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EOG Resources Would Supply Gas to Kitimat LNG

Kitimat LNG Inc. has signed a memorandum of understanding (MOU) with EOG Resources Canada for the supply of natural gas to Kitimat LNG's proposed liquefied natural gas (LNG) export terminal in Kitimat, BC. Kitimat LNG recently struck two deals to supply LNG from the terminal.

The companies are negotiating a definitive agreement for EOG to supply the facility, which would be capable of handling 700 MMcf/d.

"EOG's participation in our project reinforces the fact that business and natural gas fundamentals support our LNG terminal," said Kitimat LNG President Rosemary Boulton. "Kitimat LNG presents a compelling opportunity for producers to leverage growing natural gas reserves in Western Canada and sell into significant new international markets such as Asia."

EOG is the first producer to sign an MOU with Kitimat LNG, which has also signed MOUs with LNG companies such as Korea Gas Corp. (see NGI, June 8a) and Gas Natural (see NGI, July 13) for the purchase of LNG produced at the terminal. Kitimat LNG is in discussions with potential terminal users, LNG buyers and other gas producers for the five million-metric ton per annum project, the company said.

There should be plenty of gas available to the terminal. British Columbia is expected to rise in prominence and could become Canada's preeminent gas supply source, surpassing even Alberta, an executive with EnCana Corp., the country's largest gas producer, said recently (see NGI, June 8b). The growth is being driven by development of gas shales that could double or triple BC production into a range of 6-9 Bcf/d by 2020, some say.

The prime BC target -- the Horn River Basin -- is in nearly uninhabited, trackless woods east of the Alaska Highway near the province's boundary with the Yukon and Northwest Territories. EOG Resources is one of several members of the Horn River Producers Group, which was formed to coordinate the region's development as well as relations between producers and the government.

Spectra Energy Corp.'s Fort Nelson gas processing facility is slated for staged expansions with the support of several Horn River Basin producers (see NGI, March 16).

According to one consultant, exporting LNG could be a lifeboat for gas producers in Western Canada, particularly if a pipeline from Alaska's North Slope is ever built (see NGI, Dec. 15, 2008).

Last September Kitimat LNG cited shifting global gas supply and demand fundamentals as the reason to revise its plans for a LNG import terminal in Bish Cove, BC, in favor of an export terminal instead (see NGI, Sept. 29, 2008). Rising gas demand in Asia and recent increases in supply in North America -- including in the U.S., Canada's traditional export market -- have led to significantly higher natural gas prices in Asia than in North America. The terminal would receive natural gas via pipeline from Western Canada.

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