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Asian energy groups join Shell in $14bn Canada LNG project

Mitsubishi, PetroChina and Petronas to supply energy-hungry Asia

The Canada LNG project is to be developed in northwestern British Columbia, which will offer short transport times to Asia.
The Canada LNG project is to be developed in northwestern British Columbia, which will offer short transport times to Asia.   © Reuters

TOKYO -- Malaysia's Petronas will join PetroChina, Japan's Mitsubishi Corp. and Korea Gas in a $14 billion Canadian liquefied natural gas joint venture with Royal Dutch Shell, the companies said Tuesday, in a project seen helping provide Asia with stable supplies of the fuel.

The LNG Canada plant, to be located in the British Columbia municipality of Kitimat on the country's Pacific Ocean coast, will serve as Canada's first major export base for the fuel. Production is expected to start in the mid-2020s, with an annual capacity of 14 million tons -- equivalent to nearly one-fifth of import volumes in Japan, the world's biggest LNG consumer.

Shell will control a leading 40% of the joint venture, with state-run Petronas coming in second with a 25% stake. Beijing-based PetroChina and Mitsubishi will each own 15%, with Daegu-based Korea Gas taking the remaining 5%.

Canada's annual natural gas output is equivalent to 129 million tons of LNG, about 5% of global production. But with demand limited at home, the country mainly shipped the fuel to the U.S. until the shale gas boom there turned America into an LNG exporter. Mitsubishi said in a statement Tuesday that LNG Canada would "provide customers in Asia, mainly in Japan, with a new stable supply source of LNG based on abundant natural gas in Canada."

The plant's proximity to Asia offers a logistical advantage. For Mitsubishi, fuel from the plant will take 10 days to reach Japan, significantly faster than from the company's LNG interests in the Middle East or in the U.S. Gulf of Mexico, from which shipping can take around four weeks by way of the Panama Canal.

Mitsubishi will shoulder about 240 billion yen ($2.11 billion) in development costs and have the right to sell 2.1 million tons of LNG produced at the Canadian plant annually. It aims to market the fuel mainly to Japanese power and gas companies but also in China and other Asian markets. If it were to export its entire haul to Japan, the amount would equate to 2% to 3% of the country's annual consumption.

Engineering, procurement and construction for the plant will be handled by a joint venture between Japanese builder JGC and U.S. partner Fluor. JGC's share of the order is worth about 630 billion yen, making it the company's biggest-ever single project. It last won a major natural gas liquefaction plant bid in 2013 with the Yamal LNG project in Russia.

Mitsubishi began exploring Canadian business opportunities with Shell in 2010, but they put off an investment decision amid falling crude oil prices in 2016. The recovery in crude prices, and anticipated growth in energy demand in Asian emerging markets and elsewhere, helped push them to make a final decision.

The LNG Canada project may impact decision-making at other major energy companies. "Making investment decisions quickly gives companies more of a chance to secure LNG buyers," said Mie Yamazaki, an analyst at Mitsubishi UFJ Morgan Stanley Securities.

U.S. President Donald Trump has been promoting LNG exports as a way to reduce the country's trade deficits. American oil major Exxon Mobil is expected to decide by March on a joint plan with a Qatari state-run oil company for facilities in the U.S. state of Texas capable of producing 15.6 million tons of LNG annually.

But Washington's trade war with Beijing looms over such deals, with the Chinese government slapping retaliatory tariffs on LNG from the U.S.

Japan's LNG buyers are led by Jera, the fuel procurement venture between utilities Tokyo Electric Power Holdings Co. and Chubu Electric Power.

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