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Apache May Get On Board With Kitimat LNG

Apache Corp. is looking beyond the pipeline to Asian markets for the natural gas it produces in British Columbia and may supply Kitimat LNG Inc.'s proposed liquefied natural gas (LNG) export terminal in Kitimat, BC, the terminal developer said last Monday.

A memorandum of understanding (MOU) sets a framework for Kitimat and Apache to negotiate an agreement to supply 200-300 MMcf/d to the terminal, which has a planned capacity of 700 MMcf/d. Apache also obtained an option to purchase an equity stake in the terminal.

EOG Resources Canada was the first U.S. producer to sign an MOU with Kitimat LNG (see NGI, July 20), which has also signed MOUs with LNG companies such as Korea Gas Corp. (see NGI, June 8) 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.

"The participation of companies such as Korea Gas Corp. (KOGAS), Gas Natural, EOG Resources Canada and Apache gives our project strong momentum and reinforces the fundamental strength of our business strategy," said Kitimat President Rosemary Boulton.

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 province's largest gas producer, said recently (see NGI, June 8). 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, according to some estimates.

Apache recently released drilling results from the Horn River shale area in northeast BC that strengthened earlier estimates that individual horizontal wells in the area potentially can recover 10 Bcf gas. Apache holds about 210,000 net acres in the Horn River. Exploration and development activity in Apache's Canadian region is concentrated in the provinces of Alberta, British Columbia, and Saskatchewan. The region comprises 4.9 million net acres and approximately 22% of Apache's estimated proved reserves.

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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