By BLOOMBERG

VANCOUVER • Royal Dutch Shell plc and its partners announced an agreement to invest in a multi billion-dollar liquefied natural gas (LNG) project in western Canada — the largest of its kind in years that will carve out the fastest route to Asia for North American gas.

LNG Canada — comprised of Shell, Malaysia’s Petroliam Nasional Bhd, Mitsubishi Corp, PetroChina Co and Korea Gas Corp (Kogas) — confirmed the expected final investment decision (FID) in the C$40 billion (RM129.15 billion) project, according to a statement from Shell yesterday. Bloomberg News reported on Sunday that the group had approved the investment and an announcement was imminent. The project marks a turning point for Canada and the global gas industry.

Set to be the nation’s largest infrastructure project ever, LNG Canada augurs a new wave of investments for major gas export projects after a three-year hiatus forced by fears of a global supply glut. LNG Canada will be able to send cargoes from Kitimat, British Columbia, to Tokyo in about eight days versus 20 days from the US Gulf.

“As the market grows, our LNG business needs to grow,” Shell CFO Jessica Uhl said in a call with reporters.

“Demand has exceeded expectations. We believe that that pattern will continue going into 2020s.”

The venture is expected to start supplying customers with gas before 2025. The investment case largely rests on the assumption that China will replace much of its coal use with natural gas in attempts to clear pollution and reduce carbon emissions. Shell believes LNG demand will roughly double by 2035.

LNG Canada will generate a 13% internal rate of return to Shell, if gas prices in Tokyo are US$8.50 (RM34.85) per million British thermal unit (mmBtu) or higher, according to the company. Prices have been lower than that for the vast majority of the past four years, but Uhl suggested there would be a “supply gap” opening up around the time the project starts selling fuel that will raise prices.

The FID is a welcome boost for Canadian Prime Minister Justin Trudeau. Selling LNG to buyers in Asia promises higher prices for the country’s gas compared to what it gets selling it almost exclusively to the US via pipeline. It also helps reaffirm Canada’s investment climate, battered by the bungled expansion of the Trans Mountain oil pipeline, which was sold by Kinder Morgan Inc to the government for C$4.5 billion before its approval was quashed by a federal court.

Details from the agreement: Construction will start immediately with first LNG expected before the middle of the next decade. Plant’s estimated construction cost at US$1,000 per tonne of LNG. The project achieves positive cashflow with Tokyo-delivered LNG at US$8.50 per mmBtu.

The investment approval is for two LNG trains with a total capacity of 14 million tonnes a year, compared to a previous plan of 13 million tonnes. LNG Canada has proposed to eventually export as much as 26 million tonnes a year.

The green light marks the end of a seven-year effort, including two postponements in 2016 at the depths of the gas market downturn. The outlook for LNG has since brightened as the market could be in deficit as soon as 2022 unless new projects are built, according to Sanford C Bernstein & Co. Global LNG imports will set a new record this year of 308 million metric tonnes thanks to growth from Asia, Bloomberg New Energy Finance forecast on Sept 12.

Shell holds 40% of LNG Canada, with Petronas at 25%, 15% each for PetroChina and Mitsubishi, and 5% for Kogas.