Shell and Mitsubishi Explore Sale of Stakes in LNG Canada Project

Oil giant Shell and Japanese conglomerate Mitsubishi Corporation are actively considering options to sell their stakes in the C$40 billion ($28.8 billion) LNG Canada project, according to multiple sources familiar with the situation. This development comes as stakeholders assess potential expansion plans for the liquefied natural gas facility and follows the recent successful divestment by another stakeholder, Petronas.

Shell, which holds a significant 40 percent share in LNG Canada, has engaged Rothschild & Co to gauge interest from potential buyers. Reports indicate that Shell could be prepared to divest up to three-quarters of its stake, equating to 30 percent of the project. The company is exploring various options regarding its involvement in both the operational Phase 1 and the prospective Phase 2 of the project, which carry different risk profiles.

One source estimated that acquiring Shell’s stake could require a financial commitment of approximately $15 billion, covering not only the equity stake but also associated debt and capital needs for Phase 2.

Mitsubishi’s Strategic Review

Mitsubishi, which owns a 15 percent stake in the project, has retained RBC Capital Markets to assist in evaluating its options. Sources indicate that discussions are in the early stages, and any sale initiatives may not commence until later in the year. Details on the extent of Mitsubishi’s potential sale remain undisclosed.

Both Shell and Mitsubishi declined to comment on the matter. LNG Canada directed inquiries to the two companies, while RBC and Rothschild have not responded to requests for comment.

In a notable move, MidOcean, backed by investment firm EIG and Saudi Aramco, finalized a deal in December to acquire a 20 percent stake from Petronas, which previously held a 25 percent share in LNG Canada. Other stakeholders include PetroChina with a 15 percent stake and Korea Gas Corporation at 5 percent.

LNG Canada’s Market Position

LNG Canada is notable for being the first major liquefied natural gas facility in North America to have direct access to the Pacific Coast. Situated in Kitimat, British Columbia, the project benefits from a cost advantage, as prices for Canadian natural gas consistently trade at a discount compared to the U.S. Henry Hub benchmark.

Despite this advantage, existing and prospective stakeholders are mindful of concerns regarding a potential oversupply of liquefied natural gas globally, particularly as new production capacity is set to come online. For example, Energy Transfer announced in December that it would halt development of its Lake Charles LNG export facility in Louisiana.

LNG Canada began production in June but has encountered operational challenges. Reports indicate that its second processing unit, known as Train 2, faced downtime shortly after its startup in December. When fully operational, Phase 1 is expected to have the capacity to export 14 million metric tons of LNG annually.

Shell has informed potential bidders that it intends to maintain a gas contract with the terminal for the next 30 years. It is common for developers of major infrastructure projects to reduce their ownership once operations commence, allowing them to realize profits and reinvest capital into new projects. Large investment firms and infrastructure funds are often keen buyers of such stakes due to the reliable revenue stream these projects provide.

As the world’s largest LNG trader, Shell has set a target for a 4 percent to 5 percent annual increase in LNG sales over the next five years, along with a 1 percent annual growth in production. The company and its partners are working towards a final investment decision for Phase 2, which could double the project’s capacity.