Kitimat LNG project gets boost

A planned natural gas export terminal in northern British Columbia is moving closer to reality now that the project's backers have bought out a key pipeline.

Apache Canada Ltd. and EOG Resources Canada Inc. have agreed to pay $50-million to buy the remaining 50 per cent of Pacific Trail, a proposed $1.2-billion natural gas pipeline, from its developer, Pacific Northern Gas Ltd.

The 463-kilometre pipeline would deliver gas from northeastern B.C. to Kitimat, a small town on the northern coast, where it could be compressed and loaded onto ships at the proposed new $3.5-billion liquefied natural gas terminal.

"It just makes a lot of sense to go ahead and control that aspect of it, too. That way the whole project can come together at one time," Apache Canada president Tim Wall said in an interview on Monday. "I don't know that it accelerates the schedule, but it firms up the schedule."

Calgary-based Apache and Houston-based EOG are partners in the Kitimat LNG project, which is undergoing engineering and design work; a final investment decision is expected later this year, with construction starting early in 2012. The project is designed to ship natural gas from Canada, where prices have been depressed, to Asia, where gas prices are tied to oil prices and have been far higher.

If built, Kitimat LNG will usher in a major change to the way Canada's natural gas is sold, opening export markets that have never been accessible before.

The initial terminal would export five million tonnes per year of gas. However, the export option has proven so attractive that Apache plans to funnel only its own gas through the terminal - leaving competitors dependent on North American markets - and has already begun discussing expansion plans.

"You'll put your five [tonnes]in first, and then come back and start the next five almost immediately," Mr. Wall said.

The Pacific Trail pipeline was developed by Vancouver-based Pacific Northern Gas, which spent five years and $7.5-million to secure environmental approval as well as assent from local aboriginal groups, who gained the right to purchase a 30-per-cent interest in the line. Gaining aboriginal support has been an important step, given the strident criticism many first nations have directed at Northern Gateway, a proposed Enbridge Inc. oil pipeline that would follow a similar route.

Under the terms of the deal, Pacific Northern Gas will operate the line for at least seven years, with possible renewals. Apache and EOG have also committed to use part of the capacity on PNG's existing Kitimat pipeline for 20 years.

With those agreements in hand, "our customers will see the same benefits as if we continue to be an equity owner and a partner going forward," said Greg Weeres, vice-president of operations and engineering for PNG.

The company will now decide what to do with the proceeds. "A special dividend is one of the options, but it's only one of the options the board will be considering," Mr. Weeres said.

Pacific Northern Gas (PNG)

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