Shell ramps up in Canadian town raising $30bn LNG hopes

Bloomberg

A flurry of activity in a remote Canadian town is raising optimism that Royal Dutch Shell Plc and its partners are ready to go ahead with the nation’s largest infrastructure project: a C$40 billion ($30 billion) LNG terminal that could at last unlock
energy exports to Asia.
The action is unmistakable in Kitimat, British Columbia, the Pacific coast city hugging a deep inlet that would be the closest launch point on the continent for LNG cargoes to Asia. The lights are on, shades open and SUVs parked outside a 49-unit apartment complex built to house Shell executives, which sat mostly darkened for the last two years. Local workers have left jobs at a Rio Tinto Plc smelter nearby to join contractors ramping up for the LNG project. Landlords are raising rents and houses are selling twice as fast as they used to in anticipation of a flood of workers coming to town.
“I would put money on it — it’s going ahead,” says Phil Germuth, mayor of Kitimat, who recently hosted a banker from Barclays Bank Plc visiting from the UK to examine the project. Germuth also met a group of officials reporting to the board of Mitsubishi Corp., one of the project’s five partners, who visited the site in May.
When Crystal Smith, head of the Haisla Nation whose indigenous lands surround the proposed terminal, was invited to the project site last week by another group from Mitsubishi, she couldn’t find a spot in the usually deserted parking lot.
LNG Canada, as the project is called, is stunning in scale. It proposes to eventually ship as much as 28 million tonnes a year out of Kitimat, the equivalent of 10 percent of global LNG supply in 2017. It would carve out a new path — the shortest by days — between North America and Asia for super-chilled gas. For Canada, whose energy exports are sold almost exclusively to the US at depressed prices for the lack of a coastal facility. It would also mean an investment triple the size of Canada’s largest single infrastructure project to date, LNG Canada Chief Executive Officer Andy Calitz said in a LinkedIn post last month.

DECISION DELAYED
LNG Canada — comprised of Shell, Mitsubishi, Malaysia’s Petroliam Nasional Bhd, PetroChina Co and Korea Gas Corp — expects to make a final investment decision by the end of the year. An exact date is up to the partners to make, Susannah Pierce, spokeswoman for LNG Canada, said in an email.
The project’s backers twice-postponed the decision in recent years amid a global supply glut. That outlook has turned. Energy producers from Shell to Total SA to Anadarko Petroleum Corp are looking again at projects deemed too risky just a year ago as demand picks up faster than expected.
“Goodbye gas glut,” Sanford C. Bernstein & Co. analysts said in a June 28 note. New supplies of LNG are “being easily mopped up by rampant market growth.”
While only one major LNG project gained approval last year, in next 18 months some $150 billion worth of LNG ventures have a better-than-even chance of going ahead, according to Energy Aspects Ltd.
Meanwhile, prices in Asia — the biggest market for the fuel — are rebounding.
Calgary-based Stream Asset Financial Management said this week it believes a positive final investment decision “is effectively a done deal” and will be announced earlier than expected, likely in the second or third week of September. National Bank of Canada analyst Greg Colman believes “the probability is weighted towards a positive decision.” His team, using Google Earth, has spotted old storage tanks being cleared from the site, a barge installing piles to expand the pier, and preparatory work for the massive camps that would host thousands of workers.

TIDAL WAVE
Terrace Mayor Carol Leclerc, whose city 60 kilometers (38 miles) to the north serves as the region’s hub, says she’s “99.9 percent” sure the project will move forward, citing the flurry of activity. “It’s going to be like a tidal wave coming into the northwest.”
The clock is ticking. British Columbia has set a November 30 deadline for a final decision if the project is to claim as much as C$6 billion in tax breaks and savings. Meanwhile, in recent weeks both LNG Canada and TransCanada Corp, which would build the 670-kilometer pipe-line to supply the terminal, have selected their main contractors to lock in prices for the project.
Graham Pitzel, a Re/Max real estate broker in Kitimat, says he’s getting calls nearly every day from people in Vancouver, Edmonton, Calgary and Toronto interested in purchasing properties in the town of 8,000 people, speculating prices will surge as the project takes off.