Zeus: Shell’s LNG Fuel Withdrawal in North America Offers Lessons for Smaller Suppliers

Despite entering the LNG fuel market with great fanfare in 2011, global oil and gas firm, Royal Dutch Shell, has retreated in recent weeks from plans to develop production capacity throughout North America. Zeus Development Corporation has identified five tactics successful suppliers have been using to outgrow the super major.

“Smaller suppliers have learned to increment their liquefaction capacity effectively with demand,” said Bob Nimocks, president of Zeus. “The projects advancing are 50,000 to 150,000 gallons per day, not the 250,000 to 500,000 gallon per day units Shell proposed.”

On March 26, following Shell’s cancellation of the 300,000 tonne per year (485,000-gallon-per-day) Jumping Pound, Alberta, project, Shell announced it would shelve its two remaining 250,000-gpd LNG projects at Geismar, La., and Sarnia, Ont. In total, the company planned to spend as much as a billion U.S. dollars to build infrastructure, including more than a hundred fuel stations.

One competitor, who has successfully added capacity as Shell analyzed the market, commented that a development and construction methods are a large part of the capital expenditure equation. He controls them very carefully.

“A good analogy is the upstream oil sector,” said Ray Latchem, founder and president of Spectrum LNG. “Deep offshore is for the super majors; stripper wells are for smaller independents. Both make oil, but with hugely different cost structures. I don’t hire large refinery types to design and build my LNG plants, but they perform just as well as any competitor’s.”