By Jessica Jaganathan and Julie Gordon
SINGAPORE/VANCOUVER (Reuters) - A massive liquefied natural gas (LNG) export project in Canada has been given the final go-ahead by project partners, LNG Canada said on Tuesday, making it the first major new project for the fuel to win approval in recent years.
First gas from the project is expected before 2025, aiming to feed an expected surge in demand for the cleaner, super-chilled fuel from hungry Asian buyers, mainly China.
LNG Canada is the single largest private sector investment project in Canadian history, Prime Minister Justin Trudeau said in a statement issued by LNG Canada. Overall investment for the whole project wasn't disclosed in statements on Tuesday, but was previously put at about C$40 billion ($31 billion).
The announcement provides a much-needed boost for Trudeau's ruling Liberals, who have struggled with an exodus of global majors from Alberta's oil sands and a series of setbacks in building a crude pipeline expansion to Canada's West Coast.
The project will allow LNG to be shipped to Asian markets far faster than from the U.S. Gulf Coast. With global LNG demand expected to double by 2035 compared with today, much of the growth will come from Asia where gas is displacing coal, chief executive of Royal Dutch Shell (LON:RDSa) Ben van Beurden said in a separate statement.
"LNG Canada is well positioned to help Shell meet the growing needs of customers at a time when we see an LNG supply shortage in our outlook," he said.
Stakeholders Shell, Malaysia's Petroliam Nasional Bhd (PETR.UL), PetroChina Co Ltd, Korea Gas Corp (KOGAS) and Japan's Mitsubishi Corp have all given final investment decisions, LNG Canada said on its website.
Shell said construction of the project at Kitimat in British Colombia will start immediately, with first LNG expected before the middle of next decade.
In its own statement, Mitsubishi said the total estimated development cost of the planned Kitimat LNG plant is about $14 billion. The cost for the liquefaction plant and a 670 kilometre pipeline to connect gas to the plant will exceed 2 trillion yen ($17.6 billion), a company official said.
Shell said the project will initially export LNG from two processing units or trains totalling 14 million tonnes per annum (mtpa). The project may add two more trains totalling 14 million tpa, Mitsubishi said, adding the project will diversify its LNG supply portfolio.
PetroChina and KOGAS approved project financing late last week while Shell, Petronas and Mitsubishi made their announcements on Tuesday.
KOGAS said this will be Korea's first major project in Canada.
The joint venture of JGC-Fluor Corp has been appointed as the project's engineering, procurement and construction contractor.
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LNG Canada is the first very large-scale conventional new LNG project to reach a final investment decision (FID) since 2013, said Saul Kavonic, director for Asia Pacific markets and head of energy research at Credit Suisse (SIX:CSGN) in Australia.
"We see that LNG Canada's FID would signal the appetite to invest in LNG is back," Kavonic said.
The project owners will be responsible for providing their own natural gas supply and will individually offtake and market their share of LNG, LNG Canada said in the statement. In the past, project owners typically relied on long-term sale and purchase agreements with end-users to underpin financing.
The construction decision also comes amid a Sino-U.S. trade spat that has led to tariffs being imposed by China on LNG shipments from the United States, threatening U.S. President Donald Trump's energy dominance plan.
Energy consultancy Wood MacKenzie said it appeared the project partners had pushed hard to reach an investment decision, with rival projects being progressed in Qatar, Russia, Mozambique and the United States.
"I don't see it as a case of replacing U.S. cargoes, more about meeting projected demand growth," said Wood Mackenzie analyst Nicholas Browne.
WoodMac expects global LNG demand to grow from 290 million tonnes in 2017 to nearly 450 million tonnes in 2025.
"That equates to a phenomenal 50 percent growth. So there is certainly demand for new LNG," said Browne.