A proposed C$1 billion (US$881 million) natural gas pipeline ostensibly designed to move liquefied natural gas (LNG) from Kitimat, BC, to North American markets by 2009 is drawing a lot of interest from oilsands producers, according to officials.

Privately owned Kitimat LNG Inc., a subsidiary of Galveston LNG Inc., on Monday announced a 50-50 joint partnership with BC-based utility Pacific Northern Gas Ltd. to build and operate the gas pipeline, which would have initial capacity of 1 Bcf/d. The pipe would begin at Kitimat LNG’s terminal, which received initial environmental approval in June from BC officials (see Daily GPI, June 7). If final federal and provincial approvals are received, the terminal is tentatively slated to begin operations in 2009.

The partnership, Pacific Trail Pipelines Ltd., would transport the regasified LNG through a pipeline that would extend about 470 kilometers (292 miles) to Summit Lake in northeastern BC. From there, the pipe would connect with Duke Energy’s Westcoast Energy mainline to move gas west into Alberta or south into BC and U.S. markets.

“We think [the proposed pipeline] provides our project with another level of certainty,” Kitimat LNG President Rosemary Boulton said of the proposed pipe. Kitimat LNG now will focus on preliminary site preparation to allow construction to begin as early as next spring, she said. Supply contract negotiations already have begun, and Kitimat LNG hopes to have some tentative contracts in place by early 2007.

“It is always a challenge to get people to sign long-term contracts, whether it is for an LNG terminal or a pipeline,” Boulton said. Although “there is great demand in the North American market,” most of the “significant” interest in the pipeline gas has initially come from oilsands producers. Oilsands production, which is booming in Canada, requires about 500 cf of gas to make 1 bbl of synthetic crude oil.

A question now is whether to build a 30-inch diameter pipe at a cost of C$900 million ($794 million), or a 36-inch diameter pipeline, which would cost C$1.2 billion ($1.06 billion). At this point, the larger-capacity pipe is considered more likely, said Boulton. The route for the pipeline will be determined through technical field studies and consultation with the aboriginal tribe First Nations, the public and regulatory authorities. Pacific Northern Gas’ existing right-of-way will be used where appropriate. Pacific Trail Pipelines expects to begin construction by 1Q2008.

Pacific Trail Pipelines and Kitimat LNG also signed a precedent agreement to coordinate the process of obtaining authorizations for the LNG project, which outlines, among other things, the key economic arrangements and the targeted timeline and key milestones for terminal construction. Regulatory applications are expected to be filed by the partnership by early spring 2007. Kitimat LNG also is in discussions with international suppliers that include Australia, Malaysia and Indonesia.

Pacific Northern Gas and Kitimat LNG have spent about C$1.5 million ($1.32 million) on the project to date, and they expect to spend C$6 million ($5.3 million) more through 2006. The LNG terminal costs will now be transferred to the Pacific Trails Pipelines partnership.

“Our partnership with Pacific Northern Gas will ensure the terminal has the necessary pipeline facilities in place to move imported LNG into North American markets,” said Galveston LNG President Alfred Sorensen. “This provides LNG suppliers with the certainty they need to choose our project over others being considered for the Pacific Coast and presents a major advantage for our project.”

Another smaller LNG terminal was proposed in British Columbia last month, and a regulatory review process is now under way (see Daily GPI, June 8). The C$350 million Prince Rupert LNG terminal, proposed by WestPac LNG Corp., would be built on Ridley Island, an industrial park seven miles outside of Prince Rupert. Service could begin in 2011. In addition, at least nine other LNG projects are proposed along the West Coast of North America.

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