Chevrons possible exit from Kitimat LNG project dents Canadas aspirations of building LNG hub
Chevron Corp. is considering putting its entire stake in the proposed liquid natural gas project in British Columbia on the block, in a blow to Canada’s aspirations to build a robust LNG industry.
“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 company said on Tuesday.
The San Ramon, California-based company said its Canadian unit will look for buyers for its 50 per cent interest in the Kitimat LNG Project, but set no timeline to conclude the process. Chevron’s other Canadian projects are not part of the sale.
The company said it would continue to work closely with its joint venture partner Woodside Petroleum Ltd., which owns the other half of the company, and First Nations partners during the process.
Chevron’s comments have dented some of the optimism in the Canadian natural gas sector, which had cheered the construction of the $40-billion, Royal Dutch Shell Plc-led LNG Canada project and the prospect of Pacific Oil and Gas Ltd.’s smaller Woodfibre LNG project.
“It would have been nice to see LNG facilities come on stream shortly after (Shell’s) LNG Canada, but the comments that Chevron made yesterday may be tempering this type of enthusiasm,” Raymond James analyst Jeremy McCrea said, adding the comments were surprising given how Chevron had been advancing the Kitimat LNG project.
“To see them potentially take the writedown on their gas reserves and make the comments they did is a bit of a reversal from what we’ve seen from them,” he said, adding the company might be “taking a pause” given the outlook for global LNG prices.
With capital discipline and a conservative outlook comes the responsibility to make the tough choices necessary to deliver higher cash returns to our shareholders over the long term
Michael Wirth, Chevron CEO
Asked whether there was an obvious buyer for the Chevron’s stake in the project, which it co-owns with Woodside, McCrea said “nobody comes to mind,” but noted that groups like Rockies LNG have been actively looking to build a project.
Rockies LNG, a consortium of British Columbia and Alberta natural gas producers, did not respond to a request for comment.
The LNG project, which Chevron had committed to operate, features upstream resource assets in the Liard and Horn River Basins in northeast B.C., a 471-kilometre Pacific Trail Pipeline, and a natural gas liquefaction facility at Bish Cove near Kitimat.
The proposed project envisions three LNG trains with a combined capacity of 18 million tonnes per annum powered by hydroelectricity from BC Hydro.
The move to sell the Kitimat project came as Chevron took an axe to its balance sheet Tuesday and wrote down the value of its assets by $10 billion to $11 billion this quarter, related to a deepwater Gulf of Mexico project and shale gas in Appalachia.
The company said it will hold its 2020 global spending program flat at US$20 billion.
“With capital discipline and a conservative outlook comes the responsibility to make the tough choices necessary to deliver higher cash returns to our shareholders over the long term,” Chief Executive Michael Wirth said.
Wirth is preparing sweeping changes that would cut costs and streamline operations with expectations of lower-for-longer commodity prices.
Morgan Stanley said it expects natural gas prices to worsen next year, amid oversupply.
“To solve this glut, we see increasing risk of U.S. LNG export capacity shut-ins next summer,” the Wall Street bank said in a note to clients on Wednesday. “We are cutting our 2020 Henry Hub price forecast from US$2.50/MMBtu to US$2.25/MMBtu, though maintain long-term estimate of US$2.50/MMBtu.”