Are Shell, Mitsubishi trying to pull out of LNG Canada? Probably not, analysts say

Cooling towers used to dissipate heat generated when natural gas is converted into liquefied natural gas are seen under construction at the LNG Canada export terminal, in Kitimat, B.C., on September 28, 2022. Photo by THE CANADIAN PRESS/Darryl Dyck

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Speculation that Shell Plc and Mitsubishi Corp. are looking to exit LNG Canada is misplaced, analysts say, with some arguing the reported stake-sale talks could even signal preparations for expansion rather than a pullback.

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The companies have so far declined to comment on the Reuters report from earlier this month that the partners were exploring sale options for their stakes in the major liquefied natural gas terminal in Kitimat, B.C.

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Global oil and gas major Shell, which holds the largest stake in LNG Canada at 40 per cent, is looking to sell up to three-quarters of its holding, according to the report. Mitsubishi currently holds a 15 per cent stake in the project, with the remaining equity held by Petronas, MidOcean Energy, PetroChina and Korea Gas Corp.

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It comes at a sensitive moment for Canada’s nascent LNG industry, as investors and policymakers are closely watching whether the country can attract capital for a second phase of development.

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But several analysts and industry experts cautioned the moves by Shell and Mitsubishi appear aimed at unlocking value and limiting risk — or at bringing in new partners and fresh capital to fund a second phase — rather than reflecting a desire to exit the project.

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One executive from a large oil and gas producer in Western Canada noted that the news is likely a positive signal for LNG Canada’s expansion.

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“It’s these project financing deals that often, at the outset, look like a sell-down or an equity sale. Really, it’s just a structured financing,” said the executive, who asked not to be identified because they were not authorized to speak publicly on the matter.

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“In preparation for Phase 2, the companies are making sure they have ways to fund it, and they’re funding it at the partnership level — but they’re not selling out of the project.”

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Other analysts and industry experts are comparing the news to Petronas’s move last September to sell a portion of its stake in LNG Canada to privately-held LNG company MidOcean Energy — a move that was also initially interpreted by many as Petronas stepping back from Canada.

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In that case, analysts noted, Petronas sold a 20 per cent stake in its Canadian upstream and LNG holdings to MidOcean, including a portion of its interest in LNG Canada. MidOcean was brought in as a financial partner, earning a share of project cash flows, while Petronas retains operational control and continues to own and market the project’s LNG cargoes.

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Some analysts covering Shell have highlighted the liquefied natural gas business and LNG Canada’s strategic importance to the company, suggesting it may be unlikely the company is looking to exit its Canadian investment.