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LNG Canada goes full speed ahead

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LNG Canada goes full speed ahead

The C$40 billion LNG Canada export project on the country's west coast landed a highly anticipated final investment decision from its joint venture investors, kicking off the next wave of natural gas liquefaction and export plants in North America.

Following years of delay, the final investment decision, or FID, for the Royal Dutch Shell PLC-led project was the first in five years for a large LNG export terminal anywhere in the world that would be built from the ground-up instead of adapted from an existing terminal, and the first such decision for a Canadian LNG export proposal, according to the research firm Wood Mackenzie.

Days prior to the FID, the project received internal approvals from two Asian partners, PetroChina Co. Ltd. and Korea Gas Corp. The joint venture participants, which also include Malaysia's Petroliam Nasional Bhd. and Japan's Mitsubishi Corp., will provide natural gas supply and individually offtake and market their share of LNG, according to an Oct. 1 news release. First LNG from the facility is expected before the middle of the next decade.

The FID was previously scheduled for the end of 2016, but postponed amid capital constraints and unfavorable market conditions. LNG Canada has since "improved its competitiveness, reduced execution uncertainty and gained significant stakeholder support," said Maarten Wetselaar, integrated gas and new energies director at Shell.

Analysts said the LNG Canada decision might signal the return of investments in multi-billion-dollar gas export projects, which are expected to be needed avoid a supply shortage next decade. Shell has been among the most vocal in a chorus warning of a coming LNG supply shortage. Citing factors such as global GDP growth, urbanization, and policies to clean up air and curb carbon emissions, Shell projected LNG demand will double by 2035.

"The supply gap is expected to open up in the first half of the next decade," Wetselaar said during an Oct. 2 conference call. "And LNG Canada is well placed to be a competitive new supply source to fill that demand."

Sanford C. Bernstein & Co. LLC analysts said in a research note that the announcement "is the start of a major LNG investment wave, and Shell will be at the winning end with 25% LNG market share."

Over a dozen other LNG projects have been proposed for western Canada, though several efforts have also been shelved. "Clearly, at some point or another, a lot of companies have thought that western Canada was the place they should be doing business," Nikos Tsafos said in an interview. Tsafos is a senior fellow at the energy and national security program at the Center for Strategic and International Studies in Washington. "Now does this open the gate, or is this a one-off?"

Despite the similarly large-scale Trans Mountain oil pipeline expansion being stopped in its tracks just weeks ago, optimism is high in Canada that LNG Canada will go ahead.

British Columbia's provincial government, First Nations groups and environmental activists appear to have bought into the LNG export idea, although the latter view the C$40 billion project with some trepidation. While variants of all three groups went to court and were successful in having permits for the Trans Mountain project quashed, the response to Shell's decision to move forward with its project has been much more muted.

The British Columbia socialist government's environmental rationale for allowing the massive LNG development is that it will reduce carbon emissions in the Asia-Pacific nations where the fuel may be used to reduce coal-fired power generation. The province will also see its revenue take from massive shale gas fields in the province's northeast soar, it will receive taxes from the project, and all of the project's construction and operations will take place in wilderness areas far from the highly urbanized Lower Mainland.

The response of British Columbia's government showed its preference for the natural gas project over the oil line. "Today's decision by LNG Canada to invest in northern B.C. demonstrates that balancing our economic, environmental and reconciliation priorities is possible," Premier John Horgan said in an Oct. 2 statement. By contrast, Horgan said Aug. 30 that the province joined the appeal of Trans Mountain's permits "to defend British Columbia's interests, and to highlight the risks to the province's environment and economy."