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Liquefied natural gas pipeline (STEVEN SENNE)
Liquefied natural gas pipeline (STEVEN SENNE)

EOG buys rest of Kitimat LNG project Add to ...

A proposed $3-billion natural gas export facility in northwestern British Columbia has attracted the backing of a second major United States energy company, pushing the project a significant step closer to reality.

EOG Resources Inc. of Houston is buying Calgary-based upstart Galveston LNG Inc., which for the past six years has been working on a liquefied natural gas project near Kitimat, B.C. It began as an import facility and two years ago was retooled as an export project after the emergence of large amounts of shale gas in northeast B.C., where EOG has a big stake.

For Galveston LNG, founded by Alfred Sorensen in 2004, it was a financing decision. After hiring investment bankers from RBC Dominion Securities last September, it became clear his tiny company wouldn't be able to raise the money necessary to build the project.

A majority stake of 51 per cent was sold to Houston-based Apache Corp. in January. The rest now goes to EOG, which, along with Apache, is active in the Horn River shale play in B.C.

EOG is "rather bearish" on long-term natural gas prices in North America, company chief executive officer Mark Papa told investors earlier this month. When EOG announced the Galveston-Kitimat deal Tuesday afternoon, Mr. Papa said Western Canada "has the potential to attract new markets" in Asia and around the world.

If it is built, the Kitimat LNG project would be the first time large amounts of Canadian natural gas are shipped anywhere other than to domestic and U.S. customers. The facility would handle 700 million cubic feet a day of gas, about 20 per cent of B.C.'s current production. Preliminary deals with buyers are already in place for most of the output, with Korea Gas Corp., the world's largest importer, and Gas Natural, which operates in Spain and Latin America.

EOG was a pioneer in shale gas but has shifted its focus to oil. However, Horn River remains one of its promising holdings. It said this month that its potential reserves are 9 trillion cubic feet, up from a previous estimate of 6 trillion. Roughly 1 trillion was officially booked at the end of 2009.

Apache will operate the export project, EOG noted. An engineering-and-design study is set to begin shortly.

"By combining our experience and resources, we are confident we can move this project to completion," Mr. Papa said in a statement on Tuesday afternoon.

A decision whether to build the project could be made early next year. A $1-billion pipeline would also need to be built to connect current infrastructure to the project on the coast.

At Galveston, it was a bittersweet day for Mr. Sorensen, a former Duke Energy executive. While he wanted to stay involved, Galveston's cost of capital was too high to justify it.

"EOG kept saying, 'We should build it ourselves, we could do it cheaper,'" said Mr. Sorensen.

He added that it made sense to sell the entire remaining stake, rather than hanging on to a small fraction and waiting for the larger companies to make a move, alluding to oil sands junior UTS Energy, which has a small part of the stalled Fort Hills oil sands mine.

In the end, Mr. Sorensen said the increased likelihood of the project being built and export markets being opened is "good for Canada and good for B.C."

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