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Shell's (RDS.A) LNG Canada Project Set to Get Final Nod Soon

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Cashing in on the improving energy landscape and booming demand for liquefied natural gas (LNG - Free Report) , it seems that Royal Dutch Shell plc’s (RDS.A - Free Report) LNG Canada project, located in Kitimat, is anticipated to see the light of day soon. In a recent development regarding the multi-billion mega project, two of the other co-owners including Chinese energy giant PetroChina Company Limited (PTR - Free Report) and South Korea's state-run Korea Gas Corporation (KOGAS) have given their final investment decision on their share of the project. Notably, PetroChina has approved C$4.5 billion share of the project, while Korea Gas also officially green-lit its part of financing.

Kitimat Project to Rejuvenate Canada’s Gas Industry

The LNG Canada project, located in Kitimat, British Columbia, is estimated to cost C$40 billion and marks the nation’s largest infrastructure project ever. The first phase of the project, which is likely to cost around $30 billion of investment, 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. The second phase comprises construction of two train units.

Shell is currently the largest shareholder of the project which is touted to have the lowest carbon emission in the world per ton of LNG. Few months back, the partners in the project inked a deal to offload some portion of their stakes to Malaysian state-owned energy company Petronas. Post the culmination of the agreement, Shell owns 40% stake and Petronas is 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. With KOGAS and PetroChina having officially given a go-ahead to the project, FID from Shell — a Zacks Rank #3 (Hold) company — and other co-owners are also expected to be announced very soon. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Notably, the European oil giant Shell had delayed the FID on the project twice, owing to global supply glut and weak prices. Reportedly, the company has actively worked its way to lower the cost of the project and take advantage of the tax breaks announced by the government of British Columbia. Banking on increasing demand for LNG, the project is witnessing a flood of events lately, signaling high chances of the much-awaited project receiving a go-ahead this time.

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.  

New Cycle of LNG Projects Around the Corner?

The sanction of the LNG Canada project will reflect the turnaround of the LNG market, after years of supply glut and weak gas prices that had significantly reduced investments in the industry. In fact, the oversupplied LNG market is likely to be faced with a looming deficit by 2022, in case there is absence of new projects.

Importantly, 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 and the momentum is likely to continue.

Banking on favorable development, a new wave of LNG-project sanctions and investment announcements is likely to overwhelm the energy industry soon. Interestingly, the fact that the industry’s appetite to enhance LNG investments can also be gauged by the encouraging announcements was made earlier this year. Notably, Cheniere Energy, Inc. (LNG - Free Report) greenlit its third liquefaction unit or Train 3 at the Corpus Christi export terminal in Texas, in May, cashing in on the secular shift to cleaner burning fuel. In July, TOTAL S.A. (TOT - Free Report) inked a deal to buy 10% stake in Russia’s LNG 2 project in the Siberian Arctic.

Reportedly, 2019 is likely to emerge as the landmark year for LNG investments, with around 11 projects set to receive final approval. Several projects are expected to be given the official go-ahead over the next two years. These include Russia’s Arctic LNG, Golden Pass and Calcasieu Pass in the United States, as well as four units in Qatar and at least one plant in Mozambique.

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