EOG, Kitimat LNG reach agreement on proposed liquefied natural gas project
July 14, 2009 | by Lauren Krugel, Prince George Citizen
CALGARY — A liquefied natural gas terminal planned for the west coast of British Columbia has received its first show of producer support from Houston-based EOG Resources, a big player in British Columbia's promising Horn River Basin.
Kitimat LNG said Monday it has signed a memorandum of understanding with EOG to provide natural gas to a 700-million-cubic-feet-per-day LNG plant in the northern port city of Kitimat.
"It's a very significant step forward for us," Rosemary Boulton, president of the private Calgary-based LNG company, said in an interview.
"We've had strong indications of interest from the market side. And this is our first producer that stepped up and has provided commitment to the project."
LNG is created by condensing natural gas into a liquid in ultra-cold temperatures. As a liquid, it can be loaded onto special tankers and transported by sea around the world, making a once regional commodity a global one like crude oil.
The Kitimat terminal, slated to come into service toward the end of 2013, would allow natural gas producers in Western Canada to tap into lucrative Asian markets.
Companies such as Korea Gas Corp. and Spain's Gas Natural have already agreed to buy the LNG that will be produced from the Kitimat plant. Discussions are underway with other buyers and suppliers, Kitimat LNG said.
The North American natural gas market is flush with new unconventional supplies in Texas, Louisiana and Pennsylvania, so it's not likely B.C. gas will end up in the United States anytime soon, said Ralph Glass, vice-president of operations for Calgary's AJM Petroleum Consultants.
"The Horn River gas is the only reason that Kitimat will go ahead," he said.
"I would suggest to any of the other players up there if they ever really wanted to see their gas get to market, Kitimat is the only alternative."
Horn River, in the northeastern corner of British Columbia, is believed to hold several trillions of cubic feet of natural gas in reservoirs trapped in shale rock. Industry players have said it has the potential to rival prolific plays like the Barnett formation in Texas and the Haynesville on the Louisiana-Texas border.
In addition to EOG, other players in Horn River include EnCana Corp. (TSX:ECA) and partner Apache Corp. (NYSE:APA), ExxonMobil Corp. (NYSE:XOM) and its Canadian arm Imperial Oil Ltd. (TSX:IMO), Canadian Natural Resources Ltd. (TSX:CNQ), Talisman Energy Inc. (TSX:TLM) and Nexen Inc. (TSX:NXY).
Shale gas production was long considered too expensive until new technologies, like horizontal drilling, were developed in recent years to tap into the hard-to-access resource at lower costs.
Recognizing "a fundamental change in the global gas market," Boulton said the company decided last year to export LNG at Kitimat rather than import it, as originally conceived.
"We realize that we were going the wrong way at that time and Canada really didn't need to import natural gas, that it became a natural exporter, especially due to the increased North American supply," she said.
So far, North America has been a receiver of LNG volumes, with terminals dotting the U.S. Eastern Seaboard. Plants are also planned for the Canadian East Coast.
Irving Oil and Repsol YPF SA's Canaport regasification plant in St. John, N.B. - Canada's first LNG project - began receiving cargoes from abroad just last month.
That gas is destined for Canadian and U.S. pipelines that serve eastern markets.
BMO Capital Markets analyst Michael Mazar said Kitimat's move could be the beginning of a trend that would see North America become an exporter, rather than an importer.
"You wonder whether that's kind of just the start of it," he said. "You wonder if the future of global gas supply includes North America as opposed to being only an importer."
Kitimat LNG needs to tie-up remaining supply contracts, wrap up engineering work and secure financing before breaking ground on the project in spring 2010, Boulton said.
The project already has federal and provincial regulatory approval.
Startup is expected to take place sometime in the fourth quarter of 2013.
"These last couple of months, we've really moved forward in a very positive manner with the project and we really look forward to keeping this momentum going," Boulton said.
