Chevron Could Boost Canada's LNG Prospects

Planned LNG projects in Canada could make it the second largest producer of the fuel

Chevron Corp.'s entry into a Canadian liquefied natural gas (LNG) project could help that nation compete with Australia to supply LNG to Asia, Canadian newspaper The Financial Post reports.

Chevron announced last week that its Canadian subsidiary, Chevron Canada Limited, would acquire a 50 percent operating interest in the Kitimat LNG project and proposed Pacific Trail Pipeline.

"The Kitimat LNG development is an attractive opportunity that is aligned with existing strategies and will drive additional long-term production growth and shareholder returns," said Chevron Vice Chairman George Kirkland.

Some observers were reported to have said the approximately $1.3 billion deal will be good for the project because of Chevron's global LNG expertise.

"We believe this is a positive for Kitimat project as it now brings in an experienced LNG operator, and likely makes it easier to sign a sales agreement and bring in a foreign buyer who may want an interest in the Kitimat project as well as the upstream development," Kam Sandhar, analyst at Peters & Co., wrote in a note to clients.

A number of LNG projects are now in the works in Canada, and, if all of them move forward, the nation could become the world's second-largest producer of the fuel, after Australia.

Chevron is involved in LNG projects around the world, including the Gorgon project in Australia, but costs there have risen 40 percent to $54 billion, which worries analysts that "new projects are spiraling out of control," according to the Post.

"The billion dollar question is what a 10 million tons per annum LNG facility will cost at Kitimat?" Greg Pardy, an analyst with RBC Capital, said in a report.

"If Australia's experience is any guide, $2,500 to $3,000 per tpa [tonne per annum] may not be unreasonable, suggesting a $25-billion to $30-billion price tag for Kitimat."