VANCOUVER — Partners in the Shell-Canada-led proposal for a liquefied natural gas plant at Kitimat have formally incorporated their LNG Canada Joint Venture, the companies announced Wednesday, though they remain a long way from making a final investment decision on the potentially $12 billion project.
The consortium, which includes PetroChina, Korea Gas (Kogas) and Mitsubishi Corp., has already optioned a potential plant site in Kitimat from aluminum-producing giant Rio Tinto Alcan — that deal was secured in February — and incorporating the venture gives it the ability to sign contracts with potential suppliers and contractors, said the venture’s CEO Andy Calitz.
However, getting to a ‘yes’ is still a matter of formalizing long-term sales for LNG in Asia, where there is increasing pressure to reduce prices for North American gas.
“LNG Canada must compete across a portfolio of global options,” said Jorge Santo Silva, an executive vice-president in Shell’s North American operations, “but we remain optimistic that with the continued co-operation of all interested parties LNG Canada can offer a valuable global market for Canadian gas.”
Shell Canada’s parent, Royal Dutch Shell, has been paring back capital spending in other corners of the world in the face of poorer than expected financial results including cancelling plans to build a $20 billion US plant designed to convert natural gas into transportation fuels in Louisiana.
However, Shell increased its stake in LNG Canada to 50 per cent from 40 per cent taking up a portion of Kogas and Mitsubishi’s ownership. Both those partners will be 15-per-cent owners of the venture, down from 20 per cent when it was first formed. PetroChina remains as a 20-per-cent partner.
The partners are not expected to make an investment decision until 2015, and in the meantime Calitz said LNG Canada is continuing to advance the partners’ assessment of the proposal, including working with government to make sure it remains “economically viable.”
Premier Christy Clark and Natural Gas Development Minister Rich Coleman, who are about to embark on another LNG trade mission to Malaysia, Singapore and Hong Kong, were in attendance for Wednesday’s announcement.
And Clark maintained her boosterish tone about the still-distant LNG sector saying that “there’s more work to do, but momentum is clearly on our side.”
However, commodities expert Patricia Mohr recently reported that gas buyers in Asia are increasing the pressure to shift LNG away from prices indexed to expensive oil and towards prices linked to cheaper North American natural gas.
Mohr, vice-president of commodity research at Scotiabank Economics, in her latest report said prices remain a challenge for plants proposed for B.C. and containing construction costs on the capital-intensive Pacific plants would be “vital.”
