Chevron pulls funding for Kitimat LNG play

Company stops funding of further work after failing to find a buyer for its half-share in a proposed liquefied natural gas terminal in Kitimat, B.C.

By
Western Investor
March 22, 2021





Chevron had been keeping the Kitimat LNG project ticking. | BIV archives
— Chevron had been keeping the Kitimat LNG project ticking. | BIV archives

Chevron Corp. appears to be pulling the plug on its Kitimat LNG project.

The company, which owns 50 per cent in the Kitimat LNG project, says it will halt further funding of the project, after failing to find a buyer.

The decision does not affect LNG Canada, which is valued in excess of $30 billion and is proceeding under an international consortium led by Shell Energy Canada.

Kitimat LNG was the only other major LNG project on the scale of the LNG Canada project that seemed to still have a chance of being built, despite having final investment decisions on it deferred. Several other major B.C. proposals have been abandoned.

Chevron owns a 50 per cent stake in the project and related natural gas pipeline, but has been trying to divest its share of the project. The project's owners have changed hands many times since it was first proposed.

"Despite the many challenges posed by COVID-19, Chevron engaged in a process to divest while continuing to work with its joint venture partner, Woodside, on agreed project activities that brought value to the asset or were required for regulatory and operational compliance," the company says on its Kitimat LNG website.

But the company has been unable to find a buyer.

"At this time, it is Chevron’s intent to cease Chevron-funded further feasibility work for the proposed Kitimat LNG project," the company says. "Chevron’s other assets in Canada are not included in this decision. This decision only impacts the proposed Kitimat LNG project."

Those other assets include the proposed 471-kilometre Pacific Trail Pipeline, which is approved but not built, as well as upstream natural gas assets.

The other partner in the project is Woodside Petroleum, an Australian company. It's not clear if Woodside likewise plans abandon the project. Last year, it reported a US$720 million impairment on Kitimat LNG.

In its most recent annual financial report, Woodside appeared to remain committed to the Canadian project.

"Woodside remains committed to working with our stakeholders to improve the cost competitiveness of the proposed project," it said in its 2020 annual report.

However, that report was published before Chevron announced it will pull all further funding of the Kitimat project.

Ellis Ross, Liberal MLA for Skeena, and LNG industry supporter, expressed disappointment with the latest development.

"Given the lack of provincial and federal support, plus the reluctance of anyone willing to risk investment in B.C., I hoped this day wouldn’t come," he said.

He said the project might not necessarily be dead, but would require new investors.

"The certificate is safe, the terminal and pipeline right of way is secured," he said, "but everything depends on some company being interested in the equity share."

In a recent investor presentation, Chevron CEO Michael Wirth said the company's strategy is to focus less on large mega-projects and on smaller projects with higher returns.

"We've become less reliant on large scale capital projects," he said.


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