Shell postpones final investment decision on Kitimat LNG project

LNG Canada CEO insists final investment decision could still take place in 2016

In October, Andy Calitz, CEO of LNG Canada, said Shell would be making its FID in 2016 | Nelson Bennett

The fate of a multi-billion dollar liquefied natural gas project is now in question, following Royal Dutch Shells plc’s announcement today that it is postponing a final investment decision (FID) on its LNG Canada project in Kitimat.

Shell had publicly stated in 2015 that it planned to make a final investment decision on the project – with an estimated capital cost of $40-$50 billion – in 2016. Industry insiders were expecting an FID by mid-2016.

Shell is now pushing back the date of that decision, as part of cost-cutting measures aimed at stemming the bleeding from a prolonged oil price slump.

The company announced in a fourth quarter earnings call February 4 that it will cut 10,000 jobs and plans to reduce capital and operating spending by US$33 billion in 2016 by shelving or postponing a number of capital project, including the LNG Canada project in Kitimat.

“For 2016, we have exited the Bab sour gas project in Abu Dhabi, and are postponing final investment decisions on LNG Canada and Bonga South West in deep water Nigeria,” Shell CEO Ben Van Beurden said in a press release.

In a presentation to investors and analysts, Van Beurden qualified the new FID timeline for LNG Canada: “We are postponing a final investment decision on LNG Canada right to the end of this year.”

But according to Andy Calitz, CEO of LNG Canada, a final investment decision could still be taken in 2016 – which is to say more towards the end of 2016.

“We have always stated that our joint venture participants plan to make a final investment decision in 2016,” Calitz said in a written statement.

“We are pleased, given the current oil and LNG prices, and turmoil in global energy markets, that the joint venture participants in LNG Canada are still working towards a final investment decision for the proposed facility later this year.”

Shell’s earnings were down 44% in the fourth quarter compared with the fourth quarter of 2014, and its cash flow for Q4 2015 was US$5.4 billion, compared with US$9.6 billion in Q4 2014. 

One other LNG project is also in question – the Prince Rupert LNG project proposed by BG Group. Shell announced plans in 2015 to acquire BG Group for US$69 billion. That deal will be finalized later this month.

It seems highly unlikely that the BG project in Prince Rupert will go forward, as Van Beurden said, “only the most competitive projects are going ahead.”

Questions have also been raised over Petronas’ ability to execute its final investment decision on its Pacific NorthWest LNG project in Prince Rupert.

Whereas Shell’s LNG project has all its environmental certificates in hand, Petronas is still waiting for the Canadian Environmental Assessment Agency to make a decision.

However, as Business in Vancouver reported last week, Petronas has recently leased two floors of office space at Park Place tower – an indication it still plans to move forward.