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Floating Liquefaction Proposed for British Columbia

Teekay Corp. and Merrill Lynch Commodities Inc. have agreed to develop a project to convert the SS Arctic Spirit into a floating liquefied natural gas (LNG) plant to be moored alongside a pier near Kitimat, British Columbia, Teekay said Thursday. The facility would be a stone's throw from a proposed land-based liquefaction terminal.

Teekay LNG Partners LP will have an option to participate in the project, which would have capacity to liquefy 75-100 MMcf/d of pipeline-quality gas, or approximately 0.5 million metric tons/annum of LNG.

"The vessel is one of only two LNG carriers with the self-supporting prismatic type B cargo containment system, which should be ideal for floating LNG," said Mark J. Kremin, Teekay vice president for gas services. "The potential to produce the world's first floating LNG unit in BC, where our operations are headquartered, is an exciting prospect.

"Reliable Canadian LNG supply should be very attractive for LNG buyers and end-users. This development will prove the feasibility of floating liquefaction and will provide an option for monetizing stranded gas resources in other parts of the world."

Late last year Kitimat LNG Inc. was seeking customers for its proposed LNG export terminal at Bish Cove, BC (see NGI, Dec. 1, 2008). The terminal was to have been a regasification facility, but in September Calgary-based Kitimat cited shifting global gas supply and demand fundamentals as reason to revise its plans for a LNG import terminal to instead construct an export terminal. Mitsubishi Corp. recently acquired a stake in the project.

Rising natural 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 North America. Kitimat said these market and pricing conditions provide a "compelling opportunity" for companies looking to export LNG from North America to Asia.

A Teekay spokesperson said the company's floating LNG terminal would be almost two miles (three kilometers) south of the Kitimat terminal. She said the two facilities would be connected to different pipelines and from Teekay's perspective were not considered to be competitors.

Floating LNG facilities have garnered interest from a number of energy companies, among them Royal Dutch Shell. A number of floating LNG designs exist in the market and the concept is seen as a way to monetize previously uneconomic gas reserves (see NGI, Nov. 17, 2008; Sept. 15, 2008; April 21, 2008).

The Teekay project is expected to commence operations in 2012, subject to necessary regulatory and local approvals.

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