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January 2020 – THE RACE TO LNG EXPORTS PART II: (Battle Ground)

FOCUS: THE RACE TO LNG EXPORTS  (PART II: Battle Ground)

The Westcoast LNG story is one for the ages. Companies, projects, and resources; interesting paths were taken.

The Pacific Northwest LNG Project gained steam with its multitude of partners (including Petronas and Sinopec) and its ambitious plans to ship 182 LNG carriers to Asia each year, with the potential to double the LNG exports in the coming years. The project received Environmental Approval in September of 2016, however, in 2017, the project team released that a final investment decision would be made, when the timing was right.

Shortly after, on July 25, 2017, devastating news followed. The project was canceled due to “a challenging environment, low prices, and shifts in the energy market”. The overall investment in the project was estimated at $11.4 billion. The pipeline transmission project remains active.

Another project, proposed by Royal Dutch Shell (“Shell”), the Prince Rupert LNG facility, was to be located in Prince Rupert on Ridley Island. The project was projected at a throughput of 14 million tonnes per annum and projected to bring at least 150 LNG carriers to the coast per year at start-up, with the potential to nearly double. Originally part of BG Group plans, the project was acquired by Shell in early 2015 for $70 billion. However, hampered by reduced global demand, competition from new entrants such as the U.S., and the need for energy companies to reduce capital spending after oil prices plummeted at that time, Shell abruptly pulled out of the project in March of 2017. Devastating to say the least, but Shell had other plans…(continued in Part IV: Unchartered Territory)

Kitimat LNG and Pacific Trails Pipelines

The proposed Kitimat LNG project was originally a 50/50 joint venture between Chevron Canada Limited (“Chevron”) and Apache Corp. (“Apache”), under a deal that closed in late 2013. The Chevron-operated project consists of resources in the Liard and Horn Basins in northeast B.C., the proposed 471-kilometer, 42 – inch, Pacific Trail Pipeline, and a natural gas liquefaction facility at Bish Cove near Kitimat. The Kitimat LNG Plant is an all-electrical plant, powered by renewable hydroelectricity from BC Hydro, and includes up to three LNG trains totaling 18 million tonnes per annum.

However, things quickly unraveled as activist investors wanted Apache to free up cash flow by exiting the two major LNG projects in Canada and Australia. Coupled with the inability to secure an offtake agreement at that time, Apache exited the partnership in mid-2014 and sold its stakes both in Australia and the Canada LNG project to Woodside Energy International (Canada) Limited (“Woodside”).

It didn’t help that Chevron began to publicize a decrease in the project spending in mid-2015, and by early 2018, was already in talks to sell its stake in the project as well.

Michael Wirth, Chevron’s CEO as recently as December 2019 stated that,

With capital discipline and a conservative outlook comes the responsibility to make the tough choices necessary to deliver higher cash returns to our shareholders over the long term.”

One of those choices was putting up its stake in the Kitimat LNG project for sale. While still working closely with its joint venture partners Woodside, Chevron is actively seeking suitable replacement project suitors. Still no timeline has been set, and none of Chevron’s other projects have been put up for sale.

(Pictured: Proposed pipeline)

What about our neighbours to the east?

Join us next month for The Race to LNG Exports: Part III: The East Coast Hustle

Steve Dimic

Mortgage Associate

If you have any additional inquiries regarding any of the topics or if you have ideas for future topics, please feel free to email me at stevedimik@hotmail.com.

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