Shell and Mitsubishi Consider Selling Stakes in LNG Canada Project

Oil giant Shell and Japanese conglomerate Mitsubishi Corp. are evaluating options to sell their stakes in the $40 billion LNG Canada project, according to sources familiar with the discussions. This consideration arises as project owners contemplate a potential expansion and follow the recent sale of a stake by another participant, Petronas.

Shell, which holds a significant 40 percent stake in LNG Canada, has engaged Rothschild & Co. to gauge interest from potential buyers. Reports indicate that Shell may consider divesting up to 30 percent of its stake. The company is exploring various options regarding its exposure to both the operational Phase 1 and the proposed Phase 2, which carry different levels of risk. One source estimated that a buyer could face a commitment of approximately US$15 billion, factoring in equity, debt, and capital requirements for Phase 2.

Mitsubishi, which owns a 15 percent stake, is also assessing its position and has enlisted RBC Capital Markets for support. However, the sources noted that deliberations are still in the early stages and any sale efforts may not commence until later this year. Details regarding how much of its stake Mitsubishi might consider selling have not been disclosed.

Both companies have not confirmed the sale discussions publicly. LNG Canada directed inquiries to Shell and Mitsubishi, with Shell declining to comment and Mitsubishi unavailable for immediate comment. RBC Capital Markets and Rothschild have also refrained from providing statements.

As interest in LNG continues to grow, recent developments highlight the changing landscape of the energy sector. In December, MidOcean, backed by EIG and Saudi Aramco, acquired a fifth of Petronas’ venture, which held a 25 percent stake in LNG Canada. Other stakeholders include PetroChina, which holds 15 percent, and Korea Gas Corporation, with a 5 percent stake.

Located in Kitimat, British Columbia, LNG Canada represents the first major liquefied natural gas facility in North America with direct access to the Pacific Coast. The project benefits from a supply cost advantage, with Canadian natural gas prices generally lower than the U.S. Henry Hub benchmark. Nevertheless, potential investors must contend with industry concerns regarding a global oversupply of LNG as new production facilities come online.

Since its launch in June, LNG Canada has faced operational challenges, including issues with its second processing unit, known as Train 2. This unit was reportedly offline in December, nearly a month after its startup. Once fully operational, Phase 1 is expected to have a capacity to export 14 million metric tons of LNG annually.

Shell has indicated to prospective buyers that it plans to maintain a gas contract with the terminal for 30 years. It is common for developers of major infrastructure projects to reduce their stakes after operations commence, enabling them to realize profits and reinvest in new opportunities. Large investment firms and infrastructure funds often seek these types of investments due to their stable revenue potential.

In March, Shell announced targets for a 4 to 5 percent annual increase in LNG sales over the next five years and 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 facility’s capacity, potentially occurring as soon as this year.

As the landscape for liquefied natural gas evolves, the strategic decisions of Shell and Mitsubishi will play a significant role in shaping the future of LNG production and investment in Canada.