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LNG Canada, a Shell-led consortium formed to construct a liquefied natural gas export terminal on the Canadian coast, has for the second time delayed its final investment decision on the US$40-billion project. Big hopes are pinned on the terminal, which is supposed to supply LNG to the Asian markets.
The CEO of the consortium, Andy Calitz, explained the delay with the drop in natural gas prices all over the world and particularly in Asia, which has made the project too costly for the time being. "The whole global energy industry is in turmoil," he noted, adding that representatives of the four partners in the consortium are currently in Canada in order to discuss next moves. LNG Canada features Shell as its largest shareholder with 50 percent, and Mitsubishi Corp, PetroChina, and Korea Gas Corp holding the rest.
LNG has been touted as the next star on the hydrocarbon scene since it’s cheaper and cleaner than crude oil. As a result, a number of large-scale projects have sprouted across the world, including the Gorgon and Wheatstone off the Australian coast, operated by Chevron, Cheniere Energy’s Sabine Pass terminal, and Italian Eni’s Coral development in Mozambique.
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With so much supply coming on stream and unsteady demand growth, prices have understandably tanked and large projects have become temporarily unviable. Calitz made a point of emphasizing that LNG Canada was not canceled but just delayed, although he added that there was no timeframe for the final investment decision at this point.
The mid-term prospects are not too good. The International Energy Agency expects LNG demand around the world to average 1.5 percent annually through 2021, while the current oversupply persists. That’s down from 2.5 percent, which the IEA forecast last year. This, moreover, could prove too optimistic, because it assumes LNG demand growth in China of 9 percent. If reality fails to live up to expectations, the glut will take longer to disappear.
By Irina Slav for Oilprice.com
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Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.