Imperial Oil and ExxonMobil Canada, the Canadian surrogates of ExxonMobil, are taking baby steps towards exporting LNG from their stranded natural gas reserves in British Columbia.
Their key joint holding covers 340,000 acres of shale gas properties in the Horn River basin of northeastern British Columbia where the two companies are working on a pilot production venture to get a better grip on the cost of development, while at the same time examining a potential LNG facility, Imperial Chief Executive Officer Bruce March told reporters at the company’s annual meeting.
“Long term, it is a good proposition,” he said, rating as “critical” the development of an LNG export industry to advance development of Horn River.
But he conceded Imperial’s plans are less advanced than other British Columbia gas producers.
March said the joint venture has drilled 30 to 35 wells at Horn River which have yielded only methane.
“For it to be developed more aggressively, it will need something like LNG or a big change in gas prices,” he said.
An Imperial spokesman said it is too early to put a nameplate capacity, cost, location or timing for a project by his company, but indicated that Imperial might be open to linking up with other developers.
Oil-linked contract key
The numbers game in the LNG equation was also underscored by Steven Farris, chairman and chief executive officer of Apache, which is operator of the Kitimat LNG project, currently the larger of two schemes to obtain Canadian National Energy Board export permits.
But Farris told a conference call that obtaining an oil-linked contract will be critical to making the Kitimat project work for partners Apache, Encana and EOG Resources, who have backed away from previous indications that a corporate sanctioning decision would be made early this year.
Farris said the front-end engineering and design work is “pretty much done” and the partners are now in the “throes of negotiations for a tenant to underpin that development. But we’re not there until we’re there.”
He also said efforts to clear a right of way for a pipeline and make progress toward constructing an LNG terminal are also needed before a final go-ahead can be given.
Farris said the most important missing piece is to have a memorandum of understanding “that is good enough on the sales side to take the project forward on an economic basis.”
March noted that LNG developments based on shale gas feedstock “face higher technical and capital cost challenges than those being built in Qatar and Australia, which draw on big long-life conventional gas reserves.”
“In the Horn River, we are committed to sustained drilling activities that practically will never stop for the life of the development,” he said.
Mike Dawson, president of the Canadian Society of Unconventional Resources, suggested that even if it costs $10 to liquefy and ship one thousand cubic feet of gas, producers are banking on landed prices of $17-$18 per million British thermal units.
—Gary Park
