Shell and Mitsubishi Explore Sale of Stakes in LNG Canada Project

Shell and Mitsubishi Corporation are actively exploring options to sell their stakes in the C$40 billion (approximately $28.8 billion) LNG Canada project, according to three sources familiar with the discussions. This strategic consideration arises as the owners of the liquefied natural gas facility evaluate a potential expansion, following a recent successful sale by another stakeholder, Petronas.

Stakeholder Dynamics in LNG Canada

Shell, which holds a 40 percent stake, has engaged Rothschild & Co to identify potential buyers in recent weeks. Reports indicate that Shell is open to selling up to 30 percent of its holding. The company is weighing various options regarding its exposure to both Phase 1, which is operational, and the proposed Phase 2, each associated with different levels of risk.

One source estimated that any buyer for Shell’s stake could be looking at a commitment of around $15 billion, factoring in equity, debt, and capital requirements for the expansion of Phase 2.

Mitsubishi, which owns a 15 percent stake in the project, has also started assessing its options. The company has hired RBC Capital Markets for guidance, although discussions are still in the early stages, and any sale initiatives may not commence until later this year. Specific details regarding the extent of Mitsubishi’s stake to be marketed have not been disclosed.

Market Conditions and Future Prospects

The ongoing sales discussions come in the context of a competitive global LNG market. LNG Canada, located in Kitimat, British Columbia, is the first major LNG facility in North America with direct access to the Pacific Coast. It enjoys a supply cost advantage as Canadian natural gas prices typically trade at a discount to the U.S. Henry Hub benchmark.

Nonetheless, the potential owners are mindful of industry concerns surrounding a global oversupply of LNG as new production comes online. In December, Energy Transfer announced it would halt development of its Lake Charles LNG export facility in Louisiana, reflecting caution in the sector.

LNG Canada commenced production in June 2023, but it has encountered operational challenges. Its second processing unit, known as Train 2, faced issues shortly after its startup, raising questions about the project’s reliability.

When fully operational, Phase 1 of LNG Canada is expected to have a capacity to export 14 million metric tons of LNG annually. In terms of contractual agreements, Shell has indicated it will maintain a gas contract with the terminal for the next 30 years.

Developers of large infrastructure projects like LNG Canada often seek to reduce their stakes once operations commence, enabling them to realize profits and reinvest in new ventures. Such stakes are attractive to large investment firms and infrastructure funds that favor projects with steady revenue streams.

As the world’s largest LNG trader, Shell has set ambitious targets, aiming for a 4 percent to 5 percent annual increase in LNG sales over the next five years, alongside a 1 percent annual production growth. The company and its partners are preparing for a final investment decision for Phase 2, which could double the facility’s capacity as early as this year.

While the future of these stakes remains uncertain, the discussions reflect a significant moment for Shell, Mitsubishi, and the broader LNG market.