(Adds detail and analyst comments)
LONDON, July 18 Royal Dutch Shell has
suspended development of a liquefaction unit at Canada's Jumping
Pound facility, which was to be used to develop the emerging gas
for transport market.
Gas liquefaction is increasingly being produced for use in
transportation of large road vehicles, in trains, and as a
"We believe LNG (liquefied natural gas) in transport is a
considerable opportunity for Shell, but it is an emerging market
and we must have a balanced approach to its development, (so) we
have suspended development of the liquefaction unit at the
Jumping Pound facility," a Shell spokseman said on Friday.
Shell is the major owner of the Jumping Pound complex in
southern Alberta, Canada, which has produced natural gas since
1951 and has an overall production average of 300 million cubic
feet per day.
Shell said it was continuing work in the Canadian Green
Corridor project and the retail LNG programme with Shell Flying
J in Canada.
"This as another sign that the new CEO (Ben van Beurden) is
applying a greater degree of discipline in allocating capital
than was previously the case and is actively streamlining the
'options' in the portfolio which are to be pursued," Deutsche
Bank said in a note.
The shale gas production boom has pulled down natural gas
prices in North America, while at the same time new maritime
environemntal environmental laws are raising the cost of oil in
the shipping sector, making LNG competitive with oil in
However, development costs remain high. "This means making
tough choices around the projects we develop in order redeploy
our resources, focus our efforts and our capital to create the
greatest value for our business," Shell said.
Although shipping analysts say that the use of LNG to power
ships is expected to dramatically increase by 2020, they also
point to high development and maintenance costs as factors that
are scaring off investors.
"Based on current investment levels and prices, retrofitting
a vessel's engine to burn LNG produces a payback period longer
than a vessel's asset life. In addition, availability of LNG and
methanol as a bunker fuel remains scarce and the infrastructure
simply isn't in place yet for bulk trades," Ship broker ACM said
in a report.
(Reporting by Henning Gloystein, Ron Bousso and Jonathan Saul,
editing by William Hardy)