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Shell Canada confirms LNG partners

An artist’s drawing of the Royal Dutch Shell’s future Prelude Floating Liquefied Natural Gas project in Australia, the world’s first floating LNG facility, is an idea Shell Canada is considering with its partners China National Petroleum Co., Korea Gas Corp. and Mitsubishi Corp. Photograph by: Courtesy, Royal Dutch Shell

Early days for project with Asian firms, spokesman says.

By Rebecca Penty, Calgary Herald June 30, 2011

CALGARY — Shell Canada has partnered with China National Petroleum Co., Korea Gas Corp. and Mitsubishi Corp. to look at building a liquefied natural gas export facility in British Columbia.

Spokesman Larry Lalonde confirmed the company, the Canadian subsidiary of global energy giant Royal Dutch Shell, is in early but exclusive talks with the Asian firms.

The consortium is examining the feasibility of building a liquefaction facility on the West Coast to open international markets for western Canadian gas, which Lalonde called an “abundant” resource Shell has identified as “key” to its growth.

“In terms of LNG specifically, it is an area where we continue to invest globally and it’s an area where we have a leadership position, globally, and we’d like to continue to invest in that as demand grows,” Lalonde said.

Speculation about the firm’s partners has abounded for months and several media outlets, trade journals and research reports have thrown out potential names.

Lalonde couldn’t offer a cost or timeline for project development because that’s dependent on selecting a location, which the firms have yet to do, he said, dismissing recent reports the company had settled on Prince Rupert, B.C.

He was unable to offer details on the nature of the agreements — whether contracts had been inked, at what cost and when talks began.

“Together we are exploring opportunities, but we’re so early in the overall scope of what we may or may not be looking at that there are several things that would have to be solidified upon moving forward,” Lalonde said.

The proposed B.C. LNG facility arose from global relationships Shell has formed with each company, which has meant other projects around the world, Lalonde said.

For example, Mitsubishi and Shell announced in May they would build the world’s first floating LNG facility off Australia, an idea among those the firms are considering for British Columbia, Lalonde confirmed.

“It’s an option. But we’re so early in the process that we haven’t come to an exact design on what anything would look like,” he said.

“We need to secure a location, which we’re still in the process of looking at.”

Shell also has a working relationship with China National Petroleum Co.

Last November, Shell and the Chinese company — the parent of China’s largest energy player, PetroChina Co. — signed a memorandum of agreement in Beijing on what they called “integrated co-operation” on oil and gas projects in Canada and coal bed methane development in China.

And late last month, Shell CEO Peter Voser was again in Beijing to sign a so-called “shareholders agreement” with China National Petroleum Corp. CEO Jiang Jiemin regarding a well manufacturing 50-50 joint venture meant to accelerate large-scale development of shale gas, tight gas and coal bed methane through the standardization and automation of drilling.

Shell’s potential B.C. liquefaction facility would cool dry gas from Western Canada’s prolific basins so it could be put on massive tankers for sea transport to burgeoning economies where gas marketers can earn more than double — by some estimates — what they can for the resource in North America, which is suffering from a supply glut due to the abundance of shale projects that are keeping prices low.

New York-based Oppenheimer & Co. Inc. research analyst Fadel Gheit, who covers Shell, said it will be tough for North American proposals to keep costs low enough to supply Asia with gas, in competition with Australia, Malaysia and Indonesia.

“It depends on the extraction cost,” Gheit said, noting Indonesia doesn’t employ pricey horizontal drilling and hydraulic fracturing to get its gas out of the rock.

Shell is competing for first mover status on B.C. LNG export with Kitimat LNG, a proposed project for B.C.’s northwest by Apache Corp., EOG Resources Ltd. and Encana Corp. that is working through regulatory reviews, before a final investment decision later this year.

Calgary oil and gas producer Progress Energy Resources Corp. also announced in May its $1.07-billion partnership with Malaysian state-owned oil company Petronas to develop the Alberta firm’s shale gas assets and look at the feasibility of a B.C. west coast LNG export facility Petronas would operate.

In March, BC LNG Export Co-operative LLC proposed a more modest LNG export facility for the province’s West Coast.

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