Sponsors of Canada's proposed first liquefied natural gas (LNG) export terminal are thinking big.
Permission is sought to ship an annual total of up to 10 million metric tons -- 468 Bcf per year, or 1.4 Bcf/d -- to Asian markets for two decades by KM LNG Operating General Partnership in a long-term export license application submitted to the National Energy Board (NEB) (see Daily GPI, Dec. 13). The volume is equal to about 14% of total Canadian pipeline exports to the United States in a good sales year.
The project's owners -- Apache Canada Ltd. and EOG Resources Canada Inc. -- describe the plan as "a response to a rapidly changing North American gas market that is driven by recent technological advances [shale production] and a current and foreseen abundance of supply. The majority of the gas that is proposed to be exported will likely be sourced from northeastern British Columbia [BC]. This region is widely considered to hold significant gas resources, although it is in a relatively early stage of development."
Provided construction approvals are obtained, the plan calls for a C$4.5 billion (US$4.4 billion) LNG terminal and associated pipelines to be built in two stages on BC's Pacific coast near Kitimat in time for shipments to begin during 2015. A target of 2017 or 2018 is set for completion of the full-sized facility. Much of the BC regulatory work was done during the project's initial incarnation as a proposed import terminal.
Each stage will be a production and loading train with capacity for 5 million metric tons/year, equivalent to 234 Bcf annually or 700 MMcf/d. The first phase, involving the lion's share of construction, is forecast to cost C$3 billion (US$2.9 billion).
The main gas delivery route into the gas export port will be the proposed C$1.1 billion (US$1 billion) Pacific Trail Pipeline across BC, which previously obtained regulatory approval while KM LNG was in its first pre-shale gas incarnation as a planned import terminal. Aboriginal investment is being lined up for the line, which faces far less opposition than a parallel proposal for a new Alberta oilsands export pipeline because LNG is regarded as much cleaner and safer than bitumen and crude supertankers.
Apache and EOG both have extensive drilling rights in the rich Horn River Basin shale gas deposit of northern BC and bought the converted LNG export project after performing highly rewarding initial trials of drilling and production technology devised in the United States. The partners assure the NEB that they will be "strongly motivated" to ensure that the LNG installation is "highly utilized."
Canadian producers rate overseas LNG destinations such as Japan, South Korea and Taiwan as "premium" sales outlets compared to Canada and the U.S. "Security of supply is a dominant concern for traditional Asian buyers," as opposed to price, says the NEB application.
"To ensure no disruption to economic growth and stability, these countries have in the past sought -- and continue to seek -- long-term, diverse and secure LNG supply." Canada fits the bill on another score besides its potential to generate abundant shale gas production. Overseas markets are "exhibiting a strong interest in politically stable jurisdictions of origin," KMG LNG told the NEB.
Recently, analysts at PIRA Energy Group said the Kitimat project and at least one export project on the U.S. Gulf Coast would likely be developed (see Daily GPI, Dec.16).
Asian LNG demand is forecast to grow at an annual average rate of 3.25% during 2014-2035. Gas users in China, Taiwan and South Korea are currently seeking long-term supply contracts with deliveries commencing in 2014-2018, KM LNG said.
"Currently, LNG sold under new long-term supply contracts to the Asia-Pacific region is priced around 90% of oil on an equivalent heating-value basis. Asian oil-indexed prices are well above prices formed by gas-on-gas competition in North American markets driven by technological advances and abundant supply of unconventional gas."
Apache and EOG said they are negotiating sales contracts "with several potential buyers in the Asia-Pacific region. Current expectations are that long-term firm sales arrangements -- up to 20 or more years -- can be in place by the fourth quarter of 2011."
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