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Shell steps up LNG plans Addition of Kitimat marine terminal adds weight to company’s feasibility study Gary Park For Petroleum News
Shell Canada, backed by three of Asia’s largest energy companies, is sending out clear signals that it is serious about joining the lineup to export LNG from North America.
The company is paying an undisclosed amount to Cenovus Energy for a marine terminal in Douglas Channel near the deepwater port at Kitimat for possible use in liquefying natural gas from British Columbia and Alberta.
Shell Canada confirmed it is now in the “early stages” of exploring the potential for an LNG export terminal at the site, with Korea Gas Corp., Mitsubishi and China National Petroleum Corp. as partners, one of a flurry of recent LNG developments.
Industry speculation has the partnership turning 1.8 to 2 billion cubic feet per day into LNG, exceeding the 1.4 bcf per day that the Apache-operated Kitimat LNG project is authorized to export.
Shell’s Canadian President Lorraine Mitchelmore has been forthright about her desire to pursue LNG shipments from Canada, noting that the gas market has “really changed over the last few years with shale gas.”
She said Royal Dutch Shell, as the world’s largest LNG producer, is ready to consider all options, hinting that a Canadian project could be “significant” because of Western Canada’s gas resources and Canada’s proximity to the “obvious” market in Asia.
Reserves of shale gas Shell, like most producers in Western Canada, is stuck with large undeveloped reserves of shale gas, compounded by its C$5 billion takeover of Duvernay Oil in 2008, in what most observers now rate as a hefty premium.
Mitchelmore has warned that unless Canada moves swiftly to clear the way for export projects it will lose the chance to meet Asia’s search for diversified supply sources and to exploit some of North America’s largest gas deposits, including the estimated 700 trillion cubic feet in British Columbia’s Horn River basin.
“This should be a great opportunity for Canada, but it isn’t — or at least not yet,” she said. “We need to expand our customer base for energy products and create access to global markets.”
The Kitimat partnership — Apache with a 40 percent stake and Encana and EOG Resources with 30 percent each — showed no signs of unease over Shell Canada’s first major public move into the LNG field.
Encana Chief Executive officer Randy Eresman said his company has “broadly stated we would welcome as many LNG export facilities as can be constructed in North America.
“We look forward to hearing other ones as well. There’s plenty of room for additional projects on the West Coast, so we’re supporters,” he told analysts.
Eresman noted that there is a current “imbalance (in North America) between our ability to import natural gas with no ability to export.”
Like Shell Canada, Encana holds vast amounts of stranded gas and is hunting for a joint-venture partner to fast track development of its British Columbia and Alberta properties.
The largest Canadian gas producer said it hopes to lock up a deal later this year for 50 percent of its Cutbank Ridge assets in British Columbia as it tries to partially recover from the failed joint-venture deal with PetroChina.
Eresman said the “interest level has been very high” from a broad group of industry players who have been invited to submit bids.
He said the assets identified for a joint venture are plays where drilling inventories are “viewed in decades.”
Eresman has said Encana will confine itself in this round of joint-venture talks to “just” undeveloped resources, avoiding a repetition of PetroChina’s insistence on establishing a complete business unit that embraced producing assets, undeveloped land and infrastructure.
Formerly an import facility The Douglas Channel terminal, with capacity of 42,000 barrels per day, was acquired a year ago by Cenovus for C$38 million from methanol producer Methanex under an agreement with Cenovus’s predecessor company Encana.
The facility has been used to import condensate for blending with oil sands bitumen to facilitate pipeline transportation.
A Cenovus spokeswoman said it was never the company’s intention to retain the terminal and discussions had been held with several prospective buyers.
Enbridge, traditionally a crude oil carrier, has joined the LNG action by acquiring a large gas processing plant in northeastern British Columbia, which could handle gas for eventual export.
It is paying C$220 million to Encana for a 57.6 percent interest in the Cabin gas plant near Fort Nelson and said it plans to spend C$900 million increasing capacity to 800 million cubic feet per day, doubling phase 1 which is 70 percent complete.
Capacity for both phases has already been fully taken up by Horn River producers, who include the three Kitimat partners.
Al Monaco, Enbridge’s president of pipelines, said the investment is a “substantial initial step in the execution of our strategy to establish a strong position in the Canadian midstream business, focusing on growing unconventional gas production in B.C. and Alberta.”
Company officials had previously said Enbridge wanted to form partnerships with any of Canada’s three proposed LNG terminals as an outlet for Horn River gas, or build support for a new one.
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