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$40B Canadian Liquefied Natural Gas Project Brings 4 Major Asian Players Together

October 3, 2018

A new liquefied natural gas venture to produce up to 26 million tons a year of LNG is backed by Royal Dutch Shell and three Asian giants together to build the new facility, plus a major investment from the Canadian government.

One of the biggest LNG production ventures anywhere in the world is about to begin construction in Kitimat, British Columbia.

The project, a joint venture of Royal Dutch Shell, Japan’s Mitsubishi Corp., PetroChina, Korea Gas and Malaysia’s Petronas, is targeted to support the growing Asian demand for liquefied natural gas. It will cost an estimated $40 billion to build, will begin production in the mid-2020s, and when finished will produce an estimated 26 million tons of LNG per year at full capacity. That production represents 20% of Canada's current annual natural gas production.

That output is equal to almost one-fifth of what Japan imports every year for LNG. (Japan is also the world’s biggest consumer of LNG.)

Royal Dutch Shell will own 40% of the joint venture. In second place is Petronas, a state-run enterprise. Beijing’s PetroChina and Mitsubishi will hold 15%, and Korea Gas of Daegu, South Korea, will have a 5 % ownership share.

As for cost-sharing, Mitsubishi will cover an estimated $2.11 billion (¥240 billion) in development costs for the project. In return it has rights to sell 2.1 million tons of LNG produced at the Canadian plant.

For Asia, the venture is important because it will help supply growing demand in the region for relatively clean power of all kinds. It is also relatively close to Asia by ship and will take only 10 days to reach Japan. That is much faster than Mitsubishi’s other LNG supplies which come from the Middle East or the U.S. Gulf of Mexico. The Gulf LNG supplies can take as much as 4 weeks to reach Japan, via the Panama Canal.

For Canada, the opportunity is an important one. It currently produces 129 million tons of LNG, a number equivalent to about 5% of all LNG production globally. It used to ship much of that to the United States, but as the U.S. boosted its own LNG production that market dropped significantly. With Canada’s own demand limited, the new venture makes it possible for Canada to help Asia markets while adding revenues for its natural gas production industry.

Canada expects to see 10,000 jobs created by the venture and billions in revenue back to the country. The Canadian government is kicking in $275 million to help fund the project. It will be the largest private sector project ever built in Canada.

Construction for the project will be managed jointly by U.S.-based Fluor and Japan’s JGC. JGC’s share of the construction contract is ¥630 billion, its biggest contract ever.

The deal also has one other facet worth mentioning. China, which has major needs for LNG, could have increased shipments of LNG from the United States, which itself is in need of other markets to ship to. But China recently place tariffs on LNG produced in the U.S.

Copyright: North America Procurement Council Inc., PBC