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Shell: Kitimat LNG, Trouble Ahead?

Fluidsdoc: Jan. 7, 2019 4:31 AM ET

Summary

  • Shell has taken a positive FID on a massive 14 mpta LNG project in Western Canada.
  • Several companies have abandoned this effort due to opposition and low gas prices.
  • We review the scenario ahead of Shell going forward.

Introduction

Shell (RDS.A, RDS.B) has the strongest position in LNG of any Super Major oil company. On the whole, we think this is a perfect direction in which to take a legacy oil company like Shell. The energy mix that runs the world is changing, and strong companies must adapt to stay strong. We’ve have written about this in a number of articles. These are set to free status so you can go into more depth on Shell. For the most part, we think Shell is doing that.

Shell A Deepwater And LNG Powerhouse, Part 1

Shell A Deepwater And LNG Powerhouse, Part 2

The Kitimat FID has us scratching our heads a bit, however. Not the least of these reasons is its location in Kitimat, British Columbia, Canada. A region known not only for its natural beauty, but also for its general hostility to anything hydrocarbon. Already a few major projects have been canceled due to fierce opposition in the Provincial and National governments. Low gas Canadian gas prices due to burgeoning supply, also played a role in these cancellations.

Petronas in 2017 canceled their $36 bn project. They later bought a 25% stakein the Shell project we are discussing now.

CNOOC canceled their $20 bn project for the same reasons, weak gas prices and opposition.

Earlier this year Exxon Mobil, (XOM) canceled their multibillion-dollar Canada project after a multi-year environmental review that didn’t seem to be going anywhere. XOM has plenty of places to spend their LNG money, and doesn’t particularly care for the limelight that comes with environmental protests.

So when, in the face of all this negativity, Shell greenlights an LNG project in the same general vicinity… questions are bound to arise as to just what they’re smokin’ in the boardroom in the Hague.

Let’s be clear. We like Shell and continue to think it’s a great investment. We like LNG and companies that stand to profit from drilling, producing, and exporting this resource. We just have our doubts about Kitimat.

SOURCE

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