From the Financial Post

Shell chief executive Ben van Beurden says the company is looking to finalize new investments, which may the LNG Canada project

Tellurian’s Souki says long-term LNG contracts are going to be a thing of the past

HOUSTON – The head of Royal Dutch Shell Plc dropped a hint that it’s keen to invest in liquefied natural gas projects soon on Tuesday, a tantalizing prospect for Canadian gas producers desperate to access rapidly changing global energy markets.

Shell chief executive Ben van Beurden did not specifically mention the company’s LNG Canada project in Kitimat, British Columbia when he addressed a room of oil and gas executives on Wednesday, but indicated the company is looking to finalize new investments.

“This is not a bad time to start thinking about investing again,” van Beurden said. The company has previously said LNG Canada is “investible” and some analysts believe the project is the most likely Canadian project to proceed.

Shell believes global LNG will be undersupplied by 2020

Van Burden reiterated Shell’s previously stated view that global LNG markets are on pace to be undersupplied by 2020 even as North American gas production – both in Canada and the U.S. – has ramped up dramatically.

While American producers are celebrating their prospects at CERA Week, an important energy conference in Houston organized by research firm IHS Markit, Canadian companies have had difficulty accessing global markets.

Given changing expectations between LNG buyers and sellers, those difficulties are likely to increase without an LNG project in Canada, given the outlook for a surge in U.S. natural gas supply.

Shell, the world’s largest LNG supplier following a US$50-billion merger with BG Group in 2016, published a global LNG outlook in February that forecast a 275 million tonne supply shortage over the next few years.

The company’s LNG Canada project could reduce that shortage by nearly 10 per cent, exporting as much as 26 million tonnes per year.

Japan-based JERA Co., the world’s largest LNG importer, has preliminary agreements in place to purchase LNG from another Canadian project, Pembina Pipeline Corp.’s Jordan Cove LNG project in Oregon.

Asked whether or not he was in talks to purchase LNG from Shell’s Kitimat project, JERA chairman Hendrik Gordenker would only say the company is in talks all around to world on sourcing LNG.

“We’re a pretty big LNG buyer, we look at all the possibilities in the world, we look for the best ones we can find,” Gordenker said. He declined to comment on Kitimat projects specifically.

Shell has said it will make a final investment decision on the project this year. Similarly, Pembina has indicated it will make a decision on building its Jordan Cove project — which will source supply from U.S. Rockies and British Columbia — by the end of the year.

Canadian natural gas producers are increasingly desperate to see an LNG project built as pipeline bottlenecks, and contracting and maintenance issues have driven the price of gas in Alberta into negative territory at different times in late 2017.

Seizing the opportunity, Enbridge Inc. will expand its T-South pipeline from northern British Columbia to the Vancouver area, to help clear the backlog, Enbridge president and CEO Al Monaco said this week.

“It’s one of the reasons, frankly, why we got into the Spectra transaction to have projects exactly like that. Our producers are firmly committed, we’re going to do the project and we’re excited about it,” Monaco said, adding it would be in-service by 2020.

Enbridge spent $37 billion to buy Houston-based Spectra Energy in 2016.

Seven Generations Energy Ltd. president and CEO Marty Proctor also said this week that he is working with a group of Canadian gas producers to push for new export pipelines to the West Coast because “all of North America is oversupplied with gas.”

Seven Generations signed contracts to send its gas to Cheniere Energy Inc.’s existing LNG export plant on the U.S. Gulf Coast last year and now has contracts in place to send its gas on TransCanada’s Corp.’s mainline system to the Toronto area.

Cheniere has said it would be open to exporting more Canadian gas from its facilities in the U.S.

However, as U.S. gas production is on pace to rapidly increase in the coming years, Canadian producers will face increasing competition for space at those existing projects and multiple LNG companies at the IHS event this week indicated a move away from long-term gas contracts.

“If I were to own a large contract as a buyer today, I’d rather own the resource,” Houston-based Tellurian Inc. co-founder and chairman Charif Souki said.

Souki does not see the need to sign long-term supply contracts given U.S. gas supplies, especially as both Exxon Mobil Corp. and Chevron Corp. plan to ramp up their production in Permian formation in Texas, which is primarily an oil play but also produces a lot of associated gas.

Surging production from both oil and gas plays in the U.S. are expected to supply Tellurian’s next LNG project, called Driftwood in Louisiana.

“You’ve never heard of a long-term oil contract or a long-term gold contract,” Souki said. “I think that’s the way the natural gas business is going.”

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