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Shell's LNG Canada Project to Sell Output to JERA of Japan

Zacks Equity Research

Royal Dutch Shell plc’s RDS.A LNG Canada project has a new buyer, JERA Co., Inc. of Japan, per Reuters. JERA, a joint venture between Tokyo Electric Power Company and Chubu Electric Power, is the world’s biggest buyer of liquefied natural gas (LNG).

The project is a joint venture among Shell (40%), PetroChina Company Limited PTR (15%), PETRONAS (25%), Mitsubishi Corporation (15%) and KOGAS (5%). JERA is expected to buy around 16 cargoes or 1.2 million tons of LNG a year (Mtpa) from the Canadian project. The deal will span for 15 years, starting from the month of April in 2024. Notably, this deal marks the first time JERA will buy LNG from Canada.

The C$40-billion LNG project, located in British Columbia, received the approval for final investment decision last October. The facility in Kitimat has abundant access to low-cost natural gas from vast resources in the province. The LNG facility is expected to have a 14-Mtpa initial production capacity, having the option of doubling it with increasing demand. Shell and its partners in the major project intend to decide within 2025 whether to further boost its capacity.

The deal with the humongous Japanese LNG buyer underlines the importance of the strategic position of the LNG facility, in the West coast of Canada, for exports. LNG Canada will be able to easily address the rising demand for cleaner energy sources in the domestic market as well as in Asia, avoiding the long and costly route through the eastern side and using the Panama Canal.

Notably, for similar reasons, Chevron Corporation CVX recently applied to the National Energy Board of Canada for nearly doubling its Kitimat LNG plant’s size to 18 Mtpa. The plant, which is currently in the designing phase, is located in the northern part of the British Columbia province. Chevron has Woodside Energy Ltd. of Australia as the 50-50 joint-venture partner in the project.

Price Performance

Headquartered in The Hague, Netherlands, Shell’s stock has gained 5.5% in the past month compared with 3.2% collective growth of the industry it belongs to.

Zacks Rank and Another Stock to Consider

Currently, Shell carries a Zacks Rank #1 (Strong Buy). Investors interested in the energy sector can opt for another top-ranked stock as cited below:

Buenos Aires, Argentina-based YPF Sociedad Anonima YPF is an integrated energy company. It delivered average positive earnings surprise of 210.4% in the trailing four quarters. The stock currently holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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PetroChina Company Limited (PTR) : Free Stock Analysis Report
 
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