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The company is concentrating on initial shipments of 700,000 tonnes a year – enough to load one LNG tanker a month – since it can move that quantity of natural gas through an existing pipeline to Kitimat, B.C.

DARRYL DYCK/THE CANADIAN PRESS

A West Coast energy export project has signed contracts to sell liquefied natural gas to foreign buyers, a critical step in finding new markets for a struggling commodity.

But the agreement by BC LNG Export Co-operative LLC to sell roughly 700,000 metric tonnes of natural gas a year also comes as a warning that Asian buyers may not make Canadian gas producers rich. In fact, the sales contract, which will see some gas go to one of the world's largest LNG ship owners, values gas according to depressed U.S. and Canadian prices, rather than the far more lucrative international prices that are tied to oil.

"What we're seeing is that the Asian marketplace is now beginning to embrace the North American gas indices as the pricing forum," said Tom Tatham, managing director of BC LNG.

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That's not going to provide much relief, he acknowledged, at a time when prices are so low that many natural gas wells barely break even. Last week, North American natural gas traded at $3.57 (U.S.) per million BTU. LNG from Japan and South Korea sold for $17.35, according to Platts data.

"I think what we're doing will have a positive effect on the gas market. But it isn't going to make a huge difference to the producers involved in Train 1," Mr. Tatham said, referring to the first LNG production line.

Still, the sales contract is an important step for the Douglas Channel LNG Project through which BC LNG plans to ship gas. The Haisla First Nation is a joint partner in Douglas Channel, which would be built near Kitimat, B.C. The first LNG production line had been expected to cost $400-million, although Mr. Tatham said that number has "gone up a bit." But signing sales contracts is "sort of the first stage in final investment decision," he said.

With that complete, BC LNG could make a decision to build in the next few months, with the first export shipment possible by early 2015. That would make BC LNG the first major Canadian LNG exporter, although a large array of other projects – many of them much larger and backed by global giants like Royal Dutch Shell PLC, Chevron Corp., BG Group PLC, Petronas and Exxon Mobil Corp. – are also under development in the region.

BC LNG was the second project to receive LNG export authorization from the National Energy Board, which, in early 2012, gave it permission to ship up to 1.8 million tonnes of natural gas a year. The company is concentrating on initial shipments of 700,000 tonnes a year – enough to load one LNG tanker a month – since it can move that quantity of natural gas through an existing pipeline to Kitimat.

Its sales agreements are with Golar LNG Ltd. and LNG Partners LLC. Bermuda-based Golar operates LNG tankers and floating gasification facilities. Mr. Tatham is a part-owner in Houston-based LNG Partners. On Sunday, he was in Japan, where he said he expected to soon complete agreements with those who would take physical delivery of LNG exported by BC LNG.

Mr. Tatham said he expected to finalize deals for delivery to Asian buyers of roughly half the LNG in the next week or two, adding that the cargo would likely be delivered by Golar-owned vessels.

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Golar will also be involved in financing the project, while Tenaska Marketing Canada has agreed "to procure and/or manage the feed gas supply for the Douglas Channel project," BC LNG said in a statement.

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