Chevron slows Kitimat LNG spending in Canada, citing volatile markets

By REBECCA PENTY and JOE CARROLL
Bloomberg

Chevron is significantly slowing spending on the Kitimat liquefied natural gas (LNG) project in Canada amid a crash in crude prices and global competition.

The San Ramon, California-based producer’s move follows Petronas' December delay of a final investment decision on its C$36 billion ($28 billion) Canadian LNG project and BG Group’s pause of development at its Pacific Coast proposal in the country in October.

“People are pretty cautious right now in the LNG market,” CEO John Watson said on a conference call, adding that it’s not clear all the new projects being considered can be profitable at lower prices.

The price of LNG is linked to oil, which has dropped more than 50% since June highs, prompting major energy companies to cut jobs and capital spending. Chevron slashed its drilling budget by the most in 12 years on Friday.

The company doesn’t plan to make final decisions on projects this year, other than for its Tengiz field in Kazakhstan, Watson said.

Chevron is cutting spending on LNG worldwide by 20% this year to $8 billion, Watson said during the conference call.

While Chevron curbs spending for Kitimat LNG, it will continue to develop gas fields in British Columbia’s Liard Basin to support the export facility, secure permits and reach agreements with aboriginal groups, Watson said. The company is aligned with Woodside Petroleum on the project, he said.

Woodside in December agreed to pay Apache Corp. $2.75 billion for stakes in the Kitimat LNG project and the Wheatstone venture in Australia.

Engineering Work

Chevron will also continue efforts to secure marketing agreements with prospective buyers from Kitimat LNG in 2015 and negotiate with the British Columbia government on its policies, said Ray Lord, a spokesman for the company.

Front-end engineering and design work will continue, as the companies try to reduce costs of the plant and pipeline, he said.

The Chevron-led Kitimat project is among 18 proposed for Canada’s Pacific Coast to liquefy and export vast supplies of gas in shale deposits by tanker ships to buyers in Asia. None of the proponents have yet made a final decision to proceed.

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