Resource World Magazine

86 www.resourceworld.com F E B R U A R Y / M A R C H 2 0 2 0 OIL & GAS T o quote Scottish poet Robbie Burns, "The best-laid plans of mice and men often go awry." That nicely sums up what's happening on British Columbia's west coast as a cloud descended on the Kitimat LNG Project just before Christmas with news that Chevron wants to sell its half share in the venture. The most high-profile of the two part- ners in the project, (Woodside Energy Ltd. [WPL-ASX] being the other) Chevron Canada Ltd. [CVX-NYSE] said in early December, it wants to sell its 50% share in Kitimat LNG as part of its plan to cut investment spending and write down the value of its investments by more than US $10 billion as lower long-term prices for oil and natural gas are expected to reduce the value of its assets. Chevron wants to hold its 2020 global spending flat at US $20 billion. "With cap- ital discipline and a conservative outlook come the responsibility to make the tough choices necessary to deliver higher cash returns to our shareholders over the long term," chief executive Michael Wirth told The Financial Post. The project, with Chevron named as the operating partner, includes upstream resource assets in the Liard and Horn River Basins in northeast BC; the 471- km Pacific Trail Pipeline; and a natural gas liquefaction facility at Bish Cove near Kitimat. The Kitimat LNG plant, includ- ing up to three LNG trains totalling 18 million tonnes annually, would be an all- electric plant powered by clean, renewable hydroelectricity. "Although Kitimat LNG is a globally competitive LNG project, the strength of Chevron's global portfolio of investment opportunities is such that Kitimat LNG will not be funded by Chevron and may be of higher value to another company," said Veronica Flores-Panaigua, Chevron's exter- nal affairs advisor for corporate affairs. She declined to name either the asking price or any potential buyers. Chevron's decision came as a surprise, said Michael Dewar, District of Kitimat director of economic development. "However, we believe the project is viable, a future opportunity in our community and in the best interest of our region, prov- ince and nation. We believe that Kitimat remains an extremely competitive location for a second major LNG project. "We commend the Chevron team for their dedicated efforts in developing a world-class major LNG project in our com- munity, and being an exemplary corporate citizen." He said the district will continue to work with both LNG proponents to sup- port transition of the project, worth C $25-$35 billion and set to go in service in 2029, to future owners, who are unknown at present. He added that it's believed the recently-approved export licence, expanded to 40 years after an application by Chevron, would stay with the project. Dewar said they have not heard of any changes to the project timelines. Significant work has been completed including earthworks at the marine ter- minal site, decommissioning of the former industrial site that will serve as the lay- down yard and potential work camp, and road improvements to the marine termi- nal site, he said, with up to 300 people employed at any one time. Woodside respects and is reviewing Chevron's decision but remains committed to the project, said a spokeswoman, who declined to be named. "Woodside is committed to the Kitimat LNG project and continues to work with all stakeholders to progress the develop- ment as part of our post-2027 growth strategy," she said. "Kitimat LNG has significant advantages, including the potential to be the world's cleanest LNG project using renewable power from the region's abundant hydro sources, strong upstream supply options and proximity to growing export markets in North Asia." While a final investment decision has not been made – the in-service date is esti- mated for 2029 – and that will be driven by LNG market demand, the Woodside spokeswoman said, since 2015 Chevron and Woodside have made "significant progress" in enhancing the project's com- petitiveness relative to other LNG projects worldwide, reducing unit costs by more than 45% and incorporating the innova- tive all-electric design. "As part of this work, Chevron and Woodside have re-evaluated the originally- proposed two-train, 10 MTPA (million tonnes per annum) LNG plant develop - ment concept and are now proposing a revised plant design that may include up to three LNG trains and deliver up to 18 MPTAS of LNG," she said. The Canada Energy Regulator (formerly the National Energy Board) has approved that appli- cation, which would nearly double the facility's output to 997 billion cubic feet of natural gas annually. She said the proponents currently are focusing on "progressing selective opportunities to enhance the cost com- petitiveness of the project; advancing a clear, stable and competitive fiscal frame- work with BC and federal governments; progressing commercial agreements; and, maintaining engagement and support for the project with First Nations and local communities". Flores-Paniagua said Chevron will con- tinue as the project's operator until the sale. Kitimat LNG Project Update by Bruce Lantz

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