By JEFFREY JONES
CALGARY -- The new head of Royal Dutch Shell's Canadian
natural gas business is touting the unity of its partnership
with large natural
gas buyers in a plan to build a multibillion dollar LNG
project in British Columbia as an advantage over competing
That leaves possible increases in taxes and fees, as well as
the costs of labor and materials, as the primary concerns ahead
of a final decision.
Shell's partners in the LNG Canada consortium, which plans a
coastal plant and export terminal at Kitimat, British Columbia,
are among the largest buyers of the fuel in Asia, so setting
prices for long-term supply contracts will not be an issue as
they develop the venture over the next seven years, said Andy
Calitz, a veteran of Shell's LNG
business in Russia and Australia, where the European oil major
has massive facilities.
"You can hear from me a quiet confidence that supply
contract negotiations will not impede a final investment
decision on the Kitimat project," Mr. Calitz said at Shell
Canada's Calgary headquarters.
In fact, the players do not intend to trumpet any supply
deals, which makes the venture different from Shell's previous
projects, such as the huge
Sakhalin-2 development in Russia and Gorgon in Western
Australia, said Mr. Calitz, VP of LNG Canada.
That is not the case for all the players seeking to build up
a new LNG industry in the region. At least one of the proposed
projects, the Chevron backed Kitimat LNG, has experienced
lengthy delays in reaching a final investment decision, with
officials pointing to difficulty in finding buyers willing to
sign lucrative contracts that link the price of the product to
the price of oil.
Such oil indexed pricing is common overseas, and has helped
draw the interest of United States and Canadian producers who
have struggled with the much lower value of North American gas.
However, some Asian buyers have said they are eager to buy
supplies indexed to the United States gas prices.
Shell is one of several major players seeking to transform vast
Western Canadian natural
gas reserves into a lucrative transocean business. The
company has teamed up with Korea Gas, Mitsubishi and
Korean Gas is one of the world's largest LNG buyers,
Mitsubishi one of the top traders, and PetroChina its country's
dominant energy company and largest natural
gas producer, all of which add heft to the proposal and
eliminates the need to hunt for LNG
contracts, Mr. Calitz said. The partners plan to decide by 2015
whether to go ahead with the 1.7 Bcfd venture, with start up
targeted for the end of the decade.
Australia, in particular, has seen massive cost overruns at
LNG developments, something that will be a concern for Shell
and its partners. However, Mr. Calitz said the group plans to
construct large parts of the project away from the site and ship
large prebuilt modules to Kitimat as a way to reduce the number
of construction workers needed
Exports to higher priced markets would allow accelerated
development of Canada's massive shale gas reserves, supporters
Mr. Calitz lauded moves by the federal and British Columbia
governments to support the nascent industry, saying that they
add credibility to the project proposals in Asian markets. Such
support includes the National Energy Board's granting of gas
The British Columbia government has been an enthusiastic
promoter of the LNG industry, claiming that extraction of the
fuel could help eliminate provincial debt. In June, the
provincial government said another LNG project under
development by Petronas could result in a total investment of
nearly $19.45 billion.
But the industry is concerned about a prospective move by
British Columbia to bring in new taxes and levies, which the
government said in February could raise roughly $29.17 billion
over 30 years in additional revenue.
In June, Tokyo Electric Power, warned that a new tax on gas
exports could slow the development of the industry.
"We are supporting the British Columbia government as they
work towards ensuring that the province is globally
competitive including from an LNG taxation perspective so that
projects like LNG Canada can go ahead, Mr." Calitz said.
A competitive threat is also growing in the United States.
Last week, Washington approved a third United States LNG project, a $2 billion facility on
the Louisiana Gulf Coast. Mr. Calitz said he does not expect
all Canadian and United States proposals to proceed, however,
given high capital costs and the need for long termsupply
arrangements. That will leave plenty of room for experienced
developers, he said.
"We have already seen the LNG
market doubling in size during the last decade and we expect
the market to double again between now and 2020, he said."
Dow Jones Newswires