Reports indicate that oil major Chevron could dispose of a minority stake it holds in an LNG project in Canada. Firms that could possibly acquire the stake in Kitimat LNG include Petronas. Last year Petronas opted out of a $36 billion liquefied natural gas project located in British Columbia as a result of challenging market conditions.
Additionally Chevron could sell the stake to financial investors such as private equity firms or pension funds in Canada. Firms such as Tourmaline Oil Corp and Seven Generations Energy are also in plans to become suppliers of natural gas to the LNG project of Chevron. If it manages to partner with other producers of natural gas Seven Generations would also be in a position to acquire a stake.
An agreement with financial investors would consist of cash infusion with the aim of meeting the project’s costs while an agreement with a producer would involve supply deals that would run for decades. Pension funds in Canada are generally drawn towards infrastructure-style assets with the capacity to provide stable cash flows and pipeline investments meet that criteria.
The British Columbia project is joint venture with Woodside Petroleum of Australia and has been granted a license that runs for two decades. It is estimated that billions of dollars will be required to build the project which is expected to produce on a yearly basis ten million metric tons of liquefied natural gas.
According to Chevron the Kitimat project could turn out to be one of the biggest capital investments it has made in an energy project in Canada. Part of the reason making investments in the project has been difficult is because of concerns of liquefied natural gas supply glut across the globe. In Western Canada fierce opposition to the building of pipelines as well as other energy infrastructure has also emerged and escalated recently.
But increasing demand of LNG in China as well as in Southeast Asia has led to hopes that there is a turn in the market cycle. Earlier this week Chevron announced that it expected an LNG supply shortage in the worldwide market by around 2025. Last month Anglo-Dutch oil giant Royal Dutch Shell also made similar comments.
“China’s demand is increasing significantly – they’ve had a very active program to move off of coal in heating industrial applications, and that’s pulled on LNG,” said Pierre Breber, Chevron’s downstream executive vice president.