Canada's $ 31 billion LNG project gets the green light – The Motley Fool



Royal Dutch Shell (NYSE: RDS-A)(NYSE: RDS-B) and its Asian partners are expected to announce that they are making official progress this week with the long-delayed LNG Canada project, according to a Bloomberg report. The 40 billion Canadian dollar facility ($ 31 billion) – which would become liquid and export natural gas – would be the largest infrastructure project in Canada's history. Moreover, this would stimulate additional investment in the natural gas sector in the country, including an associated pipeline and natural gas resources, which would be needed to support the project.

The mega-project of Canada

Shell is leading the development of the large export terminal for liquefied natural gas (LNG) along the west coast of Canada. LNG Canada would initially export 13 million metric tons of LNG per year, mainly to customers in Asia. Meanwhile, a potential second phase could double its capacity in the future.

An LNG installation at dusk.

Image source: Getty Images.

The project has been in the making for seven years, but was postponed when the oil and LNG prices plummeted during the recent recession on the energy market. However, with the improvement of these markets and the demand for LNG growth at a rapid pace, Shell and its partners are continuing with the project. PetroChina (NYSE: PTR), The largest producer of natural gas in China, recently approved the investment of $ 3.46 billion for its 15% stake in the project, following a similar approval from Korea Gas Corp. for its 5% interest. Meanwhile Shell (40%), Petronas in Malaysia (25%) and Japan Mitsubishi Corp. (15%) seem set to announce their approvals this week, according to Bloomberg. This would enable them to start construction of the project next year and put them on the right track to complete the first phase by 2023.

The domino effect

The approval of LNG Canada would generate additional investments upstream. One of the biggest would be TransCanada Corporation (NYSE: TRP)that the Coastal GasLink pipeline would build to deliver natural gas to LNG Canada. The 415-mile pipeline would cost CA $ 4.8 billion ($ 3.7 billion). It is a needle-feeding project for TransCanada and would give the company more fuel to increase its dividend growth outlook. The company expects to accelerate the payout by 20 to 10% per annum to 2021. TransCanada, as well as other midstream companies, is likely to have to build additional infrastructure in Western Canada to support production growth.

This is because gas producers in Western Canada would have a new sales market for their production, which could increase the price of natural gas in the country and stimulate additional investments in new sources. This view is that the first phase of LNG Canada would consume approximately 1.8 billion cubic feet per day (Bcf / d), which would represent about 10% of current production from Western Canada. One of the possible beneficiaries would be Canadian natural resources (NYSE: CNQ), Canada & # 39; s largest gas producer at 1.5 Bcf / d. Higher gas prices thanks to LNG Canada can help boost the profitability of Canadian Natural Resources, as a CA $ 1 increase in gas prices could boost an increase of CA $ 380 million ($ 296.5 million) in cash flow. Meanwhile, the company is on a gigantic raw material base of 11.6 trillion cubic feet, which has a considerable growth potential. Other gas producers in Western Canada could also see a significant increase in their production and profitability thanks to LNG Canada.

A game changer for the natural gas industry in Canada

The apparent approval of LNG Canada is an important milestone for the Canadian energy sector. The project will not only shift Shell's pivotal role, but it will also initiate a major growth project for TransCanada and will likely boost additional investments in other natural gas-related infrastructure in Western Canada to achieve an expected increase in the region's production. support producers like Canada Natural resources. These investments can enrich investors in the natural gas industry of Canada in the coming years, making it an intriguing region for them to look for opportunities.

Matthew DiLallo has no position in any of the listed shares. The Motley Fool has no position in any of the listed shares. The Motley Fool has a disclosure policy.


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