Providing coverage of Alaska and northern Canada's oil and gas industry
November 2011

Vol. 16, No. 46 Week of November 13, 2011

LNG pace quickens in BC, with firms acquiring infrastructure

Enbridge and AltaGas, two Calgary-based energy infrastructure companies, are involved in a lively contest to stake out strategic positions in the race to export LNG from British Columbia.

Already a dominant crude oil shipper, Enbridge has acquired a 57.6 percent interest in the Cabin gas plant in northeastern British Columbia from Encana for C$220 million, and then quickly added another 13.3 percent for an undisclosed amount.

It now plans to spend about C$900 million to raise capacity at the plant to 800 million cubic feet per day in two equal stages, bringing them on-stream in late 2012 and the third quarter of 2014.

AltaGas, which owns a collection of small energy projects, has moved up a notch by acquiring Pacific Northern Gas for C$230 million to double its regulated rate base and gain a significant toehold in Western Canada’s emerging LNG sector.

Enbridge said it wants to deploy the Cabin plant to help gather and process shale gas from the Horn River basin and now hopes to buy into an LNG terminal on the British Columbia coast.

It is the first time a large pipeline company has publicly declared its hope of playing an active role in the gas-gathering network of Horn River, which has estimated in-place gas deposits of 600 trillion cubic feet.

Al Monaco, Enbridge president of gas pipelines, said the Cabin investment is a “significant initial step” to build a strong position in the Canadian midstream business, focused on growing unconventional gas production in British Columbia and Alberta.

Company officials have also been telling investors that Enbridge wants to become a partner in any of the proposed LNG terminals tied to Horn River, or seek support for a new project.

Enbridge rival TransCanada has already signed up U.S.-based producers to link its Nova pipeline network in Alberta to possible markets on the U.S. West Coast, U.S. Midcontinent and major consuming regions such as New York city, although those markets face stiff competition from the Marcellus Shale.

Pipelines to Kitimat

John Lowe, president of the AltaGas utilities unit, said the purchase of Pacific Northern Gas provides existing pipelines from Terrace, British Columbia, to a deepwater port at Kitimat.

“There’s capacity in that pipe to help service any LNG projects that do develop,” he said.

In addition the deal gives AltaGas a chance to profit from the Asian LNG market without owning or operating an LNG plant.

Steven Paget, an analyst with FirstEnergy Capital, said he does not expect a competing bid because the Pacific Northern Gas components are too small to be of interest.

But he said it is valuable to have access to the Pacific Northern Gas pipeline corridor, while AltaGas will gain a “little more weight” in northern British Columbia, boosting its regulated rate base by 50 percent to more than C$500 million.

If all shareholder, court and regulatory approvals are obtained, the transaction is expected to close on or about Dec. 16.

However, AltaGas said it needs about C$140 million to cover the cash portion of the deal and has only about C$3 million in available cash at the end of the third quarter.

Pacific Northern Gas currently provides service to about 35,000 customers in 12 communities, along with a number of industrial facilities.

It owns and operates gas transmission and distribution systems extending to the west from the Spectra Energy transmission system north of Prince George to tidewater at Kitimat and Prince Rupert.

Pacific Northern Gas also expects to complete construction of three run-of-river power plants by 2016, assets that fit well with AltaGas’ renewable strategy.

Progress and Petronas

More activity on the LNG front involves Progress Energy and its state-owned Malaysian partner Petronas, with the Canadian E&P company announcing it will spend C$435 million next year to develop a portion of its North Montney shale gas properties, including C$50 million for a detailed feasibility study on an associated LNG export facility.

Greg Krist, vice president of marketing, said the study involves the technical feasibility and commercial viability of LNG exports, including the choice of a potential site and identifying a marketing strategy and potential buyers.

As part of that process, the partners will decide on whether to use a common carrier or build their own pipeline.

The detailed study phase, due for completion by about mid-2012, is exploring plans for two trains of 500 million cubic feet per day each, with the first train expected to be online about 2017-18.

—Gary Park

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