British Columbia: Touting the Horn

Spectra gets producer backing for ‘significant’ expansion of BC gathering, processing facilities; government pumps more into roads

Gary Park

For Petroleum News

Shrugging off concerns that British Columbia’s resource-rich shale gas will have a tough job competing over the near term with the prolific Haynesville shale in Texas and Louisiana, production, pipeline and processing companies are wasting no time putting an infrastructure in place.

In the latest development, Spectra Energy said March 12 it has rounded up firm, long-term commitments from seven unidentified Horn River producers for a “significant” expansion of its gathering and processing facilities in the Fort Nelson area.

Work on the multiphase expansion is scheduled to start this year and continue into 2012.

Spectra already operates a 1 billion-cubic-foot-per-day Fort Nelson gas plant, which has been in service for more than 40 years, but is currently running at less than half of capacity.

Duane Rae, Spectra’s vice president of field services, said the first order of business is to fill up the Fort Nelson plant.

But that requires a “substantial investment” in both processing and transportation capacity, he said, although cost estimates are not being disclosed at this time.

The expansion plans include reactivating existing processing capacity at the Fort Nelson plant, looping and reconfiguring some of the 600 miles of pipelines in the Horn River basin and adding new processing capacity at a compressor station.

Without additional compression and processing capacity, Spectra said the Fort Nelson plant could be increased to 1.1 bcf per day.

Largest sour gas facility in NA

Rae said the producer commitments set the stage for a “substantial investment” in Fort Nelson infrastructure that could lead to 830 million cubic feet per day of incremental expansion capacity.

He said Spectra is in discussions with other Horn River producers to further increase capacity of the facility.

Gas from Fort Nelson is intended for transportation south and east on Spectra’s mainline in British Columbia, but Spectra has not yet decided which direction will get priority when it files a regulatory application with the National Energy Board this spring.

Rae said the commitments from producers “signal to us that they are serious about developing this resource.”

Spectra had previously announced that it executed service agreements with customers for a proposed expansion of its gas transmission facilities in northeastern British Columbia.

That work is designed to add 153 million cubic feet per day of eastbound deliveries from its McMahon plant to interconnections with the TransCanada and Alliance pipelines to eastern Canada and the United States.

It will also boost westbound capacity by 112 million cubic feet per day to an interconnection with Spectra’s southern transmission system.

TransCanada has commitments

The Spectra announcement came just two weeks after TransCanada said it had commitments of 378 million cubic feet per day to support a new C$340 million pipeline from Horn River to a tie-in point on its Alberta network, with an operational date of mid-2011.

The British Columbia government gave a further boost March 13 to its largely untapped northeastern basins.

It said that starting in the current fiscal year it will spend C$187 million to improve about 105 miles of roads into the Horn River basin and Cordova Embayment areas.

Energy Minister Blair Lekstrom said the project would create 1,150 jobs and was proof of his government’s commitment to provide the infrastructure “needed to develop the unconventional gas resources in our province.”

The four-year undertaking will improve and extend the road from Fort Nelson to the Alberta border.

New entry in B.C. LNG field

Whatever the choice, the pieces seem to be coming together for a second LNG export terminal at Kitimat on the northern British Columbia coast.

In separate, back-to-back agreements with Merrill Lynch Commodities, Pacific Northern Gas and Teekay Corp. have laid the groundwork for a possible project.

Meanwhile, Kitimat LNG is seeking partners for a liquefaction terminal at Kitimat with plans to ship LNG to Asian markets.

The deals with Merrill Lynch involve a tentative contract for 75 million cubic feet per day of firm gas transportation service using existing capacity on PNG’s Western British Columbia pipeline system and plans to convert a ship into a floating LNG plant to be moored alongside a pier near Kitimat.

Merrill Lynch has deposited a C$1.5 million non-refundable option fee into an escrow account that will be released to PNG once the British Columbia Utilities Commission has approved a letter of agreement.

Merrill Lynch will have an exclusive option until Dec. 31 to contract for firm gas transportation capacity for a primary term of two to five years, with the right to renew for an additional two to five years. Alternatively, it may extend the initial option period by up to four- to six-month periods by paying C$1 million for each extension.

If Merrill Lynch exercises its option, the PNG pipeline system would be at full capacity utilization, generating almost C$15 million per year of incremental revenue for PNG and its customers. The startup date for transportation service is expected to be between Jan. 1, 2012, and Jan. 1, 2013.PNG is continuing to develop a pipeline to Kitimat through its interest in Pacific Trail Pipelines Limited Partnership.

The agreement with Teekay involves the joint development of a project to convert the S/S Arctic Spirit into a floating LNG plant, with Teekay LNG Partners having an option to participate in the project.

The converted vessel would have capacity to liquefy 75 million to 100 million cubic feet per day of pipeline quality gas, or about 500,000 metric tons per year of LNG, which could then be offloaded to other carriers for export.

Mark Kremin, Teekay’s vice president of gas services, said, “Reliable Canadian LNG supply should be very attractive for LNG buyers and end users.”

“This development will prove the feasibility of floating liquefaction and will provide an option for monetizing stranded gas resources in other parts of the world.”

Subject to regulatory and other approvals, the project is expected to start LNG operations in 2012.

With a fleet of 180 vessels, Teekay said it transports more than 10 percent of the world’s seaborne oil and has built a presence in the LNG shipping sector through Teekay LNG Partners.

Kitimat LNG is still seeking producer backing for a possible C$4.2 billion terminal to handle 3.5 million to 5 million metric tons per year of LNG.

Mitsubishi has signed a tentative agreement to acquire a minority stake in the project covering 1.5 million metric tons per year of capacity.

—Gary Park