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Will Shell's (RDS.A) Kitimat Project Get Go-Ahead This Time?

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A Royal Dutch Shell plc (RDS.A - Free Report) led consortium is expected to make the final investment decision (FID) in the late third quarter/early fourth quarter whether to build the liquefied natural gas (LNG) export facility in Canada or not. Banking on increasing demand for LNG, the mega LNG Canada project is witnessing a flood of events lately, signaling high chances of the much-awaited project receiving a go-ahead this time.

Notably, the European oil giant had delayed the FID on the project twice, owing to global supply glut and weak prices. Currently, the Zacks Rank #3 (Hold) company is actively working its way to lower the cost of the project and take advantage of the tax breaks announced by the government of British Columbia. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

The LNG Canada project, located in Kitimat, British Columbia, is estimated to cost $31 billion and marks the nation’s largest infrastructure project. The project incorporates the construction of two LNG processing units and facilities for export, with a shipping capacity of around 26 million tons of LNG a year.

Due to Canada’s proximity with the Asian markets, along with robust natural gas production in British Columbia and Alberta, the nation is a much-preferred destination for the LNG export facilities. The startup of the Kitimat project is likely to unleash a new LNG wave in the nation.  

Shell is currently the largest stakeholder in the LNG Kitimat project with 50% interest and touted to have the lowest carbon emission in the world per ton of LNG. Other co-partners in the project include Chinese energy giant PetroChina Company Limited (PTR - Free Report) , diversified conglomerate Mitsubishi Corporation (MSBHY - Free Report) and South Korea's state-run Korea Gas Corporation. Notably, the partners in the project inked a deal — scheduled for closure in a couple of months — to offload some portion of their stakes to Petronas. Post the culmination of the agreement, Shell will own 40% stake and Petronas will become the second-largest partner in the project, with 25% interest. PetroChina and Mitsubishi will own 15% stake, each. The remaining 5% interest will be held by KOGAS.

Notably, demand for LNG has been robustly growing of late, primarily as China and other Asian countries are making efforts to switch from coal to natural gas, which is touted to be the cheaper and cleaner burning fuel. In fact, LNG demand reached 293 million tons in 2017 — up 29 million tons from 2016 and significantly higher than 100 million traded in the year 2000. Individually, China’s LNG imports in 2017 increased 50% year over year. The momentum is expected to continue as the country’s imports in the first four months of 2018 have surged around 60%.

Banking on the favorable development, a new wave of LNG-project sanctions and investment announcements has overwhelmed the energy industry of late. Very recently, TOTAL S.A. (TOT - Free Report) inked a deal to buy 10% stake in Russia’s LNG 2 project in the Siberian Arctic. Cashing in on the secular shift to cleaner burning fuel, Cheniere Energy, Inc. greenlit its third liquefaction unit or Train 3 at the Corpus Christi export terminal in Texas, marking the first final investment decision on the new LNG project in the United States since 2015.

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