TransCanada Sees Shell’s Canada Gas Plan Surviving BG Deal

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Royal Dutch Shell Plc, set to dominate the seaborne natural gas trade with the BG Group Plc takeover, will probably stay focused on building a Canadian shipping terminal, said TransCanada Corp. Chief Executive Officer Russ Girling.

TransCanada, based in Calgary, expects to spend more than C$6 billion ($4.8 billion) on pipelines to serve Shell’s liquefied natural gas project in Kitimat, British Columbia, if it goes ahead. The planned terminal on the Pacific Coast is probably still among the Anglo-Dutch company’s top projects after the takeover, Girling said Wednesday.

“Shell has been a major player in West Coast LNG,” Girling said in an interview at Bloomberg’s Toronto office. “Their project at Kitimat is probably one of the best, well-planned, well-thought-out projects.”

Shell’s proposal is one of 19 to export chilled gas by tanker from Canada’s Pacific Coast to Asia. BG is among proponents that have delayed final decisions on Canadian projects as slumping energy prices trim cash for producers and weaken the LNG industry’s short-term prospects. In a report this week, Moody’s Investors Service said Canadian LNG terminals are unlikely to move ahead amid lower oil prices.

Shell’s project “has a number of milestones ahead of us before we make a final investment decision,” Andy Calitz, chief executive officer for the venture, known as LNG Canada, said in an e-mailed statement. “We can confirm that LNG Canada continues to move forward through this phase of the project development.”

Long View

Canada’s vast supplies of cheap gas make it attractive for producers with a long-term view to proceed with LNG exports, Girling said. Shell is set to make a final decision on its project by mid-2016 and Malaysia’s Petroliam Nasional Bhd., another proponent, is scheduled to decide by mid-2015 whether to proceed with its own project, he said. TransCanada would also build a gas pipeline for the Kuala Lumpur-based company’s Canadian terminal.

Michael Culbert, chief executive officer of the Pacific NorthWest LNG terminal proposed by Petronas, said the Shell deal doesn’t affect timelines for the Petronas projects.

“We’ll focus on what we’re doing and let the competitors work on their business,” Culbert said at a Toronto conference.

The BG takeover announced Wednesday would give Shell twice the LNG sales of its nearest competitor Exxon Mobil Corp.

Shell’s increased access to existing and proposed LNG projects through the BG deal may ultimately set back LNG plans in Canada because of higher construction costs, Uday Turaga, the Houston-based chief executive officer of ADI Analytics LLC, said today by phone.

“British Columbia’s LNG projects are going to be disadvantaged because they are already starting off from a higher cost position,” Turaga said.

U.S. Competition

Specifically, the acquisition may boost the appeal of BG Group’s proposed LNG facility at Lake Charles, Louisiana, Noel Tomnay, a gas industry consultant with Wood Mackenzie Ltd., said by phone from London.

It will “give Shell greater optionality about what project to do next,” Tomnay said.

Lake Charles and other U.S. projects have the advantage of using existing industrial sites, terminals and pipelines, said Mary Hemmingsen, a Toronto-based partner who leads the LNG practice of KPMG Canada.

“In Canada’s case we need pipelines, we need marine facilities and we need greenfield LNG facilities,” Hemmingsen said by phone.

British Columbia has no plans to “examine or alter” the LNG tax and regulatory structure it established to encourage development of the industry, Finance Minister Mike de Jong said in a phone interview from Toronto.

“The proponents have made clear they are satisfied now with both the regulatory and taxation regime,” he said.

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