Bloomberg News

Korea Gas, Shell Start Discussions on Canada LNG Project

May 16, 2012

Royal Dutch Shell Plc (RDSA) and three Asian partners will jointly develop a liquefied natural gas export project in Canada’s British Columbia province and are in talks with local communities to win their support.

Consultation with First Nations and local residents of Kitimat began after Shell, Korea Gas Corp. (036460), China National Petroleum Corp. and Mitsubishi Corp. (8058) completed a feasibility study for building a 12-million-metric-ton LNG terminal, Korea Gas and Mitsubishi said in separate statements today. Local communities and the Canadian government would need to approve the project, due to start production by 2020, Mitsubishi said.

Asian companies including Korea Gas and GAIL India Ltd. (GAIL) are investing in North American LNG projects as gas prices in the U.S. slumped to a decade-low after a surge in shale output. Imports from North America will cost about a 10th of what LNG producers in Indonesia, Yemen, Qatar and Australia charge customers in Japan and South Korea.

Shell has a 40 percent stake in the LNG Canada project, while the other partners have 20 percent each, Korea Gas said. A final decision to move the planned terminal into development will be taken “around the middle of the decade,” according to the project’s website.

The Kitimat project includes the construction of LNG production and storage units and harbor facilities, Korea Gas said. The terminal will initially have two LNG units, each with a 6 million ton annual capacity, and use gas from fields in western Canada, including Horn River and Montney, Mitsubishi and Korea Gas said, without providing a planned investment amount.

Export Licenses

Korea Gas, the world’s biggest buyer of LNG, fell 0.9 percent to 42,400 won in Seoul, declining for the fourth straight day. Mitsubishi dropped 0.5 percent to 1,621 yen, the lowest since Jan. 17.

The terminal may cost 1 trillion yen ($12 billion), the Nikkei newspaper reported April 12, without saying where it got the information.

Canada has granted licenses for two LNG export projects in the Kitimat area. BC LNG Export Co-operative LLC, jointly owned by Haisla Nation and Houston-based LNG Partners LLC, was given a 20-year license, according to a statement on April 11. In October, the National Energy Board approved an LNG terminal planned by Encana Corp. (ECA), Apache Corp. (APA:US) and EOG Resources Inc. (EOG:US)

The Horn River basin may hold 165 trillion cubic feet of shale resources, while Montney is estimated to have 49 trillion cubic feet, according to an April 2011 report by the U.S. Energy Information Administration.

Australia Supplies

Australia, the world’s fourth-largest LNG supplier, is poised to lose the most from Canada’s new terminals, Andy Flower, an independent LNG analyst in the U.K., said in October. Australia may be capable of producing about 80 million tons of LNG annually by 2017, surpassing Qatar as the world’s largest exporter of the fuel, Total SA Chief Executive Officer Christophe de Margerie said May 14.

The west coast of Australia is 4,400 nautical miles from Japan, according to Eurasia Group, a New York-based consultant. The journey to Tokyo from Kitimat is 4,200 miles.

Australia and Qatar sell the commodity to Asia at prices linked to oil. Gas from the U.S. is tied to Henry Hub futures, which tumbled 32 percent last year amid record output driven by extraction from shale.

South Korea, which relies on overseas gas for all of its needs of the fuel, imported 36.7 million metric tons in 2011, according to Korea Customs Service’s website. Japan imported 99 billion cubic meters, or 3.5 trillion cubic feet, in 2010, according to the International Energy Agency.

To contact the reporters on this story: Sangim Han in Seoul at sihan@bloomberg.net; Yuriy Humber in Tokyo at yhumber@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net


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