Kitimat LNG lines up first gas producer

Gary Park

For Petroleum News

Progress in assembling the necessary underpinnings of the Kitimat LNG project has made another large stride forward with the privately held company signing its first supply deal with a Western Canadian producer.

Although the volumes involved have yet to be negotiated, Kitimat LNG has reached a memorandum of understanding with EOG Resources, which has a major stake in British Columbia’s Horn River shale gas region.

EOG holds 157,500 net acres of exploration land in Horn River, where it is keeping up the pace of drilling this year, while drastically reducing its shallow gas program in Western Canada.

One of the top 10 gas producers in Canada, EOG has reserves of 1.3 trillion cubic feet — a 15-year proven reserve life — and is one of the most upbeat forecasters for Horn River, which Kitimat LNG is eying as a key potential source of gas to reach the minimum 700 million cubic feet per day it estimates is necessary to proceed with the LNG project.

So far, Korea Gas and Spain’s Gas Natural have memorandums of understanding to take 40 percent and 30 percent respectively of the Kitimat terminal’s initial capacity.

Kitimat LNG President Rosemary Boulton said in a statement that EOG’s participation “reinforces the fact that business and natural gas fundamentals support our LNG terminal,” planned for British Columbia’s deepwater port at Kitimat.

“Kitimat LNG presents a compelling opportunity for producers to leverage growing natural gas reserves in Western Canada and sell into significant new international markets such as Asia,” she said.

Boulton said talks are under way with about 10 Canadian producers as well as potential terminal users and LNG buyers.

She said the project could be onstream by late 2013, depending on how quickly commercial arrangements can be finalized.

To achieve that goal, front-end engineering design study may have to start by this fall, allowing construction to start in spring 2010.

Bill Gwozd, vice president of gas services at Ziff Energy Group, said the presence of EOG could be a vital stepping stone for Kitimat LNG and gives EOG opportunity to diversify its markets at a time when North American gas prices are in a slump.