Energy Ink

Another suitor sidles up to Kitimat LNG

Enbridge is the latest company to show interest in export scheme

Guest Post

October 07, 2011

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Photo: Kitimat LNG

Lots of horse trading going on in northeastern British Columbia this week. Calgary-based Enbridge Inc. announced today that it has reached an agreement with Encana Corp. to acquire majority ownership in a gas plant 60 kilometers northeast of Fort Nelson in B.C.’s remote Horn River basin. Enbridge will acquire a 57 per cent share in the project’s first two phases, which together could process 800 million cubic feet of natural gas per day.

The deal fits with a desire by Encana to offload anywhere from $1- to $2-billion in non-core assets this year. For Enbridge, the acquisition comes one day after company chief executive Pat Daniel told Reuters that his firm is interested in taking part in one of several proposals on the books to ship liquefied natural gas from the coast to markets in the Pacific Rim.

The most advanced LNG foray on the northwest coast – the $4.5-billion Kitimat LNG project, pictured above – is still awaiting approval from the National Energy Board to begin shipping up to 10 million tonnes of the chilled gas annually to markets in Japan, Taiwan, India and China beginning in 2015. Daniel told Reuters that he would rather Enbridge have a role in that project than competing ventures that are under consideration by companies ranging from Shell Canada Ltd. to Progress Energy Resources Corp. “Kitimat is the preferred project. Pipelining into Kitimat is relatively straight forward,” he told the wire service.

No word yet on whether Tim Wall at Apache Canada Ltd. is keen to take on another partner for the massive development. (The Reuters report has Enbridge building a natural gas line in conjunction with its proposed Northern Gateway line, which is to be twinned with a pipe for importing bitumen-thinning condensate from the coast; there’s no mention of sending natural gas west on the Gateway website).

How any of this will play out is not clear. Recall that together with EOG Resources Canada Inc., Apache shelled out $50 million last February to buy from Pacific Northern Gas Ltd. the 50 per cent share of the proposed Pacific Trail Pipeline that the companies did not already own. The stated rationale was to bring management of the supply chain from the point of natural gas production (i.e. B.C.’s Montney and Horn River fairways) to the point of liquefaction under one company.

With a suite of Australian LNG proposals moving forward, including the Chevron-operated Wheatstone LNG project in which Apache shares a 13 per cent stake, it could be time to revisit that logic. Construction costs for Kitimat could escalate quickly – all the more so because EPC firms that specialize in building LNG plants on a “turnkey” basis number fewer than 10 internationally, according to Asish Mohanty, senior research analyst, global LNG, with Wood Mackenzie. It will be interesting to see if Daniel’s overture turns heads in Houston.

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