Shell JV in Third LNG Kitimat Unit

As per news reports, European oil biggie Royal Dutch Shell Plc ( RDS.A - Analyst Report ) has joined hands with Japanese energy giant Mitsubishi Corporation, state-controlled China National Petroleum Corporation and Korea Gas Corporation to set up a liquefied natural gas (LNG) terminal on the western coast of Canada.

Although none of the companies confirmed the financial terms of the project, the plant is estimated to value over 1-trillion-yen or US$12.4 billion.

The terminal, which will be built near Kitimat, British Columbia, is expected to come online in 2020 and generate almost 12 million tons of liquefied natural gas annually.

The companies have decided to put up this unit to facilitate a smooth supply of LNG to the Asian market to satiate the growing demand of the region.

Additionally, excess supply of natural gas has pulled down the North American markets, forcing many companies to look for alternative routes. Hence, the big energy firms are eyeing the potentially rich Asian land that still offers a high price for LNG.

In October, last year, Shell had first announced the plans for this venture, following the purchase of the dormant Methanex marine facility in Kitimat along with other partners. In February 2012, PetroChina Co. Ltd ( PTR - Analyst Report ) – unit of China National Petroleum Corp. – agreed to fund the gas development project, becoming Shell’s financial associate.

However, the distribution of stakes in the joint venture has not yet been settled by the four companies. The decision is expected shortly. The project is also pending necessary local authority approvals.

Kitimat seems to have become a favorite spot for companies seeking to venture into LNG projects. The area already holds two planned liquefaction projects – Kitimat LNG that is controlled by Apache Corp ( APA - Analyst Report ) , Encana Corp ( ECA - Analyst Report ) and EOG Resources ( EOG - Analyst Report ) ; and BC LNG, monitored by a 13-member private cooperative.

We have a long-term Neutral recommendation for Shell, PetroChina, Apache, Encana and EOG shares.