Shell postpones LNG Canada FID as 2015 profits slump

Author: Josie Shillito

2016/02/04

Anglo Dutch energy major Shell is postponing a final investment decision (FID) on the proposed LNG Canada project as it battles a 44% slump in fourth quarter earnings in a low oil price environment, the company said in its fourth quarter and full year results statement published on Thursday.

“Operating costs and capital investment [across Shell] have been reduced by a total of $12.5bn as compared to 2014, and we expect further reductions in 2016,” CEO Ben van Beurden said in the results statement.

The Shell-led LNG Canada export project in Kitimat, British Colombia, has maintained that an FID for the three-train project could be made by April 2016 (see GLM 10 December 2015). According to this timetable, the full construction cycle would have started up by 2021 or 2022.

Shell owns a 50% stake in the LNG Canada project, with the other shares taken by Japanese trading company Mitsubishi (15%), South Korean incumbent KOGAS (15%) and China state-run Petrochina (20%).

In addition to LNG Canada, Shell is awaiting FID on a number of LNG projects worldwide, including in Australia and Indonesia.

Shell’s equity sales of LNG slumped in the fourth quarter of 2015 as a result of the expiry of the Malaysia LNG Dua joint venture agreement, and the $5bn divestment of its 19% stake in Australia’s Woodside Petroleum, the company said.

Equity sales of LNG fell by 8% over the fourth quarter to 5.68m tonnes when compared with the same quarter in 2014.

Full year 2015 equity sales of LNG were 22.62m tonnes - a 6% drop from 2014.

Meanwhile, Shell’s fourth quarter earnings fell 44% to 1.8bn year-on-year, and full year profit on a current cost of supplies basis and excluding exceptional items fell 80% to $3.8bn.

Merger with BG Group

On 28 January, Shell’s shareholders voted in favour of a merger with portfolio trading company BG Group. The transaction will complete by 15 February, the company said.

The new company will cover around 25% of global LNG sales – comfortably the largest of any private entity, and will boast a combined shipping capacity of close to 50 vessels, according to ICIS Edge.

From a project development perspective, BG’s QCLNG project in Australia is up and running, and Shell’s interest in Gorgon will soon realise first cash flow. In the US, BG’s 5.5mtpa offtake agreements from Cheniere’s Sabine Pass will start to ramp up later this year. josie.shillito@icis.com