Nigeria, Peru, Trinidad 2021 LNG issues result in $300 million opportunity loss for Shell just in third quarter
Royal Dutch Shell faced just in July-September an opportunity loss, or the value of the unrealized scenario of having enough of its own supply to serve its contracts, of an estimated $300 million that resulted from LNG production problems in Trinidad, Nigeria and Peru, said Jessica Uhl, a senior vice president at Shell.
Because of these supply issues, Shell had to seek cargoes in a very tight market with fast rising prices for LNG, or methane cryogenically processed to reduce its size about 600 times for easier shipping.
Yet Shell traders earned some “upside” even with the 2021 market conditions, she said, according to a transcript of the third-quarter earnings discussion call on Oct. 28, 2021 by Motley Fool.
In other comments, Shell’s CEO Ben Van Beurden said that considering the “quantum of emissions” that LNG plants involve, any future LNG project that the company would consider would have to offset emissions and align with carbon neutrality goals.
“Peru is up and running again. So hopefully, that's behind us,” said company CEO Ben Van Beurden. The plant had mechanical problems this year that led to downgrades of its debt rating by two agencies.
"Cash generation (for Peru LNG) will be weak in 2021 due to low production volumes, caused by over 80 days of plant stoppages in the first three quarters of the year, triggered mostly by unexpected mechanical problems in the company's sole plant. In the last three years, PLNG has experienced recurring plant stoppages either due to external events or unplanned shutdowns, which evidence continued high operating risk," Moody's Investor Service said on Aug. 11, 2021.
Peru LNG, inaugurated in June 2010, has 4.45 million-tonnes/year capacity. Shell bought 20% equity in the plant “and 100% offtake” in 2014.
During the first four years of operations of Peru LNG Repsol marketed the LNG cargoes from Peru. Other shareholders are Hunt Oil (50% and operator), SK (20%), and Marubeni, 10%. In May 2018, Peru LNG reached its 461 cargo.
“As we look into 2022, hopefully, we can get the overall supply position where we need it to be with some of these other assets addressing the issues, although most of those issues are related to third-party gas suppliers and aren't really Shell issues,” Beurden added.
In Nigeria, Shell is in a venture started in 1989 with the government (49%), Total 15% and Eni 10.4%. It processes in six trains 22 million tonnes/year of LNG and five million tonnes/year of natural gas liquids.
In Trinidad Shell participates in the Atlantic LNG plant, started in 1999 and with 14.8 million tonnes/year capacity in four processing units. Shell owns 46% of Train 1, 57.5% of Trains 2 and 3, and 51.1% of Train 4. The Trinidad government and BP are equity partners.
Shell showed a commitment to deliver on contracts and this will help negotiate contract renewals, Uhl added, according to a transcript of the call by Motley Fool.
“These uncertain times, these high prices bring value to companies such as ourselves who can provide the stability and certainty in terms of supply,”Uhl said.
“The opportunity lost, yes, indeed, so for the third quarter, the impact was around $300 million for the quarter in terms of the supply impact,” Uhl said, according to the transcript of the call by Motley Fool.
On LNG plant emissions
LNG plants “have a certain quantum of emissions,” Beurden said.
“If we do another LNG plant, say, for instance, in Canada, it needs to come either without emissions or you need to find a way to reduce emissions elsewhere.”
“As I tried to make the distinction before, our assets are performing well. Prelude is ramping up,” he said.
Prelude is a floating LNG production facility 295 miles off Australia with 3.6 million tonnes/year of LNG, 1.3 million tonnes/year of condensate and 400,000 tonnes/year of LPG capacity.
Shell, along with its partners INPEX, KOGAS and OPIC, announced in June 2019 the first shipment from Prelude.
At the time of the final investment decision in 2018 the Canada LNG project was estimated at about $30 billion and Canada’s biggest ever. The partners are Shell, Petronas, Petrochina, Mitsubishi, Korea Gas.
“I think we've reached 50% of completion. Very pleased with the performance outside of Canada in terms of the supply chain and within Canada, particularly during the pandemic. So really, really pleased with the overall progress that the project has made to date,” Uhl said.
According to a July 29, 2021 report from The Canadian Press published in Toronto Star, the completion of the Coastal Gas Link that TC is building to deliver gas to LNG Canada is half completed but there is a disagreement related to large cost overruns.
“There are discussions on the pipeline ongoing. We've had some challenges on the pipeline. There's nothing to kind of announce at this moment in time,” Uhl said.
Shell’s LNG portfolio
Brunei LNG started in 1972. It’s 50% owned by Brunei. Then Mitsubishi has 25% and Shell owns the remainder of 7.2-million-tonnes/year plant, according to Mitsubishi.
Oman LNG, a venture established in 1994, has three liquefaction trains, two owned by Oman LNG and one by Qalhat LNG, with a total 10.4-million-tonnes/year capacity. Oman LNG is 51% owned by government, 30% owned by Shell, with other minority partners.
Qatargas is a 7.8-million-tonnes/year train and 70,000 boe/d of NGLs, 70% owned by Qatar Petroleum (70%) and Shell (30%).
Egyptian LNG is a joint venture of two state owned companies and foreign participants. It has 7.2 million tonnes/year of LNG in two trains. Shell owns 35.5% of the operator and also owns 35.5% of El Beheira Narural Gas Liquefaction, which owns Train 1, and 38% of Idku Natural Gas Liquefaction Company. Together they produce 7.2 million tonnes/year.
Shell’s trading operation buys and sells LNG “to and from Shell, its partners and third parties. It operates 90 LNG carriers, or about 20% of the global LNG shipping fleet," according to its website.
Shell is working the LNG Canada construction with Fluor and talks were held in 2020 related to higher Covid-related costs.
U.S. LNG exporters reported strong demand and pricing in the summer, around the time Shell traders were looking for the cargoes to fill the gaps.
By Renzo Pipoli