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BC LNG Proposal Out of Limbo, Back in Line-up

Prospects of making a realistically modest, low-cost start on breaking into global trade in liquefied natural gas (LNG) have revived a dormant entry in the lineup of export terminal projects on the Pacific coast of British Columbia (BC).

An international group led by AltaGas Ltd., a Calgary energy infrastructure firm, bought Douglas Channel LNG out of the financial limbo of court-supervised receivership and set a 2018 target for beginning overseas deliveries. The price was not disclosed. Originally titled BC LNG, Douglas Channel is the smallest Pacific coast export plan (see Daily GPI,Sept. 19, 2014July 28, 2011). The project has a National Energy Board (NEB) license for a floating liquefaction plant to send out up to 230 MMcf/d, drawn from an established utility pipeline to its Kitimat site.

The initial sponsor – a partnership between a private Houston firm and Haisla Nation, the Kitimat aboriginal community – ran aground mid-way through prolonged regulatory and marketing efforts since the proposal's birth in 2011. In addition to AltaGas, the new Douglas Channel LNG team includes Japanese energy and petrochemical conglomerate Idemitsu Kosan Co., British global merchant EDF Trading Ltd. and Belgian gas and liquid byproducts shipper Exmar NV.

Along with the project's NEB export license, assets acquired by the group include a lease arrangement with the Haisla for a site on aboriginal territory and a 20-year BC pipeline transportation services agreement with Pacific Northern Gas Ltd. BC LNG-Douglas Channel also had connections with an array of small- to medium-sized gas producers tentatively organized as a co-operative supply pool for the proposed export terminal.

The project takeover was the first sign of life in the BC export lineup since early December, when Malaysian state-owned energy conglomerate Petronas and its Calgary subsidiary, Progress Energy, deferred a decision on Pacific NorthWest LNG (see Daily GPIDec. 4, 2014). The Petronas-Progress project was rated as a contender to lead the 18-entry BC lineup into construction but turned out to be too big for current market conditions. The jumbo plan calls for up to 2.7 Bcf/d in exports from a terminal forecast to cost C$11.6 billion ($9.3 billion) and to require total investment of C$36 billion ($29 billion) including new pipeline, field and processing facilities.

In statements on the Douglas Channel takeover, veterans of the LNG trade emphasized advantages of making a realistically modest, economical start on building market participation from scratch.

"The smaller scale LNG project will utilize existing pipeline infrastructure, proven barge technology and very short shipping distances to target markets," said EDF Trading executive Matthew Arnold. "We will be working with our Asian customers to secure a long-term contract as this is a very competitive package.”

Exmar managing director Bart Lavent said his firm would use "experience with floating LNG assets to provide a fast track and cost competitive floating liquefaction barge to the project. The site in sheltered, ice-free waters is a perfect fit with Exmar's barge-based philosophy and provides an ideal location for LNG deliveries to the Asian market." Idemitsu Kosan general manager Hisao Sato predicted BC LNG-Douglas Channel "will demonstrate British Columbia's ability to quickly deliver scalable LNG to the global marketplace."

The group set a target of 4Q2015 for a final investment decision on proceeding into construction. AltaGas president David Harris said built-in advantages of the proposed small start on LNG markets includes big gas reserves relative to the early export volumes, "a supportive regulatory regime" in BC and even a bonus of earning provincial gas consumer support by lowering service bills with increased traffic that would spread costs of the Pacific Northern pipeline thinner.

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