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    Chevron’s Kitimat Decision Reverberating in Canada

Summary

No obvious buyers for half-interest in 18mn mt/yr project

by: Dale Lunan

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Chevron’s Kitimat Decision Reverberating in Canada

The decision by US major Chevron to explore the sale of its 50% equity interest in the 18mn mt/yr Kitimat LNG project on Canada’s west coast is reverberating throughout the industry – and beyond.

On December 10, California-based Chevron said it would take a writedown on its North American gas assets of about US$11bn and redirect spending away from its Appalachian shale gas assets and the Kitimat LNG project.

“Although Kitimat LNG is a globally competitive LNG project, the strength of Chevron Corporation’s global portfolio of investment opportunities is such that the Kitimat LNG project will not be funded by Chevron and may be of higher value to another company,” the US company’s Canadian subsidiary said in a statement, adding it would immediately begin to solicit expressions of interest, but set no timeline for the process.

Chevron acquired its interest in Kitimat LNG in 2012, when it acquired assets from EOG Resources and Encana (now Ovintiv) in a transaction valued at the time at about US$900mn.

Two years later, Australia’s Woodside Petroleum acquired the other half of Kitimat LNG from US major Apache – along with its interest in the Wheatstone LNG project in Australia – in a transaction valued at US$2.75bn.

On December 12, Chevron announced the sanction of its deep-water Anchor project in the Gulf of Mexico, a US$5.7bn investment to develop 28mn ft3/day of natural gas production and 75,000 b/d of oil production. Chevron is operator and holds a 62.86% interest; French Total holds the balance through its US subsidiary, Total E&P USA.

The District of Kitimat, where Kitimat LNG is located along with Canada’s first major LNG project, the Shell-led LNG Canada facility, expressed surprise at Chevron’s decision, but was not willing to write the project off, despite an apparent lack of potential buyers.

“Of course we were surprised by Chevron’s announcement, but I think the Kitimat LNG project is still a tremendous opportunity for another proponent to move forward with,” Kitimat major Phil Germuth said. “This project is engineered to be cost competitive and the lowest greenhouse gas producing LNG facility in the world. I still see this project moving ahead and look forward to welcoming the new proponent into our community.”

The Kitimat LNG project recently received a larger, 40-year natural gas export licence from the Canada Energy Regulator, and its expansion program – to take the project from 10mn mt/yr to 18mn mt/yr – is currently winding through the provincial and federal regulatory process.