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By Meghan Potkins
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Original: financialpost.com/commodities/energy/growing-confidence-canadian-lng-prospects-shell-ceo
Shell PLC chief executive Wael Sawan said improved signals from Ottawa and the British Columbia government over liquefied natural gas projects have boosted the odds of a green light for an expansion at LNG Canada.
“We’ve been growing in confidence in the posture that the Canadian government has been taking,” Sawan said on a conference call Tuesday, when asked about the possibility of an expansion of the Shell-led LNG project in Kitimat, B.C.
“(There) has been a significant leap forward in terms of their conviction around LNG projects, and that has, of course, raised the likelihood of a potential opportunity moving forward.”
Sawan made the comment on the heels of Shell unveiling a blockbuster deal: a $22-billion takeover bid for Canadian natural gas producer ARC Resources Ltd., its largest since it bought British energy company BG Group PLC in 2015.
The London-headquartered energy giant surprised markets with the massive cash-and-stock deal — which is still subject to shareholder and regulatory approvals — valuing ARC at around $32.80 per share, roughly a 27 per cent premium to its closing price Friday.
The takeover deal has been pitched by Shell as an opportunity to capture higher prices for ARC’s low-cost natural gas via the supermajor’s trading arm and LNG export network. And the announcement has been interpreted as a sign that the joint-venture partners in LNG Canada are likely proceed with plans to double capacity at the export facility to 28 million tonnes per annum.
A decision on Phase 2 is expected later this year, Sawan reiterated Tuesday.
Energy prices have surged amid the war in the Middle East and the closure of the Strait of Hormuz, which has drastically curtailed energy exports from the Persian Gulf. Shell, the world’s largest LNG trader, was forced to declare force majeure to its customers on its cargoes from Qatar after production was halted at QatarEnergy’s Ras Laffan facility in March.
Sawan said Shell first became interested in ARC two to three years ago, prior to the Iran war, but said the company held off making a move until its own share price improved.
However, he also acknowledged that recent events in the Middle East could be seen as raising the investment case for Canada.
“Many of our customers are looking for diversified supplies, and Canada is top of their list,” Sawan said during a question and answer session Tuesday on its deal for ARC.
“Not all LNG is born equal,” Sawan said, noting Canadian LNG projects benefit from structurally lower costs due to weaker natural gas prices in Western Canada and shorter shipping distances to Asia.
“Add to it the fact that more and more Asian customers, given recent events, are interested in diversifying their supplies and willing to pay a premium for that — we think LNG Canada Phase 2 is particularly well positioned to meet some of those demand points.”
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