Canadian Manufacturing

Shell’s BG acquisition likely has big implications for B.C.’s LNG sector

Both Shell and BG have a big global presence in LNG, and there could be too much overlap once the deal closes

CALGARY—There may be fewer contenders vying to export liquefied natural gas from Canada’s West Coast once Royal Dutch Shell acquires Britain’s BG Group in a deal worth US$70 billion.

Both Shell and BG have a big global presence when it comes to LNG—natural gas that is chilled into a liquid state so that it can be transported overseas by tanker.

In some areas there could be too much overlap once the deal closes.

“Shell would want to make sure they’re not competing against themselves,” said Geoff Hill, partner with Deloitte’s oil and gas practice.

Each company has been eyeing British Columbia for an LNG export terminal.

Shell leads a consortium of companies planning the LNG Canada project in Kitimat, which could cost up to US$40 billion. BG has its own project near Prince Rupert in the planning stages, but last fall decided to pause work on it due to market uncertainty.

There are 19 projects proposed for the West Coast, but none of their backers have made a firm decision to proceed. The outlook for B.C.’s nascent LNG industry has been clouded by low commodity prices and competition from projects elsewhere in the world that are further along the development path.

“It’s unlikely in my view that most of the LNG projects that are currently proposed will get built,” said Alan Ross, a lawyer with Borden Ladner Gervais in Calgary who has worked on behalf of LNG clients.

“There’s an awful lot of proposed LNG projects and simply not enough need for all of them.”

“Shell and BG will now be presumably looking to consolidate different assets, including potentially assets in the LNG space.”

A report by Moody’s Investors Service earlier this week predicted the “vast majority” of projects planned in the United States and Canada are likely to be cancelled as the price advantage of LNG is “wiped out,” although plants under construction are still likely to go ahead.

BG has liquefaction plants in Australia, Egypt and Trinidad and Tobago, and another is being developed in Louisiana.

Shell has interests in LNG projects operating or under construction around the globe, including in Russia, Qatar and Australia.

Barry Munro, who leads EY’s Canadian oil and gas practice, said the combination of such formidable LNG players means “the best projects are going to proceed.”

The projects in Kitimat and Prince Rupert are going have to compete for capital with other global projects in Shell’s soon-to-be bulked up LNG portfolio.

“We continue to believe in Canada. We have all the elements right to have a world-class LNG business, so we ought not to be concerned or discouraged.”

Related Posts from the network