BC Kitimat LNG project now in US hands

EOG, Apache team up to lead Canada’s first LNG export; EOG’s Mark Papa says other markets needed to offset ‘bearish’ gas price

Gary Park

For Petroleum News

EOG Resources and Apache, two of the largest United States-based energy companies and two of the most active players in northern British Columbia’s shale gas region, will take full control of Canada’s first plan to export liquefied natural gas.

Through its Canadian subsidiary, EOG announced May 18 it is buying Galveston LNG, the parent company of Kitimat LNG, to control 49 percent of the planned LNG tanker terminal at Kitimat on the northern British Columbia coast.

Apache disclosed in January it was buying 51 percent and becoming operator of the proposed C$3 billion facility.

EOG will also take a 24.5 percent interest in Pacific Trail Pipelines, a partnership of Galveston, Apache and Pacific Northern Gas, to build a C$1 billion, 280-mile link to Kitimat from Western Canada’s gas producing regions.

EOG Chief Executive Officer Mark Papa said his company was “pleased to partner with Apache in the development of this new market opportunity for natural gas from our Canadian operations,” rating Asia and other global markets as an important option given EOG’s “rather bearish” outlook for North American gas prices.

The plant is expected to liquefy 700 million cubic feet per day of gas and is targeted to come on stream by 2014.

Project faces opposition

An indication of how tough that challenge will be came in a May 11 article in the Vancouver Sun by Art Sterritt, executive director of the Coastal First Nations, an alliance of 10 First Nations groups in British Columbia, and Gerald Amos, a member of the Coastal First Nations board of directors.

Their focus was on Enbridge’s proposed Northern Gateway project to ship crude from the Alberta oil sands to Asian markets, also using Kitimat as the tanker port.

Building their case on the Gulf of Mexico blowout, they said “the same kind of disaster” could occur on B.C. shores if the pipeline proceeds.

“It’s a future Coastal First Nations cannot imagine,” they wrote. “It’s a future we won’t allow to become reality.”

They estimated 225 tankers a year would attempt to navigate the waters off Kitimat where a B.C. Ferries vessel sank in 2006 and a freighter ran aground in 2009.

“Enbridge is trying to convince Canadians that oil tankers are safe at a time when the oil industry has zero credibility,” Sterritt and Amos said.

Although they made no mention of Kitimat LNG, the project has already been identified as a source of safety concern.

Engineering, design study to begin

“By combining our experience and resources, (EOG and Apache) are confident we can move this project to completion,” he said.

A year ago, Korea Gas Corp., the world’s largest LNG importer, signed a deal to move 40 percent of the proposed export terminal’s capacity and, earlier this year, signed a farm-in deal estimated to be worth C$1.1 billion over five years with Encana to explore B.C. properties in return for a 50 percent stake in three unconventional gas properties.

Ralph Glass, with AJM Petroleum Consultants, told the Calgary Herald that EOG’s entry shows a desire to find better markets than the continental United States, which is awash in cheap gas from shale plays.

“Apache and EOG are seeing there has to be an alternative market for (British Columbia’s) gas than the Lower 48,” he said. “This is not a one- or two-year plan. It’s a four- or five-year plan. The market growth is definitely going to be Asia.”

Kitimat President Rosemary Boulton welcomed the imminent change of ownership, saying EOG and Apache “will be able to drive it all the way home.”

Galveston founder Art Sorenson said he wanted to remain involved, but the cost of capital was too high for Galveston.

He said the deal improves the likelihood of the project being built and opening export markets which will be good for the economy of B.C. and Canada.