Shell not ready to green light $40B LNG Canada project yet

Global energy giant Shell is still examining plans for a massive liquefiednatural gas terminalon the northern coast of British Columbia, but company officials saidThursdaythe $40-billion project looks"very promising."

Despite speculation Shell would announcea decision onthe LNGCanada project duringits second quarter conference call, its chief financial officer Jessica Uhl told analysts the facility's future is still under study.

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"LNG Canada looks very promising and together with our partners we need to finalize consideration of a few key items before we can take a positive final investment decision," Uhl said.

"We see great opportunities but we also have clear expectations when it comes to competitiveness, affordability and returns."

Shell leads a consortium of companies behind LNGCanada, whichwould build a liquefied natural gas export facility at Kitimat, B.C.

There is widespread support from Canada's energy sector for the project.

The LNGindustry has struggled to take off in British Columbia, butis booming in the United States, where billions of dollars are being pumped intonatural gas pipelines and LNGfacilities.

In recent months, however, the LNGCanada project has been building momentum, leading some analysts to suggest a positive decision is imminent.

This month,Houston-based Civeo Corp. wasawardeda contract to supply temporary work camps at four locations along the Coastal GasLink pipeline from Dawson Creek, B.C., to the West Coast, on the condition that the liquefied natural gas export terminal is built.

But Uhlsaid Thursday the company is still doing its homework.

Shell needs to know if the LNG Canada project will be resilient, generating positive free cash across a "range of commercial and energy transition scenarios," she said.

Uhladded thatthecompany also needs to ensure the project isfinancially competitive and, longer term, carbon competitive, particularly in comparison with opportunities in the Gulf of Mexico.

The company believes there will be supply gap for LNGin the early 2020s.

Uhlspoke highly of the project's potential.

"We have an attractive portfolio of new supply options ... [and] want to select the most competitive source of supply. LNG Canada is the most mature of these options," she said.

"LNG Canada has access to abundant and low cost gas and short shipping distanceto North Asia. It also has lower greenhouse gas emission intensitythan any comparable operatingLNG plant."

Uhl said the company expects to make a final investment decisionthis year.

Martin King, director of institutional research atGMP FirstEnergy, said he was a little surprised not to hear an announcement from Shellon the project Thursday, buthe is optimistic it will proceed.

"It seems like they'rekind of beating the drums of support for this thing and just trying to get the last of the stuff lined up before making this final decision," King said.

"There still could be other issues with their joint venture partners still doing their own arithmetic and looking at the financial returns on this project," he said.

"It just may be getting everybody on the last, final page here and in agreement."

King believes the project makes economic sense for Shell, but will also have wider benefits in terms of jobs, royalties and taxes. It should also improve investorsentiment for natural gas in Western Canada,he said.

"It's not going to repair everything and it's certainly not going to rescue prices tomorrow because this project is not really going to be done for upwards of five years from now," King said.

"But I think certainly it helps the overall sentiment, which has been extremely negative for the last couple of years."