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Shell approves $12bn liquefied natural gas project

Shell has approved a $12bn (£9.3bn) investment in a mega energy project to send supercooled gas from Canada to China and other Asian countries as they turn from coal to gas.

The scheme will be Canada’s biggest ever infrastructure project and is the world’s first major liquefied natural gas project to be given the go-ahead in five years. Shell has a 40% stake in the $31bn Canada LNG joint venture, along with Malaysian, Chinese, Japanese and South Korean energy firms.

The world’s appetite for LNG, where gas is cooled to -162C (-259.6F) so it can be shipped in huge tankers, had exceeded expectations in the past year and made the project viable, Shell said.

China is forecast to massively increase its consumption of LNG as it looks to gas as a solution to its air pollution problems caused by coal power stations.

“We believe LNG Canada is the right project, in the right place, at the right time,” said the company’s chief executive, Ben van Beurden. Shell is the world’s leading trader of LNG, thanks to its £47bn acquisition of gas firm BG Group three years ago.

But earlier this year the company said an LNG supply crunch would occur in the next decade because of a lack of new projects and rising demand, which it expects to double by 2035.

Construction will begin immediately on the Canada project, with gas ready to ship in the mid-2020s, potentially as early as 2023 according to some analysts.

Jessica Uhl, Shell’s chief financial officer, said: “We believe the market needs more supply – and the timing of when this project will come onstream sits nicely with the market fundamentals.”

The Anglo Dutch firm said the Canada LNG project would be more competitive than rival US projects, because supplies would reach Asian countries in 10 days rather than 24 days for gas shipped from the US Gulf, which has to travel via the Panama canal.

“Regardless of what others are doing, this is the most competitive to be built,” Uhl said.

The scheme will be reliant on a new 416-mile pipeline being built to transport gas from fields in northern British Columbia to the coast, where it will be processed and stored before being transferred to tankers.

Uhl said the company’s engagement with First Nations and local communities had been truly unprecedented, and suggested she did not expect the project to be delayed by opposition. “Clearly there’s been challenges on pipelines around the world … We think we’ve adequately managed that risk to date,” she said.

She said the scheme would provide positive cashflow for Shell even if gas prices fell significantly.

Industry watchers welcomed the decision to go ahead. “We sense that the risks from the Shell perspective are lower than many in the market may think,” said analysts at investment bank Barclays. Shell’s share price was up 0.15% on Tuesday.

Oil and gas analysts Wood Mackenzie said the investment was a sign that “mega projects are back” and it expected several other major LNG projects to get the go-ahead next year.

Published: 03-10-2018

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