Shell Defers Final Investment Decision On LNG Canada Project

Integrated energy major Royal Dutch Shell (LON:RDSa) plc RDS.A and its partners are yet to take the decision on export of liquefied natural gas from Canada’s Pacific coast to Asian markets. The firms are skeptical about the instability in global energy markets and thus, are indecisive about the export.

Shell, along with its partners, decided to put off the final investment decision as the project has become too expensive to proceed with due to a drop in natural gas prices around the world, especially in Asia.

Natural gas prices are way below the heights reached some years back. Natural gas has plummeted around 85% from the peak of about $13.50 per MMBtu in 2008 to just over $2.5 now. Hence, stalling the project for the time being seems to be the best option for the companies as it will help them to avoid costs of around $40 billion, which will otherwise be required to build the LNG Canada project. Post construction, this project will be able to export up to 24 million tons of liquefied natural gas per year.

In the consortium, Shell has a 50% ownership. PetroChina Company Limited (NYSE:PTR) , the largest integrated oil company in China, has a 20% interest. Mitsubishi Corp. of Japan and Korea Gas Corp. hold 15% stake each.

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Royal Dutch Shell owns a strong and diversified portfolio of global energy businesses that offer attractive long-term growth opportunities. The group’s strong inventory of development projects and increased capital expenditures are expected to support volume growth in the long run. Also, Shell’s $50 billion buyout of BG Group is expected to further boost its already strong and diversified portfolio.

As a result, the company currently carries a Zacks Rank #2 (Buy), implying that it will outperform the broader U.S. equity market over the next one to three months.

Other well-ranked players in the same sector are Chevron Corporation (NYSE:CVX) and Sasol Ltd. (NYSE:SSL) . Both stocks sport a Zacks Rank #1 (Strong Buy).