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Apache, Partners Eye Kitimat LNG Investor

Apache Corp. and its partners in the proposed Kitimat liquefied natural gas (LNG) export project slated for British Columbia (BC) are looking for an investor, a company executive said last week.

KM LNG is majority owned by Apache Canada Ltd. (40%), which is partnering with Encana Corp. and EOG Resources Canada Ltd., each 30% stakeholders. KM secured a 20-year export terminal license from Canadian regulators last October and a final investment decision is expected this year (see NGI, April 30; Oct. 7, 2011). As designed, KM would export LNG in two trains with up to 1.4 Bcf/d at full capacity. The project has been on the drawing board in different partnership configurations for about three years.

Apache LNG Vice President Doug Adams told reporters at an industry conference in Singapore that the partners "probably" could offer close to 20% of the equity in the entire project. The three members would decrease their stakes proportionately for the offer.

"There's a lot of interest," Adams said, with most of it from the Asia Pacific. "A lot of buyers want equity, but we are offering equity to substantial off-takers or major foundation buyers, not to everyone." The partners are looking for foundation buyers or equity investors. Apache CEO G. Steven Farris had said in May said the KM LNG partners were "in the throes of negotiations...for a tenant to underpin" the project (see NGI, May 7).

BC Premier Christy Clark thinks the KM LNG project is first in line for achieving a plan to begin exports from the province within five years (see related story). Clark was in Tianjin, China last week for the World Economic Forum, where she addressed an audience about the province's abundant natural gas supplies and numerous LNG export projects.

In addition to KM LNG, several export projects are on the drawing board including the largest proposed to date in North America by Shell Canada Ltd. and a trio of Asian energy partners to export up to 24 million tons/year of LNG, or about 3.4 Bcf/d (see NGI, Aug. 6). Still, KM LNG's plan appears to be at the top of the list.

"We will have three LNG plants up and running by 2020, the first by 2016," Clark said. "Apache, Encana, their project will probably be first to go." Canada's LNG shipments could hit 4 Tcf/year by 2020, which would put Canada among the top five exporters in the world, Clark told the audience.

"We are moving at lightning speed to try to enable this," said Clark. "We need to be in the exports market sooner rather than later to lock up those contracts." The premier, who was making her second trip to China since last November, said interest between the province and China is "very, very big." Today British Columbia is "captive to the North American market" for natural gas prices, which have plunged in recent years. "If we have potential customers in Korea, Japan, China, India, we'll be looking at a better price."

The "differential between Asia and North American prices is going to remain very large," Clark said of natural gas. "Whether or not the price comes down, it's still going to be a good deal for us and for investors to move it offshore."

The province needs the business. On Thursday BC Finance Minister Mike de Jong said the province's projected deficit this year is expected to hit C$1.14 billion because of declining natural gas prices. Clark's jobs plan relies in part on developing an LNG industry (see NGI, April 23; April 9).

In any case, KM LNG won't move forward until the consortium has an oil-indexed contract for most of the offtake, according to EOG CEO Mark Papa. He talked about the prospects at the Barclays CEO Energy-Power Conference in New York City earlier this month.

EOG has been "pretty quiet vis-a-vis Kitimat," Papa told the audience. "In our earnings call in August we probably devoted all of one sentence to Kitimat." The project "is not going to go anywhere until the consortium gets an oil index contract with a Far East buyer for a majority of the offtake, and that has gone certainly slower than any of us expected. I wouldn't even hazard a guess to the time frame as to how that's going to move forward...So what I tell people is, EOG is a heck of a company if Kitimat never happens. It'll be a positive augmentation if Kitimat does happen, but don't buy EOG on the basis of Kitimat because it's still kind of a long putt."

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