Shell has begun a phased exit of the Energy Transfer Lake Charles LNG project, citing current market conditions.
The two firms had entered into a project framework agreement last March, in which the companies agreed to share the costs of developing the LNG project, the cost of which was not disclosed. Lake Charles LNG is a proposed 50/50 project between Shell and Energy Transfer that would convert Energy Transfer’s existing import terminal to an LNG export facility in Lake Charles, La.
This follows Shell's announcement on March 23 that it would reduce its underlying operating costs by $3-4 billion per annum over the next 12 months, cutting cash capital expenditure by $5 billion down to $20 billion or less, and reducing material reductions in working capital.
“This decision is consistent with the initiatives we announced last week to preserve cash and reinforce the resilience of our business,” said Maarten Wetselaar, director, integrated gas and new energies at Shell, in a statement. “Whilst we continue to believe in the long-term viability and advantages of the project, the time is not right for Shell to invest. Through the transition, we will work closely with Energy Transfer.”
Energy Transfer still plans to continue development, and will take over the role of lead project developer.
“We continue to believe that Lake Charles is the most competitive and credible LNG project on the Gulf Coast,” said Tom Mason, Energy Transfer’s executive vice president and president – LNG, in a statement. “Having the ability to capitalize on our existing regasification infrastructure at Lake Charles provides a cost advantage over other proposed LNG projects on the Gulf Coast. The Lake Charles project also benefits from its unparalleled connectivity to Energy Transfer’s existing nationwide interstate and intrastate pipeline system that provides direct access to multiple natural gas basins in the U.S.”
Over the last year, Shell and Energy Transfer had already begun the engineering, procurement and construction (EPC) bidding process. Shell announced that it will continue to support Energy Transfer with the EPC process through the second quarter of 2020, following the receipt of commercial bids. The oil major also plans to continue supporting Energy Transfer during a transition period, which it hopes will facilitate Energy Transfer’s plans to continue development of the project.
Energy Transfer shared that it will be evaluating various alternatives to advance the project, including the possibility of bringing in one or more equity partners and reducing the size of the project from three trains with an estimated capacity of 16.45 mtpa of LNG, down to two trains, at 11.0 mtpa.
According to the Lake Charles LNG website, this is the only brownfield project among those in the pre-FID process. In addition to its brownfield advantages and permits, the project has an existing pipeline infrastructure. Shell entered the project with its 2016 acquisition of BG Group plc.
“We remain in discussions with several significant LNG buyers from Europe and Asia regarding LNG offtake arrangements as well as, in some cases, a potential equity investment in the project,” Mason further stated. “In light of the advanced state of the development of the project, we remain focused on pursuing this project on a disciplined, cost efficient basis and, ultimately, the decision to make a final investment decision will be dependent on market conditions and capital expenditure considerations.”