Shell makes move to export LNG

Royal Dutch Shell PLC (RDS.A-N71.24-0.22-0.31%) made its first major public move into the competition to export Canadian natural gas to Asia.

Shell – whose partners include the world’s top liquefied natural gas buyers in South Korea and Japan – has purchased a marine terminal near Kitimat, on British Columbia’s northwest coast. Shell on Thursday said the move is part of its “early stage” work to assess whether to build a LNG export facility to feed Asia with Canadian resources.

Shell’s site is near land on which U.S. energy company Apache Corp. and partners are poised to build a $5-billion-plus export terminal, a plan that received a regulatory licence last week.

Canadian natural gas companies are ailing, suffering from low prices caused by ample supplies from shale gas discoveries in the United States. Canadian shipments to the U.S., Canada’s only export customer, have been halved in recent years. In Asia, however, prices are far higher than in North America.

The Apache partnership, rather than worry about competition, welcomed Shell’s move as a “great announcement.”

“We’ve broadly stated we would welcome as many LNG export facilities as can be constructed in North America,” said Randy Eresman, chief executive officer of Encana Corp., an Apache LNG partner.

“We look forward to hearing other ones as well. There’s plenty of room for additional projects on the West Coast, so we’re supporters.”

Apache and Shell together would export as much gas as B.C. currently produces. The industry believes shale gas discoveries in the province’s northeast are massive and would easily supply exports and domestic consumption. Companies such as Shell – which paid a hefty $5-billion in a takeover in 2008 to expand its B.C. shale gas position – believe that the commodity might be left in the ground if exports to Asia aren’t opened. Such a scenario would mean fewer jobs, investment and taxes in B.C.

While Apache wants to move gas by 2015, Shell will be several years behind. It needs to find a pipeline route, which could be contentious, and electrical power for the facility could be an issue.

Cenovus Energy, which is selling the land to Shell, said there will be no quick changes on the ground in Kitimat. Cenovus receives regular shipments for its oil sands business through the terminal it just sold, a situation the company doesn’t expect to change “for the foreseeable future.”

Apache’s recent win at the National Energy Board for an export licence indicates regulators believe there is enough gas in the ground to sate domestic markets and export customers. Lawyer Gordon Nettleton of Osler Hoskin & Harcourt LLP argued in favour of LNG exports, contending in an Oct. 14 assessment of the ruling that it “sends a strong signal” that the energy regulator believes LNG exports are in the Canadian public interest and will not “impose undue restrictions” on future applicants.

Low prices for gas have provided broad benefits to North America during difficult economic years, as the cheap commodity is used to generate electricity to power industry, and to heat homes. But analysts believe, based on historical precedents, that North American prices will rise if producers ship significant amounts of gas to Asia.

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