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The Next Cycle of LNG Investments Is Set to Kick Off in Canada

Published 09/27/2018, 04:40 AM
Updated 09/27/2018, 07:11 AM
© Bloomberg. Gas pipes sit near a liquefied natural gas (LNG) storage tank under construction at Tokyo Electric Power Co.'s (Tepco) Futtsu gas-fired thermal power plant in Futtsu, Chiba Prefecture, Japan, on Monday, Sept. 10, 2018. Japan will maintain a target for clean energy to account for as much as 24 percent of the countrys power mix by 2030, according to a long-term plan approved by the Cabinet in July. Photographer: Tomohiro Ohsumi/Bloomberg

(Bloomberg) -- The next LNG investment cycle may be primed for a liftoff.

Royal Dutch Shell (LON:RDSa) Plc and its partners are set to announce a final investment decision on their C$40 billion ($31 billion) liquefied natural gas terminal in western Canada as early as next week, Bloomberg reported Wednesday. This would be the first FID for a greenfield, onshore export project since Russia’s Yamal LNG in December 2013, according to Fauziah Marzuki, an analyst at Bloomberg NEF.

“We think 2019 could be the biggest year of LNG FIDs ever,” Nicholas Browne, an analyst with Wood Mackenzie Ltd., said by email.

The decision may be the start of a wave of investments for major gas export projects after a supply glut and a price collapse forced the nearly five-year hiatus. Booming demand growth means that 11 projects, including LNG Canada, are likely to receive FID by the end of 2019, according to BNEF.

“The sanctioning of LNG Canada would mark a potential turning point in the LNG market, signaling the industry’s appetite to invest has returned,” Saul Kavonic, Credit Suisse (SIX:CSGN) Group AG’s director of Asia energy research, said by email. “Even new large scale greenfield projects are back on the agenda, after a dearth of project FIDs over the last few years.”

LNG Canada’s decision was put off twice in 2016, but the outlook for LNG has brightened. Demand is expected to grow rapidly due to an uptick in consumption from Asian nations, led by China. The market, which had been oversupplied for the last few years, is seen flipping to a deficit as soon as 2022 absent new projects, according to Sanford C. Bernstein & Co.

The LNG Canada investors -- Shell, Mitsubishi Corp., Malaysia’s Petroliam Nasional Bhd., PetroChina Co. and Korea Gas Corp. -- are set to make a final decision soon, and preparations are underway for an Oct. 5 announcement and event in Kitimat, British Columbia, the site of the proposed project, said people with direct knowledge of the activities, who asked not to be identified. The situation is fluid and timing could change, the people said.

With the capacity to eventually export as much as 26 millions tons per year, primarily to Asia, it would also be one of the world’s largest LNG terminals.

The progress in Canada contrasts with potential speed bumps in the U.S., as a burgeoning trade war with China is seen potentially choking off investments from the Asian nation, the world’s fastest-growing gas consumer. Beijing earlier this month slapped a 10 percent tariff on American LNG imports, which is seen shifting Chinese investments to projects in other countries including Canada, Australia, Qatar and Russia.

While the project hasn’t signed any major offtake agreements yet -- which is uncommon for a plant nearing FID -- isn’t seen impeding investment.

‘Heavy Weights’

“As LNG heavy-weights like Shell and Petronas are spearheading the project, funding is unlikely to be a major concern,” said BNEF’s Marzuki. The project investors “are well established LNG players. It is likely they will be the primary offtakers for the volume.”

Each of the five partners already produce gas in Canada and will take LNG cargoes in proportion with their ownership stake in the projects, which they can earmark for short-term, long-term or spot contracts as they see fit, Andy Calitz, chief executive officer of LNG Canada, said in an interview earlier this month.

“It’s arranged in the global crop of energy projects in quite a unique way,” Calitz said. “You won’t find another like it. That’s what makes this the Dream Team of joint ventures.”

© Bloomberg. Gas pipes sit near a liquefied natural gas (LNG) storage tank under construction at Tokyo Electric Power Co.'s (Tepco) Futtsu gas-fired thermal power plant in Futtsu, Chiba Prefecture, Japan, on Monday, Sept. 10, 2018. Japan will maintain a target for clean energy to account for as much as 24 percent of the countrys power mix by 2030, according to a long-term plan approved by the Cabinet in July. Photographer: Tomohiro Ohsumi/Bloomberg

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