Canadian producers and international traders are lining up to support the aboriginal entry into plans for liquefied natural gas (LNG) export terminals on the Pacific coast of northern British Columbia (BC), the National Energy Board (NEB) has been told.

BC LNG Export Co-operative LLC, a joint venture of the Haisla Nation and LNG Partners LLC of Houston (see NGI, March 21), reports generating a strong response with an initial call for participation in its Kitimat project. Formal “expression of interest” documents were collected from producers with current output of 940 MMcf/d from reserves nudging 4 Tcf, and four marketers with access to far larger supplies.

BC LNG is proposing to make a modest start on entering the global trade, with a 250 MMcf/d terminal located next door to the six times larger, C$4.5 billion KM LNG port planned by Apache Canada, EOG Canada and Encana Corp. Both projects are seeking 20-year export licenses from the NEB. Last week another LNG proposal was announced, with Canadian producer Progress Energy Resources Corp. and Malaysia’s Petronas saying they would conduct a feasibility study to consider an LNG export facility in British Columbia to carry gas supplies to Asian markets (see related story).

BC LNG’s lineup to use the smaller outlet includes Birchcliff Energy, Enerplus Corp. Huron Energy Corp., Northpoint Energy Ltd., Painted Pony Petroleum Ltd., Talisman Energy Inc. and Unconventional Gas Resources LP.

The marketers looking to BC LNG as an opening outlet for Canadian gas into the global LNG trade are Pacific Gateway Energy Ltd. (PGE), Tenaska Marketing Canada, Trafigura and Iberdrola Canada Energy Services Ltd. (ICES) While Tenaska and Trafigura are well known international energy merchants with large North American operations, the prospect of BC LNG exports to Asia is attracting newcomers from overseas to the Canadian energy scene.

PGE is a new private partnership created in Hong Kong to scoop up western Canadian assets at the current bottom of the North American gas cycle by Pacific Warner Capital and investors from India.

ICES is a two-year-old subsidiary that Scottish Power plc set up soon after its takeover by Iberdrola SA, a Spanish gas and power empire that draws LNG from a wide range of suppliers from Algeria to Norway, and Trinidad and Tobago.

To enable Canadian gas to break into the global trade, BC LNG has told the NEB that a liberal free-trade interpretation has to be adopted for traditionally cautious long-term export licenses. A high level of flexibility will be needed to marry the radically different overseas market dominated by long-term supply arrangements and the much swifter North American trading pattern, the company said.

In a departure from customary Canadian practice, the project has not nailed down long-term firm supply contracts for the LNG exports that it plans to start making after completing construction of its terminal by late 2013.

“Such a commitment would be inconsistent with the predominantly short-term natural gas markets prevalent in North America,” BC LNG said. “A requirement for a such a commitment would be unfortunate in the context of developing opportunities in offshore markets.”

Rather than years-long, firm contracts with clearly defined gas sources, BC LNG proposes to create a nomination system that enables members of a producer and marketer co-operative to bid gas into a changeable supply pool.

“Balancing export demand with Canadian producers’ supply through periodic nominations is the most efficient method of letting the market optimize export opportunities for Canadian gas,” BC LNG said. “Participants in the nomination process will be free to nominate for the term they select. Future nominations will be sought as necessary based on the terms chosen by participants in response to market forces.”

The Canadian tradition of supporting long-term export licenses with matching supply commitments in advance is rooted in generations of regulation that created stockpiles for domestic consumers by ensuring only forecast surpluses were sold out of the country. BC LNG’s package includes a backstop arrangement that commits the project’s own partners to an effective guarantee that they will at all times procure adequate supplies to keep overseas delivery promises.

In addition, Canadians will still have rights to buy gas before it goes abroad as LNG — if domestic consumers are willing to top prices fetched on overseas or U.S. markets, the BC export terminal project said.

“Not only will they be free to compete to offer more to participating producers than they can obtain from the nomination procedure, but they will also have an ongoing ability to compete for the volumes of gas currently under contract upon the expiry of short-term contracts with U.S. purchasers.”

BC LNG is urging the NEB to adopt a liberal free-trade interpretation of long-term export license rules in the name of “the animating principle” behind 25-year-old deregulation policies: “Canadians continue to have access to natural gas at prices that are set by market forces.”

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