Royal Dutch Shell plc and its partners are working to make their proposed Kitimat, B.C., LNG project “affordable and competitive” ahead of a final investment decision (FID), says Shell’s top executive in Canada.
“I'm cautiously optimistic,” said Michael Crothers, president of Shell Canada.
He made the comments on Wednesday at the ARC Energy Investment Forum, a wide-ranging conference held by the ARC Energy Research Institute and moderated by Peter Tertzakian and Jackie Forrest.
Shell’s partners in the proposed Kitimat project, which is called LNG Canada, are Mitsubishi Corporation, PetroChina and Korea Gas Corporation (KOGAS).
Crothers noted the group recently chose Japan’s JGC Corporation and Fluor Corporation of the U.S. to do the project’s engineering, procurement and construction.
“We keep methodically working through the process. … We're getting cost estimates finalized [and working] on the economics,” he said.
“We don't have a definitive time line for FID,” he added. “But we're working through and managing these issues and making the project all the more affordable and competitive as we go.”
LNG Canada had previously indicated it was looking at an FID this year. Crothers, who wasn’t available for clarification after his conference remarks, didn’t say whether his comment on Wednesday was a departure from from earlier schedule estimates.
He added: “We're just doing everything we can to make this a success and convince our shareholders — not only in Shell but our JVPs [joint venture partners] as well — that this is the project that should be the next big global LNG investment.”
Royal Dutch Shell plc and its partners are working to make their proposed Kitimat, B.C., LNG project “affordable and competitive” ahead of a final investment decision (FID), says Shell’s top executive in Canada.
“I'm cautiously optimistic,” said Michael Crothers, president of Shell Canada.
He made the comments on Wednesday at the ARC Energy Investment Forum, a wide-ranging conference held by the ARC Energy Research Institute and moderated by Peter Tertzakian and Jackie Forrest.
Shell’s partners in the proposed Kitimat project, which is called LNG Canada, are Mitsubishi Corporation, PetroChina and Korea Gas Corporation (KOGAS).
Crothers noted the group recently chose Japan’s JGC Corporation and Fluor Corporation of the U.S. to do the project’s engineering, procurement and construction.
“We keep methodically working through the process. … We're getting cost estimates finalized [and working] on the economics,” he said.
“We don't have a definitive time line for FID,” he added. “But we're working through and managing these issues and making the project all the more affordable and competitive as we go.”
LNG Canada had previously indicated it was looking at an FID this year. Crothers, who wasn’t available for clarification after his conference remarks, didn’t say whether his comment on Wednesday was a departure from from earlier schedule estimates.
He added: “We're just doing everything we can to make this a success and convince our shareholders — not only in Shell but our JVPs [joint venture partners] as well — that this is the project that should be the next big global LNG investment.”
LNG Canada site flyover animation.
AECO price support
In interviews for stories on West Coast LNG published in the Bulletin earlier this week, industry players and observers suggested exporting natural gas to Asia as LNG would be a game changer for Western Canada’s gas industry.
If built, LNG Canada’s first two-train phase would ship about 1.84 bcf/d of gas to Asia. A later second phase, if approved, would export the same amount.
Shipping that volume of gas west would free up an equivalent amount of eastbound pipeline capacity. Those interviewed by the Bulletin agreed this could only help the benchmark Alberta gas price, and Crothers expressed a similar sentiment on Wednesday.
“It's 14 million tonnes per annum [of LNG that would be exported, or about 1.84 bcf/d],” he said of the first phase. “And [while] we wouldn't back-fill our current gas production as JV partners … there'd be a significant support to AECO and our gas business in Canada, if we can get this going.”
He said a second phase “would be even more cost competitive” than the first phase. An expansion of an existing liquefaction project would enjoy a first-mover advantage over potential greenfield projects because it's cheaper to expand an existing operation.
Resilient global demand
Prospects for West Coast LNG exports brightened last year after Asian gas prices bounced back sooner than global LNG market watchers expected.
“I don't think people understand how resilient the LNG demand actually is, probably because the demand isn't as transparent as the supply picture,” Crothers said. While new supply being added is easy to calculate by tracking new projects coming onstream, the demand side is harder to track.
He noted LNG demand last year was 30 per cent higher than expected.
“We’re quite bullish about this,” he said of Shell’s global LNG outlook.
“From Shell's perspective, this is the best site on the West Coast,” Crothers said, adding that he was speaking for Shell, not the other LNG Canada partners.
He said the Kitimat location has pros and cons.
“We've got fantastic transit time — only eight days transit time— to get to Tokyo Bay. We have a fantastic resource in our Groundbirch asset in the Montney, which is essentially stranded or getting more stranded. And unfortunately people [are] suffering with the AECO pricing.”
With U.S. shale gas backing out western Canadian gas from its traditional eastern Canadian and eastern U.S. markets, Crothers said the question is: “How can we get that gas offshore?
“We know it's the lowest CO2 intensity gas in the world. We know we have a fantastic opportunity to eliminate coal combustion in places like China to the tune of 50 million tonnes per year.”
But along with those advantages comes the cost of building in Kitimat.
“It is a remote location. You have high precipitation. And you've got to fly your workers in and out, build work camps. All that is the challenge,” Crothers said.
And so as it goes through the front-end engineering, the proposed Kitimat project, he said, is competing for funding against opportunities such as an expansion of existing LNG facilities on Sakhalin Island in Russia and Lake Charles on the U.S. Gulf Coast.
