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In Kitimat, a tale of two projects with different comfort levels on LNG export costs

Vancouver, British Columbia (Platts)--15 May 2018 445 pm EDT/2045 GMT


Shell-backed LNG Canada is "so very close" to reaching a positive final investment decision for its proposed export terminal in Kitimat and expects to begin construction by the end of 2018, CEO Andy Calitz said Tuesday.

The disclosures, made during the second day of the Canada Gas & LNG Exhibition and Conference in Vancouver, came as a Chevron executive said Kitimat LNG, a second export terminal planned for the same area, needs to further lower its costs before moving forward and can't provide a timetable for reaching FID.

The contrasting postures of the two Western Canada projects reflect the differing views of market economics among developers and the level of risk they are willing to take at a time when global prices remain uncertain and future projections of global demand, while generally positive, vary from operator to operator.

"The time for LNG Canada is now," Calitz told industry leaders, engineers, consultants and investors gathered for the conference.

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FID EXPECTED IN OCTOBER: KITIMAT MAYOR

The mayor of Kitimat, Phil Germuth, told S&P Global Platts in April that based on conversations he has had with the developers of the proposed LNG Canada export project, he expects a final investment decision by October. That project is a joint venture of Shell, PetroChina, South Korea's Kogas and Japan's Mitsubishi. Calitz said at the conference that when LNG Canada opted in 2016 to delay FID, it was the right decision because market conditions were not favorable, in part because of cheap oil prices to which LNG contracts are often indexed.

Prices have rebounded of late, and there also is growing consensus of an expected LNG supply shortage during the early to middle part of next decade, lending support for more liquefaction capacity and exports.

"In 2016, I said our plan was to begin construction in 2018, and I reaffirm that," Calitz said in a brief interview.

KITIMAT LNG FOCUSED ON COST-CUTTING

Meanwhile, Kitimat LNG, backed by Chevron and Australia's Woodside Energy and proposed for a site at Bish Cove near town, continues to invest significant development funds and is working to lower costs. It isn't able to say when it will pull the trigger on FID, Rod Maier, a Chevron vice president of policy, government and public affairs who focuses on the company's Canada operations, said at the conference.

"We believe further cost reductions are required to be globally cost competitive," Maier said.

He urged the provincial and federal governments to further assist with helping Kitimat LNG lower its project costs.

"Can British Columbia get there? Absolutely," Maier said.

In a brief interview Maier said the project partners want to make sure they can secure financial backing, and that costs need to be appropriate to succeed in that effort. Chevron is still smarting from billions of dollars in cost overruns tied to its Gorgon LNG project off Australia.

"We take our lessons learned from all of our major capital projects around the world," Maier said.

With US developers facing challenges financing a second wave of LNG export projects, Canadian developers, especially in the western part of the country, are eager to prove they can be more competitive than the Gulf Coast as a supply source to Asia.

EASTERN CANADA PROJECTS ADVANCING

In Eastern Canada, developers also are advancing LNG export projects, though some are facing gas supply hurdles. Among those developers, a unit of Australia's LNG Limited, Bear Head LNG, has proposed an 8 mtpa or greater LNG export terminal in Nova Scotia.

At the conference, LNG Limited CEO Greg Vesey said the company's "big focus" right now is on securing the necessary gas supply to support the Nova Scotia project. The proposed terminal had wanted to access US shale gas from the Appalachian Basin via Williams' proposed Constitution Pipeline. But with that pipeline stalled due to regulatory hurdles in New York, Bear Head is in discussions with gas producers in Western Canada to move more gas to the East to serve its LNG project.

Vesey described those discussions as "favorable."

LNG Limited also is developing Magnolia LNG, an 8 mtpa or greater LNG export terminal in Lake Charles, Louisiana.

In an interview on the sidelines of the conference, Vesey said the company has secured firm commitments from buyers for 2 mtpa and is in discussions with offtakers regarding the rest of the project's capacity.

"We could probably do it at 75%, but I don't really like that. I just assume go the whole way," Vesey said.

He added, "There's a possibility we could get to FID before the end of the year."

--Harry Weber, Harry.Weber@spglobal.com

--Edited by Gail Roberts, newsdesk@spglobal.com




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