Forget imports, let’s export

Kitimat LNG: Shipping gas to Asia a better bet than building re-gasifying plant

Gary Park

For Petroleum News

There’s been a turn of events at a planned LNG facility on the northern British Columbia coast – a 180-degree turn, in fact.

Instead of importing LNG, privately held Kitimat LNG now says it is working on a liquefaction terminal to export LNG to Asia from the deepwater port at Kitimat.

Company President Rosemary Boulton said the growing economics of the Pacific Rim and fast-rising demand for LNG make Asia a “natural market for B.C.’s plentiful and expanding supplies of natural gas.”

“Kitimat is close to Asian markets and an extensive pipeline network already connects B.C. gas supplies to the Kitimat area,” Boulton said.

The company said fundamental shifts in the global natural gas market have made Kitimat’s proposal to export LNG more viable than its original goal of bringing LNG into North America.

Ilene Schmaltz, Kitimat’s vice president, supply marketing, said delays and cancellations of several LNG liquefaction terminals have caused major LNG shortfalls globally.

“Re-gasification terminals in North America are underutilized,” Schmaltz said. “At the same time the trend away from coal is accelerating and demand for clean-burning gas has never been stronger.

“These long-term trends create opportunities for stable sources of natural gas supply to take advantage of high demand in Pacific Rim markets.”

Boulton said Kitimat “continues to be a viable and advantageous location to build a West Coast LNG terminal.”

Abandoning the difficult process of trying to arrange supplies for an import facility was prompted by the delay in global liquefaction projects and the “resurgence of natural gas within the Western Canada Sedimentary Basin,” she said.

The change is estimated to push the capital cost to C$3 billion for a terminal to handle 3.5 million to 5 million metric tons per year of LNG from the projected import terminal cost of C$700 million.

Canadian Association of Petroleum Producers Vice President Greg Stringham told the Calgary Herald that lining up gas producer commitments has been a problem with past Canadian export proposals in the 1970s and 1980s, and capital costs have been “relatively high.”

He also cautioned that studies indicate North American gas output — despite the emergence of shale projects in British Columbia and the United States — will remain flat for the next decade or so.

FirstEnergy Capital analyst Martin King said LNG is fetching a premium over the NYMEX price of at least US$10 per million British thermal units in Asia, and with some deals, the spread has been as high as US$15.

Kitimat LNG estimates its new project will increase construction jobs to 1,500 from the 700 needed for its import terminal and raise permanent jobs to 100 from 50, while helping diversify the regional economy.

The company said it has signed a memorandum of understanding with an unidentified multinational corporation that is currently engaged in a feasibility study to participate in the project.

The import project received all regulatory, environmental and government approvals. Kitimat LNG believes the switch to a liquefaction terminal from a re-gasification terminal will result in no additional environmental impacts, nor will it change the space needed for the terminal or the number of ships moving in and out of the terminal.

In mid-2007 Kitimat LNG said it was making progress on supply deals for 4 million metric tons a year from Peru LNG, led by Spain’s Repsol, and 1.8 million metric tons a year from Australia’s Liquefied Natural Gas Ltd., setting the stage for a complex to re-gasify 600 million cubic feet per day initially, and growing to 1 billion cubic feet per day, targeting customers in Alberta (notably oil sands operations), British Columbia and the U.S. Pacific Northwest.