California-based colossal fossil Chevron Corporation has announced it is writing off US$10 billion of the value attached to its various projects and selling its 50% stake in British Columbia’s Kitimat LNG project, blaming a drop in the long-term price of oil and gas.
“Although Kitimat LNG is a globally competitive LNG project, the strength of Chevron Corporation’s global portfolio of investment opportunities is such that the Kitimat LNG Project will not be funded by Chevron and may be of higher value to another company,” the company said in a statement.
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The announcement Tuesday was a dose of “long-dated cold water” on the Kitimat project, wrote analysts at Tudor Pickering Holt & Co.
“Chevron is not the first company to want out of Kitimat LNG—it bought its 50% stake from Calgary-based Encana Corporation and Houston-based EOG Resources Inc. in December 2012,” The Canadian Press notes, in a story republished by CBC. This week’s announcement “is the latest in a string of setbacks for B.C.’s nascent liquefied natural gas industry, which once boasted nearly 20 proposed projects with the implied promise of a new, higher-priced export market in Asia for Western Canada’s abundant natural gas resources.”
Federal Finance Minister Bill Morneau and Alberta Premier Jason Kenney both responded to the announcement be reaffirming their confidence in the LNG industry, CP writes.
Bloomberg News says the announcement only adds to the Canadian fossil sector’s woes, adding that Chevron’s partner in the venture, Woodside Petroleum Ltd., also wants out.
“Abundant natural gas resources, an all-electric plant, and just a nine-day hop to energy-hungry Asian markets were not enough to convince Chevron Corporation to pursue its Kitimat gas export project in western Canada, marking a further blow to the country’s beleaguered fossil fuel industry,” the news agency writes.
“For Chevron, it’s a decision to write off years of planning as the global LNG industry gets crowded, gas prices keep slumping, and the San Ramon, California-based company focuses on areas like the Permian Basin in Texas. But for Canada, it’s a bigger hit: billions of dollars of potential investment, and a much-needed long-term outlet for its gas to foreign markets.”
The article cites the competing LNG Canada megaproject as another big hurdle for Chevron.
While Bloomberg New Energy Finance sees global LNG demand growing 9.2% to 406 million tons in 2020, analysts expect more write-downs among the fossils working in North American shale fields. Reuters says BP, Repsol, and Equinor have written off a combined US$11 billion in project value over the last year. “Chevron writing down assets—especially at this magnitude—isn’t just symbolic,” said Dallas Salazar, head of energy consulting firm Atlas Consulting. “It’s indicative of what’s to come.”
“The write-downs are broadly the result of oil companies having assumed much higher future prices for natural gas over the past decade,” Reuters adds. Instead, “a long, steady increase in U.S. gas production—much of it a byproduct of the shale oil boom—has pushed prices for the fuel toward a 25-year low.”