Kitimat LNG gets a boost as Chevron joins the fold

Next up: securing sales contracts from skittish Pacific Rim customers

February 13, 2013

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The Kitimat LNG project – dogged by the reluctance of customers to sign sales contracts – got a boost in late December when Chevron Corp. bought a 50 per cent interest in it and took over as operator.

Chevron acquired the minority interests Encana Corp. and EOG Resources Canada Inc. had in the project, which has been approved by the National Energy Board and would ship 10 million tonnes of supercooled gas per year over 20 years to energy-needy markets from Kitimat, British Columbia.

The arrival of Chevron as part owner and project operator (it takes that role from Apache Canada Ltd.) is seen as important because buyers are typically more comfortable signing lengthy contracts to buy LNG from big players who have proven they can deliver energy on time.

Chevron has this experience in spades. It’s one of the partners in Australia’s North West Shelf project, which has been shipping LNG to Japan since 1989. It also has several large LNG projects in development.

But the Kitimat LNG partners must now deal with the desire of customers in Japan and South Korea to change the oil-indexed pricing structure LNG exporters have traditionally enjoyed in the Pacific Rim. And proponents of a handful of LNG export projects slated to be built in B.C. are depending on that structure – where gas can fetch prices three to four times as high as what it can be sold for in North America – to justify spending billions on these projects.

Still, with no sign that the price of natural gas will rebound on this continent anytime soon, producers with large reserves in Canada will keep looking for ways to reach more lucrative markets. “I think it’s imperative that we do open a corridor on the West Coast,” Apache Canada president Tim Wall told Alberta Oil in its July 2011 issue. “Canada’s definitely got the resources.”

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