examining plans for a massive liquefied natural gas terminal on the northern coast of British Columbia, but company officials said Thursday the $40-billion project looks "very promising."

Despite speculation Shell would announce a decision on the LNG Canada project during its second quarter conference call, its chief financial officer Jessica Uhl told analysts the facility's future is still under study.

"LNG Canada looks very promising and together with our partners we need to finalize consideration of a few key items before we can take a positive final investment decision," Uhl said.

"We see great opportunities but we also have clear expectations when it comes to competitiveness, affordability and returns."

Shell leads a consortium of companies behind LNG Canada, which would build a liquefied natural gas export facility at Kitimat, B.C. 

There is widespread support from Canada's energy sector for the project.

The LNG industry has struggled to take off in British Columbia, but is booming in the United States, where billions of dollars are being pumped into natural gas pipelines and LNG facilities.

In recent months, however, the LNG Canada project has been building momentum, leading some analysts to suggest a positive decision is imminent. 

This month, Houston-based Civeo Corp. was awarded a contract to supply temporary work camps at four locations along the Coastal GasLink pipeline from Dawson Creek, B.C., to the West Coast, on the condition that the liquefied natural gas export terminal is built.

But Uhl said Thursday the company is still doing its homework.

Shell needs to know if the LNG Canada project will be resilient, generating positive free cash across a "range of commercial and energy transition scenarios," she said. 

Uhl added that the company also needs to ensure the project is financially competitive and, longer term, carbon competitive, particularly in comparison with opportunities in the Gulf of Mexico.

The company believes there will be supply gap for LNG in the early 2020s.

Uhl spoke highly of the project's potential.

"We have an attractive portfolio of new supply options ... [and] want to select the most competitive source of supply. ​LNG Canada is the most mature of these options," she said.

"LNG Canada has access to abundant and low cost gas and short shipping distance to North Asia. It also has lower greenhouse gas emission intensity than any comparable operating LNG plant."

Uhl said the company expects to make a final investment decision this year.

Martin King, director of institutional research at GMP FirstEnergy, said he was a little surprised not to hear an announcement from Shell on the project Thursday, but he is optimistic it will proceed.

"It seems like they're kind of beating the drums of support for this thing and just trying to get the last of the stuff lined up before making this final decision," King said.

"There still could be other issues with their joint venture partners still doing their own arithmetic and looking at the financial returns on this project," he said.

"It just may be getting everybody on the last, final page here and in agreement."

King believes the project makes economic sense for Shell, but will also have wider benefits in terms of jobs, royalties and taxes. It should also improve investor sentiment for natural gas in Western Canada, he said. 

"It's not going to repair everything and it's certainly not going to rescue prices tomorrow because this project is not really going to be done for upwards of five years from now," King said.

"But I think certainly it helps the overall sentiment, which has been extremely negative for the last couple of years."