LNG Canada is one of a number of liquified natural gas projects that could soon get the green light as global energy companies look to capitalize on a widening supply gap expected within five years. LNG Canada image.
LNG Canada looks very promising”: Shell CFO Jessica Uhl
Global energy giants seeing a growing LNG supply gap in the next five years are racing to build multi-billion dollar liquified natural gas plants after years of stalling the expensive projects.
LNG Canada, an LNG plant located in Kitimat, British Columbia, is one of the revived projects that is reportedly getting closer to getting the go-ahead. LNG Canada is a joint venture among Shell, PetroChina, KOGAS and Mitsubishi.
According to Reuters, Shell is close to deciding on the development of the project, which would be the company’s first LNG facility built since 2011.
“We expect a supply gap in the gas market in the early 2020s … LNG Canada looks very promising,” Shell Chief Financial Officer Jessica Uhl told Reuters last month.
In 2014 when energy prices collapsed, so did spending on new facilities that super-chill natural gas into liquid, which allow it to be transported. Investors became highly critical of LNG projects due to ballooning costs. Chevron’s $54 billion Gorgon project in Western Australia is the most expensive in history.
As well, there were a number of LNG plants built before 2010, resulting in a large supply glut lasting years.
But, in the past year, rising oil prices and strong demand from growing economies, including China and India, have boosted confidence in the industry. According to Bernstein analysts, global LNG demand grew by 12 per cent last year and is expected to grow by 10 per cent in 2018.
“The supply-demand balance definitely looks more favourable towards producers these days,” Philippe Sauquet, the head of gas at France’s Total, the world’s second largest LNG trader after Shell, told Reuters.
“China will continue to make the real difference in demand. I don’t see them slowing down. They are shifting attention to building more and more infrastructure,” Sauquet told Reuters.
China is also shifting its power generation from coal-fired plants to natural gas, which will also boost LNG demand significantly. Natural gas is seen playing a crucial role in the world’s efforts to cut greenhouse gas emissions in order to tackle climate change.
And, in recent years, Shell and BP have produced more natural gas than oil.
According to Bernstein, the global LNG network will call for over 200 million tonnes per year (mtpa) of new supply through to 2030, or about 25-30 mtpa per year in new capacity additions to 2025.
“We believe 60 mtpa needs to be sanctioned by 2020 and a further 100+ mtpa between 2020-2025 to ensure markets are adequately supplied,” Bernstein said.
According to Reuters, most of the growth in supply is expected to come from the United States thanks to rising supply and lower production prices due to shale production.
Service costs remain low following the 2014 crash in oil prices and new technologies have simplified and helped improve designs, making new LNG projects for attractive to capital investment.
Along with LNG Canada, other projects are getting closer to being built.
Exxon now owns a 25 per cent stake in Eni’s Rovuma development in Mozambique. A final investment decision on the project by its partners, Exxon, Korea Gas Corp and China National Petroleum Corporation, is expected by next year. The project which is expected to produce about 15 million tonnes of LNG per year could be up and running by 2023-2024.
Shell is also partners in the Nigeria LNG processing plant, along with Nigerian National Petroleum Corporation, Total and Eni. The partners are considering expanding the plant to boost its capacity to 30 mtpa.
BP and its parter Kosmos Energy is expected to decide on the fate of the Tortue field off the coast of Senegal and Mauritania by 2019.