The first cargo of liquefied natural gas has left Canada’s only export facility, LNG Canada, operator Shell said, adding the main market for its Canadian LNG will be Asia.
Backed by Shell, Petronas, PetroChina, Mitsubishi, and Kogas, LNG Canada, in Kitimat, British Columbia, will eventually ramp up to 14 million tonnes per annum. That capacity is expected to redirect a portion of Canadian gas exports—currently flowing almost entirely to the U.S.—toward global markets. The price tag of the project is $40 billion. For now, however, production capacity from the first train of LNG Canada is 5.6 million tons per annum.
The project has two big advantages over competitors. One, that Shell CEO Wael Sawan recently cited, was Canada’s natural gas benchmark, currently around $0.71 per MMBtu, versus $3.75 at Henry Hub, as a cost advantage. Proximity to Asian markets adds to the project’s appeal, with key destinations reachable in under two weeks.
“We expect that supplying LNG will be the biggest contribution Shell will make to the energy transition over the next decade, and projects like LNG Canada position our portfolio to achieve this,” Shell’s president for integrated gas, Cederic Cremers, said in the news release about LNG Canada’s first cargo.
The supermajor expects global LNG demand to surge by as much as 60% by 2040, with Asia acting as the biggest driver of this demand growth as countries there become wealthier and move away from coal to cleaner-burning forms of electricity generation.
Although the previous Canadian federal government had claimed there was no business case for LNG exports, Shell appears to be confident there is and the investment it and its partners have made in LNG Canada seems to be proof enough this is the case. There are also two smaller LNG export facilities under construction on Canada’s west coast, reinforcing the perception that the outlook for LNG demand is strong enough to motivate more capacity additions.
By Irina Slav for Oilprice.com
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