‘Really exciting’: Canadian gas sector cheers Woodside’s decision to sell partial Kitimat LNG stake
CALGARY – Australian oil and gas giant Woodside Energy Ltd. is looking to sell part of its stake in the proposed Kitimat LNG project on Canada’s West Coast in a move that analysts are cheering as a sign the mega-project is progressing.
Woodside managing director and CEO Peter Coleman told Reuters at a conference in Abu Dhabi on Tuesday that the Perth-based company is interested in selling part of its interest in the Chevron Corp.-led Kitimat LNG project in northern British Columbia because it would not be the operator.
Woodside currently holds a 50 per cent stake in the project alongside Chevron, the would-be operator, and is looking to reduce its exposure by adding another partner to the venture. Analysts believe state-owned oil giants from Kuwait and Malaysia would be the most likely buyers if Woodside does reduce its equity in the project, which would chill natural gas until it reaches its liquid state for export.
“From a capital management and risk management point of view we would rather hold less equity,” Coleman told Reuters.
“In a major project where we are operating, we would like to be between 40 per cent and 60 per cent equity. It kind of makes sense. When you’re non-operator, anywhere between 20 per cent and 40 per cent is the right number,” Coleman said.
Chevron spokesperson Leif Sollid declined to comment on “rumours or speculation” about selling a stake in the project. “Chevron and Woodside continue to engage with potential LNG buyers and other parties interested in the Kitimat LNG project,” he said in an email.
Local energy executives and natural gas analysts said the move by Woodside to find a partner is an encouraging signal as it likely indicates the companies are getting closer to allocating capital to the project and rationalizing their exposure. Unlike other LNG proponents, Woodside does not own upstream natural gas producing assets in Canada.
In April, Chevron and Woodside filed an application to supersize the project to an 18-million-tonne-per-year (MTPA) export facility with a 40-year export licence — up from previous designs of exporting 10 MTPA over 25 years.
The companies have not announced a timeline for making a final investment decision (FID) on the project, though analysts speculate that Chevron and Woodside are interested in building it on the heels of the under-construction LNG Canada project led by Royal Dutch Shell plc.
Shell and its partners approved the $40-billion LNG Canada project last year, making it the first natural gas export facility to reach the construction stage in Canada. If built, the Kitimat LNG project would be located roughly 20 kilometres from the Shell project and could benefit from using skilled trades already in place, analysts said.
We’re starved for market access in the basin today
Cameron Gingrich, director, strategic energy advisory services, Solomon Associates
“It’s really exciting,” said Cameron Gingrich, director, strategic energy advisory services, at Solomon Associates in Calgary, of the potential sale of a stake in the Kitimat project. Bringing in an additional partner is an indication the project is progressing, he said.
“We’re starved for market access in the basin today,” Gingrich said, noting that export pipelines to the United States are chock full of Canadian gas and LNG export projects would lift depressed Canadian gas prices by allowing producers to sell to more lucrative Asian markets.
One potential buyer for Woodside’s stake in the project could be the Kuwait Foreign Petroleum Exploration Co., according to Raymond James analyst Jeremy McCrea, who notes that Chevron and KUFPEC are already partnered on an upstream natural gas project in the Duvernay formation.
Others believe Malaysia’s state-owned Petronas Bhd would be interested in buying a stake in Kitimat LNG. Petronas abandoned its own $36-billion Pacific NorthWest LNG project in 2017 and subsequently bought a minority stake in the Shell-led project.
Petronas is “the likely candidate,” said Painted Pony Energy Ltd. CEO Pat Ward, whose company produces natural gas in B.C. and is poised to benefit from LNG projects being constructed there.
“The Chevron/Woodside one seems to be reinvigorated lately,” Ward said. “They’re trying to hit FID in the next couple of years.”
Ward said the three LNG projects progressing in Canada right now – LNG Canada, Woodfibre LNG and Kitimat LNG – could boost Canadian gas exports by 50 per cent. “That’s very dramatic,” he said.
Meanwhile, Canadian natural gas continues to trade at depressed rates. Data from AltaCorp Capital shows AECO gas traded for 45 cents US per thousand cubic feet on Monday, which is US$2.18 per mcf less than gas fetched at the Henry Hub benchmark in Louisiana.