Encana Corp. is taking a 30% stake in the planned Kitimat liquefied natural gas (LNG) export terminal on the west coast of central British Columbia (BC) and its associated gas pipeline, the Calgary-based company said Friday. Encana is joining units of Apache Corp. and EOG Resources Inc. in the project, which will target Asian markets with western Canadian gas supplies.

“New and plentiful natural gas supplies and reserves have created a remarkable opportunity to expand our well developed North American energy trade to other continents,” said Encana CEO Randy Eresman. “With Encana’s investment in this planned international trade facility, we are helping lead a continental push to deliver exports of abundant natural gas, for the first time from Canada, to overseas markets. We expect that this project will help advance North America’s natural gas economy across the Pacific to markets where demand is growing and natural gas prices are more closely tied to oil prices.”

The idea of exporting gas from Canada’s western coast to lucrative Asian markets recently gained the attention of BC’s Haisla Nation and LNG Partners LLC of Houston, which have announced their own LNG project (see related story).

Earlier this month bright prospects were painted for Apache’s project in reports by Poten & Partners Inc., as well as retired National Energy Board Chairman Roland Priddle and Ziff Energy Group (see Daily GPI, March 14). Export volumes for Kitimat LNG are expected to be supplied by burgeoning gas resources in BC and Alberta, namely the Horn River Basin and the Montney formation. Recent BC discoveries indicate that the province will have the resources to more than double current production of about 2.8 Bcf/d to more than 7 Bcf/d in the next seven to 10 years, according to industry studies, Encana said. “This is more than sufficient to supply BC, its current customers and new markets opened by the Kitimat LNG export development,” the Calgary-based company said.

“Encana is a natural partner with Apache and EOG for the Kitimat project. All three companies have a significant presence in the Horn River Basin as well as extensive experience in British Columbia natural gas plays, which provides additional operating and commercial synergies for development of this vital energy resource,” said Kitimat LNG President Janine McArdle, who also is senior vice president of gas monetization for Apache.

McArdle noted that Apache and Encana are 50-50 partners in the Horn River, where combined they own more than 400,000 acres, some of which are being developed today. “And EOG also has acreage in the Horn River as well; they have about 157,000 acres that they’re working with. So there’s a natural synergy that comes from an operational and commercial perspective as it relates to that being one of the potential supply points for the project,” she told NGI, adding that Encana is in the Montney, as is Apache now that it has acquired assets there from BP plc (see Daily GPI, Oct. 13, 2010).

The business plan underlying Apache’s Kitimat project is based on long-term contracts of 20-25 years with Asian LNG buyers. The liquefaction plant and related facilities will have a lifespan of 40-50 years, McArdle noted. So backing it up with plenty of gas supply makes sense and will help to build confidence among customers. “…[I]t’s very good for the project to be able to represent to the buyers this big base of resource that will make its way to the project, and it’s very supportive of any growth that we want to do with the facility in the future,” she said.

While the Kitimat strategy relies on long-term supply contracts, which have been a tradition in the LNG industry, liquefaction projects proposed for existing Gulf of Mexico import terminals — of which there are currently two (see Daily GPI, Dec. 16, 2010) — rely on a different business model.

“The Gulf of Mexico projects to date are looking more at providing optionality for players who would like to either import or export on any given day and have the right to do so,” McArdle said. “We’re not in competition because we’re not even operating off of the same business model.”

As for the recently announced Haisla Nation-LNG Partners Kitimat project, McArdle said Apache is aware of it. “We have a separate arrangement with the Haisla Nation on some reserve land that we will be utilizing for the Kitimat project, and that is separate and distinct from anything that they may discussing on other lands that they may have rights to with LNG Partners,” she said.

Apache said marketing discussions are under way with potential Asia-Pacific LNG customers of the Kitimat project. The partners expect to have firm sales commitments in place by the time a final investment decision is made near the end of this year.

The only LNG export terminal in the broader region is the decades-old facility at Kenai, AK, which has been slated by operator ConocoPhillips for mothballing in the coming months as its last contract to supply LNG to Japan comes to an end (see Daily GPI, Feb. 11). In Alaska there has been talk of exporting LNG in concert with development of a natural gas pipeline to tap North Slope supplies; there also have been those who have called for LNG imports to the state to serve the gas-starved Southcentral region.

Potential Alaska LNG exports are not an issue for the Kitimat partners, McArdle said. “I don’t see that creating a wrinkle at all, whether they come on in five, 10, 15 years,” she said. “We’re very bullish in terms of the long-term outlook for LNG worldwide.” She said the Kitimat partners are aware that Alaska has been considering importing LNG, but she would not comment further.

The Kitimat LNG export development of Apache and its partners has planned initial capacity, from the first of two potential phases, of about 700 MMcf/d of natural gas, or about 5 million metric tons of LNG per year. The project is operated by Apache Canada Ltd., which will own 40%, with Encana and EOG Resources Canada Inc. each owning 30%. Encana’s acquisition transaction is subject to regulatory approvals and customary closing conditions and is expected to close in the second quarter.

The development includes construction of a 36-inch diameter gas pipeline — Pacific Trail Pipelines (PTP) — running 463 kilometers from the Spectra Energy natural gas transmission system at Summit Lake, BC to the Kitimat facility. Encana’s 30% interest in the development includes a capacity reserve of 30% in the Kitimat LNG export facility and matching capacity on the proposed pipeline.

Apache will sell down to Encana 11% of the equity in Kitimat LNG and PTP, retaining operatorship and a 40% working interest. EOG will sell 19%, keeping a 30% working interest. Financial terms of the contract were not disclosed.

The partners said they expect to complete the front-end engineering and design for the facility later this year, after which they will determine plans for a capital investment decision for the first phase of development. Project construction could begin in 2012, with exports potentially starting in 2015.

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