Shell has announced that it will sell off non-core assets in up to 10 countries as part of a refocusing related to its US$54 billion acquisition of the BG Group. The question now is whether those non-core assets may include its LNG Canada project, which has regulatory approval, including permits just approved by the BC Oil and Gas Commission for the pipeline that would supply its LNG plant in Kitimat.
The LNG Canada project is estimated to cost $40 billion to $50 billion. Whether that fits in the company's new capital spending plan – US$25 billion to $30 billion per year between now and 2020 – is the question.
Just last month, the company confirmed it is struggling with acquisition debt and plunging revenues and, as a result, would have to rethink its plans for major capital investments.
In its first quarter report in May, Shell posted an 83% drop in first quarter earnings, and announced it would further reduce its capital spending.
The LNG Canada project is one of a handful of projects Shell had planned to invest in.
In May, Shell CFO Simon Henry said the company might have to prioritize its capital spending, and hinted that the one project that was most likely to get a final investment decision was a new chemical plant in Pennsylvania.
On Tuesday, June 7, Shell confirmed it had taken a final investment on a multi-billion dollar petrochemical plant in Pennsylvania. The company has not stated the full capital spend on that project. The Associated Press has ballparked the project at US$2 billion to US$6 billion.
Shell originally expected to make an FID on the LNG Canada project by mid-2016 but then deferred the decision.
In a special presentation given in London, Shell CEO Ben Van Beurden said the company planned to keep its capital spending down to $25 billion to $30 billion annually between now and 2020 and sell off “non-core positions.”
And it appears Shell plans to scale back on its gas and LNG business.
“Integrated gas, which was previously a growth priority for Shell, has reached critical mass following the BG acquisition…particularly in Australia,” Van Beurden was quoted as saying by ICIS, a chemicals and energy intelligence firm. “The pace of new investment [in LNG] will slow here.”
Although it is the lead proponent, Shell has other partners in the LNG Canada project, so it's not entirely Shell's call to shelve it or move forward with it. Its partners include Korea Gas Corp., Mitshubishi and PetroChina.
In a statement to Business in Vancouver, Shell Canada said: "As with all projects in our portfolio, Shell will consider the competitiveness of this project in the context of its portfolio, market conditions today and into the future in making an investment decision – as will the other joint venture participants.”
