Shell PLC SHEL-N is studying the feasibility of a major expansion of the LNG Canada joint venture in British Columbia, citing an increase in global demand for liquefied natural gas and the need for new reliable supplies.
Europe has been struggling to reduce its dependence on Russian natural gas since the invasion of Ukraine nearly six weeks ago, and countries in Asia want cleaner alternatives to coal.
“This reinforces the urgency for increased LNG supply because Europe and the world desperately need it,” Wael Sawan, head of Shell’s integrated gas and renewables business, said in an interview. “There is a lot of capacity to be developed to be able to meet the growing demand for LNG.”
LNG Canada is conducting a cost-benefit analysis for phase two to potentially use low-carbon hydroelectricity from BC Hydro to power natural gas supercooling engines in liquid form, he said.
Shell estimates that global LNG demand will exceed 700 million tonnes per year by 2040, up almost 90% from last year.
Shell is the lead partner for the LNG Canada project, which began construction in Kitimat, British Columbia in 2018. The project is a breakthrough in Canada as it is the only one of 24 LNG export applications in the country which is under construction.
The first phase of the Kitimat terminal is expected to cost $18 billion, and the export facility is expected to begin shipping LNG to Asia in 2025. The terminal will be equipped with turbines fueled by natural gas in the liquefaction process, and the initial objective is to export 14 million tons per year of LNG.
If the second phase is built, export capacity would double to 28 million tonnes per year of LNG.
“In our minds, we always wanted to be able to have that option to move into phase two,” said Sawan, who flew to Vancouver last week to attend the Globe Forum 2022 Sustainable Business Conference. “Now we need to be able to make sure it makes sense on paper before we make that investment commitment.”
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Canada’s LNG exports to Asia would indirectly help Europe, as it would free up fuel supplies in Qatar and elsewhere in the world for re-routing to Europe.
Canada was the world’s sixth largest producer of natural gas in 2020, according to industry analysts. LNG Canada would be the country’s first LNG export terminal. Seven facilities already export from the United States.
While the Government of British Columbia supports the first phase of LNG Canada, the province encourages any new LNG proposals to consider electric drive technology to convert natural gas to liquid form, in an effort to meet provincial reductions in greenhouse gas emissions.
There is not enough infrastructure today to provide hydroelectric power for electric propulsion technology at the Kitimat site, although Sawan said possibilities will be explored. “None of these challenges are insurmountable,” he said.
Environmental groups criticize global efforts to increase LNG supply due to Russia’s war on Ukraine. “Dirty companies are brazenly taking advantage of this crisis to secure decades of dependence on dirty energy,” said Food & Water Watch, a US-based nongovernmental organization.
But Mr Sawan said that essentially the LNG that Shell ships to China and India from its other operations is helping to reduce overall emissions by displacing thermal coal for power generation.
Susannah Pierce, President of Shell Canada and National President, said LNG Canada will produce fuel at a lower carbon intensity than other large-scale terminals operating around the world.
“The energy transition is not simple. It’s complex, and we currently have a dependency on natural gas and oil that cannot be eliminated overnight,” she said. “So it takes a very thoughtful approach.”
LNG Canada’s first phase would operate at 0.15 tonnes of carbon dioxide equivalent for every tonne of LNG produced, which is below BC’s limit for “emissions intensity” of 0. 16 tons of CO2 equivalent.
Shell PLC has set itself the goal of having net zero emissions in its energy operations globally by 2050.
The LNG Canada terminal was designed as a two-phase project. “We broke up because you want to make a first investment and then consider a second,” Ms. Pierce said.
The British Columbia megaproject lost its chief executive as it entered peak phase one construction when Peter Zebedee stepped down last month.
Mr. Zebedee, who was seconded from Shell to LNG Canada, will join Suncor Energy Inc. next week as executive vice president of mining and upgrading.
His replacement will probably come from Shell. “Typically in any joint venture agreement you have specific roles that are assigned to specific companies, and in this case we would expect that role to come from Shell,” Ms Pierce said.
Over 60% of the LNG Canada project and associated pipeline, Coastal GasLink, is complete. Coastal GasLink is being built to transport natural gas from northeast British Columbia to Kitimat.
The pipeline has been the target of fierce opposition from a group of Wet’suwet’en Nation hereditary chiefs and their supporters, who say Coastal GasLink does not have the consent of these hereditary chiefs.
Denita McKnight, vice president of corporate relations at LNG Canada, said a final investment decision for phase two will take into account various factors such as competitiveness, affordability and carbon intensity.
No deadline has yet been set for Shell and the other four co-owners of LNG Canada to decide whether or not to approve the massive expansion.
The federal and British Columbia governments welcome the prospect of electric drive technology for the proposed second phase at the Kitimat site.
Last week, Ottawa released its blueprint for sectoral greenhouse gas emission reductions, targeting 40% below 2005 levels by 2030.
“I think it’s clear that it would be very difficult to see how phase two with natural gas liquefaction is going to fit into BC’s climate plan and would certainly create challenges for Canada’s climate plan. “said federal Natural Resources Minister Jonathan Wilkinson.
B.C. Energy Minister Bruce Ralston said the provincial government expects LNG developers to meet their climate commitments. “The fact that LNG Canada is eager to move forward is a strong indication that companies view British Columbia as a safe jurisdiction in which to invest,” Mr. Ralston said.
Sawan warned that navigating between regulators and removing other hurdles has been long and complex in the past.
“It hasn’t always been a symphony and we need to be able to make it move much more harmoniously than I realize in recent history,” he said.
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