Shell may not be specifically confirming they are going FID on LNG Canada, but its hard not to believe they are going to do so when you hear Shell Canada’s President talk about his execution plan for the gas supply for Phase 1 of LNG Canada. Tonight, the Globe and Mail posted a good story based on an interview with Shell Canada President Michael Crothers, wherein he outlines the gas supply sources for Phase 1 of LNG Canada. Shell and the LNG Canada joint venture partners have to work thru the natural gas supply plan as part of the FID analysis package. That work has to be done for the FID analysis. However, we don’t believe an experienced CEO like Crothers would be publicly outlining Shell’s gas supply plan for an LNG project that was unlikely to go FID. If LNG Canada was still a coin flip or less, we would have expected Crothers to believe it premature to publicly outline their gas supply plan. Rather, we believe Crothers comments fit into the Shell disclosure for the past five months, which we believe continues to point to FID for LNG Canada and our expected tiing being later this summer.
Shell Canada President outlines execution of gas supply for Phase 1 of LNG Canada and the LNG Canada partners gas properties can provide the vast majority of gas supply. Tonight, the Globe and Mail posted a good story “Shell maps out LNG plan for northeast B.C.” [LINK] based on an interview with Shell Canada’s President Michael Crothers. The story is all about Shell’s outline of where the gas supply will come for Phase 1 of LNG Canada. The Globe and Mail wrote “Mr. Crothers said LNG Canada’s first phase will rely primarily on natural gas from Groundbirch and Cutbank Ridge, plus smaller contributions from Kogas. Phase one in Kitimat will have two “trains,” or separate LNG cooling processes. Each train is being designed to handle 6.5 million tonnes a year of LNG exports to Asia, for a total of 13 million tonnes annually in the first phase. A relatively small amount of natural gas would be accessed through the open market. “Shell is a very big gas trader. Our people are able to access all manner of contracts from individual producers or from the market broadly,” Mr. Crothers said. “Our trading team would construct the most effective sourcing strategy for the remaining small amount of volume that we would need.” Shell’s Groundbirch property (80% Shell/20% PetroChina)is the key gas supply property. The Globe and Mail also wrote “The company’s Groundbirch joint venture with PetroChina Co. Ltd. is positioned to play the leading role in supplying the Shell-led liquefied natural gas project, LNG Canada, envisaged for Kitimat in northwest B.C. “We can expand Groundbirch to some degree if necessary to help us provide even more gas,” Michael Crothers, president of Calgary-based Shell Canada, said in an interview. Cutbank Ridge is Mitsubishi’s JV property with Encana.
Shell continues to point to a FID for LNG Canada in 2018. Shell has not come out and guaranteed or guided to a LNG Canada FID in 2018. Our recent Feb 21, 2018 blog “Shell Called Tight LNG Markets >7 Mths Ago, Will They Keep Hinting And Pointing To LNG Canada FID Being Likely In 2018?” [LINK] outlined Shell’s public comments for the past five months and how they pointing to LNG Canada being the top of their list for LNG FIDs in 2018. We read the Globe and Mail article tonight and it reminded us of the recent LNG Canada President Andy Calitz quotes (see our March 15, 2018 blog “LNG Canada Reiterates It Wants To Be In Construction in 2018, Feels More Like An Expectation” [LINK]). There is no question Shell and the other LNG Canada partners are just working thru the gas supply plan. This has to be done as part of any FID analysis package. But we just don’t know why an experienced CEO would discuss the gas supply strategy for Phase 1 if the LNG Canada FID was still far from certain or even a coin toss. There is too much public talking about execution for the gas supply for Phase 1. We believe experienced CEOs like Calitz and Crothers would consider it premature to make these type of public comments if the FID for LNG Canada was a coin flip or less. Rather, we see experienced CEOs speaking of execution items as more comments that point to likelihood for FID in 2018, and we believe that timing is likely later this summer.
Blogs coming over the next week on how LNG Canada is part of our big picture bullish call on western Canada for the 2020’s. Over the next week, we will provide more color on how we see LNG Canada fitting into our bullish view for western Canada oil and natural gas for the 2020s. There are only 7 quarters until 2020. We plan to write a couple of blogs ahead of the Scotiabank CAPP Energy Symposium on Apr 10/11 in Toronto outlining this bullish view for the 2020s, including the role of LNG Canada.