In a strategic move to secure funding for the ambitious $18-billion expansion of LNG Canada, Shell PLC and Mitsubishi Corp. are contemplating adjustments to their stakes in the joint venture. This initiative comes as part of their broader efforts to bolster the Kitimat export terminal’s capabilities and enhance Canada’s position in the global liquefied natural gas (LNG) market.
Potential Stake Adjustments
According to industry insiders, Shell and Mitsubishi are weighing various scenarios to optimise their financial involvement in LNG Canada. One approach could involve structuring commercial agreements that would allow both companies to maintain their respective equity stakes while simultaneously engaging with new investors. This would enable them to generate necessary capital without relinquishing control over the project.
Alternatively, the firms might consider divesting a minor portion of their equity. This would facilitate additional funding while ensuring they remain joint venture partners. The discussions around these potential transactions do not include the Coastal GasLink pipeline, a separate project valued at $14.5 billion that transports natural gas from northeastern British Columbia to the Kitimat facility.
Current Stake Distribution and Recent Developments
Shell currently holds the largest stake in LNG Canada at 40%, followed by Petronas with 25%, Mitsubishi at 15%, PetroChina with 15%, and Kogas at 5%. The interest in the project has recently intensified, particularly following MidOcean Energy’s acquisition of a 20% stake in significant Petronas assets in Canada, which has positioned them within the natural gas sector in the region.
In September, Prime Minister Mark Carney included LNG Canada’s Phase 2 expansion in a list of major projects earmarked for fast-tracking, as part of his vision to transform Canada into an energy superpower. This development is particularly crucial given the escalating costs associated with the Coastal GasLink pipeline, which have surged from an initial estimate of $6.2 billion in 2018 to the current $14.5 billion.
Construction Challenges and Market Dynamics
The construction of the Coastal GasLink pipeline was completed in late 2023, with LNG exports to Asia commencing in June. TC Energy Corp., which operates the pipeline and holds a 35% stake, is in discussions to allocate a 10% interest for a future equity sale aimed at local First Nation councils along the pipeline route.
Despite the optimism surrounding LNG Canada, challenges persist. The Institute for Energy Economics and Financial Analysis (IEEFA) has highlighted that LNG projects in British Columbia are facing significant construction costs, raising questions about the financial viability of future expansions. Analyst Clark Williams-Derry questioned why Shell and Mitsubishi are hesitant to invest more capital into Phase 2, suggesting that if the opportunity were as lucrative as proposed, they would be more inclined to increase their financial commitments.
Future Prospects for LNG Canada
Phase 1 of LNG Canada has the capacity to export 14 million tonnes of LNG annually. However, operational efficiencies could potentially raise this capacity to 15 million tonnes. The Phase 2 expansion aims to double the terminal’s capacity by the early 2030s, a move that would significantly enhance Canada’s export capabilities.
LNG Canada has deferred inquiries about the future of the expansion to Shell and Mitsubishi, both of whom have remained tight-lipped on the matter. As of now, the only operational LNG projects in British Columbia are smaller ventures such as Woodfibre LNG and Cedar LNG, with the former expected to be among the most expensive LNG projects globally.
Why it Matters
The future of LNG Canada is pivotal not only for the companies involved but also for Canada’s broader energy strategy. As global demand for LNG remains robust, the ability to expand and optimise existing facilities will be vital for maintaining competitiveness in the international market. With rising construction costs and fluctuating investment sentiment, the decisions made by Shell and Mitsubishi will have lasting implications for Canada’s ambitions to be a key player in the global energy landscape.