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Shell is the lead partner in the LNG Canada project, which began construction in Kitimat, B.C., in 2018.Courtesy of LNG Canada

Shell PLC SHEL-N is studying the feasibility of a major expansion for the LNG Canada joint venture in British Columbia, citing a surge in global demand for liquefied natural gas and the need for reliable new supplies.

Europe has been scrambling to reduce its dependence on natural gas from Russia since the invasion of Ukraine nearly six weeks ago, and countries in Asia want cleaner alternatives to coal.

“It raises the urgency for more LNG supply because Europe and the world desperately needs it,” Wael Sawan, the head of Shell’s integrated gas and renewables division, said in an interview. “There is a lot of capacity that has to be built up to be able to meet the growing LNG demand.”

LNG Canada is conducting a cost-benefit analysis for phase two to potentially use lower-carbon hydroelectricity from BC Hydro to power motors for supercooling natural gas into liquid form, he said.

Shell estimates global demand for LNG will surpass 700 million tonnes a year by 2040, up almost 90 per cent from last year.

Shell is the lead partner in the LNG Canada project, which began construction in Kitimat, B.C., in 2018. The project is a breakthrough in Canada because it is the only one of the 24 LNG export applications in the country that is under construction.

The first phase of the Kitimat terminal is expected to cost $18-billion, with the export facility slated to start shipping LNG to Asia in 2025. The terminal will be equipped with turbines powered by natural gas in the liquefaction process, and initial goal is to export 14 million tonnes a year of LNG.

If the second phase is built, the export capacity would double to 28 million tonnes a year of LNG.

“In our mind, we always wanted to be able to have that option to go into phase two,” said Mr. Sawan, who visited Vancouver last week to attend the Globe Forum 2022 conference on sustainable business. “Now we need to be able to make sure that it makes sense on paper before we make that investment commitment.”

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LNG Canada’s exports to Asia would indirectly help Europe because that frees up supplies of the fuel in Qatar and elsewhere in the world to be rerouted to Europe.

Canada was the world’s sixth-largest producer of natural gas in 2020, according to industry analysts. LNG Canada would be the country’s first LNG export terminal. Seven facilities are already exporting from the United States.

While the B.C. government supports LNG Canada’s first phase, the province is encouraging any new LNG proposals to consider electric-drive technology to convert natural gas into liquid form, in an effort to meet provincial targets for reducing greenhouse gas emissions.

There isn’t sufficient infrastructure today to provide hydroelectric power for electric-drive technology at the Kitimat site, although Mr. Sawan said the possibilities will be explored. “None of these are insurmountable challenges,” he said.

Environmental groups are criticizing global efforts to increase LNG supplies because of Russia’s war on Ukraine. “Corporate polluters are brazenly seizing on this crisis to secure decades of dependence on dirty energy,” said Food & Water Watch, a U.S.-based non-governmental organization.

But Mr. Sawan said that for the most part, LNG that Shell is shipping to China and India from its other operations is helping to reduce overall emissions by displacing thermal coal for electricity generation.

Susannah Pierce, Shell Canada president and country chair, said LNG Canada will produce fuel at a lower carbon intensity than other large-scale terminals operating in the world.

“The energy transition is not simple. It’s complex, and we have a dependence right now on natural gas and oil that can’t be eliminated overnight,” she said. “So it has to be a very thoughtful approach.”

LNG Canada’s first phase would operate at 0.15 carbon-dioxide equivalent tonnes for each tonne of LNG produced, which is a level below British Columbia’s limit for “emissions intensity” of 0.16 CO2 equivalent tonnes.

Shell PLC has set a target to have net-zero emissions at its energy businesses worldwide by 2050.

The LNG Canada terminal was designed as a two-phase project. “We broke it out because you want to make a first investment and then consider a second,” Ms. Pierce said.

The B.C. megaproject lost its chief executive officer as it entered the peak construction period of phase one, when Peter Zebedee stepped down last month.

Mr. Zebedee, who was seconded from Shell to LNG Canada, will join Suncor Energy Inc. next week as executive vice-president of mining and upgrading.

His replacement will likely come from Shell. “Typically within any joint venture agreement, you have specific roles that are provided to specific companies, and in this case, we expect that this role would come from Shell,” Ms. Pierce said.

More than 60 per cent of the LNG Canada project and the associated pipeline, Coastal GasLink, are complete. Coastal GasLink is being built to transport natural gas from northeastern B.C. to Kitimat.

The pipeline has been the target of vocal opposition from a group of Wet’suwet’en Nation hereditary chiefs and their supporters, who say Coastal GasLink does not have the consent of those hereditary leaders.

Denita McKnight, LNG Canada’s vice-president of corporate relations, said a final investment decision for phase two will take various factors into account such as competitiveness, affordability and carbon intensity.

No deadline has been set yet for Shell and the four other co-owners of LNG Canada to decide whether to approve the massive expansion.

The federal and B.C. governments are welcoming the prospect of electric-drive technology for the proposed second phase at the Kitimat site.

Last week, Ottawa released its blueprint for sector-by-sector reductions in greenhouse gas emissions, aiming for 40 per cent below 2005 levels by 2030.

“I think it’s clear that it would be very difficult to see how phase two with liquefaction by natural gas is going to fit within British Columbia’s climate plan and certainly would create challenges for Canada’s climate plan,” federal Natural Resources Minister Jonathan Wilkinson said.

B.C. Energy Minister Bruce Ralston said the provincial government expects LNG proponents to live up to climate commitments. “The fact that LNG Canada is eager to move forward is a strong indication that companies see B.C. as a secure jurisdiction to invest in,” Mr. Ralston said.

Mr. Sawan cautioned that navigating through regulators and clearing other hurdles has been time-consuming and complex in the past.

“It hasn’t always been a symphony and we need to be able to move it much more in harmony than I think it has been in recent history,” he said.

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