Kitimat LNG firms up

Analysts: Woodside’s move to reduce 50% stake seen as sign of capital allocation

Gary Park

for Petroleum News

Woodside Energy, the Australian oil and gas power, has hinted it hopes to lower its 50% share of British Columbia’s Kitimat LNG project at the same time operator Chevron has applied to almost double its export license to 40 years.

Without specifying exactly what percentage his company would like to unload, Woodside Chief Executive Officer Peter Coleman told Reuters in mid-September that “anywhere between 20% and 40% is the right number” for the “non-operator” of a major project.

On the other hand, as operator “we would like to be between 40% and 60%.”

Chevron would not comment on the prospect of adjustments to ownership stakes beyond saying that Chevron and Woodside are engaged with “potential LNG buyers and other parties interested in the Kitimat LNG project.”

Coleman said that from a capital and risk management point of view Woodside “would rather hold less equity” in British Columbia’s most advanced large-scale LNG venture.

Positive response from analysts

They suggest that state-owned giants from Kuwait and Malaysia would be some of the likeliest buyers.

As part of a fresh round of approvals it is seeking, Chevron disclosed plans to make its Kitimat LNG facility fully powered by hydroelectricity to achieve the lowest greenhouse gas emissions per metric ton of LNG of any large project in the world, while using backup diesel power generators for emergencies.

In a filing with British Columbia’s environmental assessment office, the partners estimated the project will produce less than 0.1 metric ton of carbon dioxide equivalent for every metric ton of LNG compared with more than 0.3 metric ton.

They have previously applied to the Canadian Energy Regulator (previously the National Energy Board) to expand project capacity to 18 million metric tons a year from the approval they have already received for 10 million metric tons a year, which has forced a new federal screening of the project.

In applying to CER for permission to bolster Kitimat LNG’s capacity, Chevron said rich natural gas reserves in the Liard Basin of northwestern British Columbia and the Kaybob-Duvernay play of central Alberta are more than sufficient to support the expansion.

“Chevron and Woodside currently together own an approximately 146,000 net hectare position in the core of the B.C. portion of the Liard Basin,” the filing said. “In addition to the Liard Basin holdings, Chevron has an approximately 84,000 net-hectare position in the Kaybob-Duvernay resource.”

2011 export permit

To underpin its application to extend its export license, Chevron said its lease holdings in the Liard Basin are 38 trillion cubic feet, while estimating that its current share of shale gas production in Kaybob-Duvernay is more than 75 million cubic feet per day - production it suggested could partially supply the Kitimat LNG terminal.

If needed, the proponents have said they could secure other supplies from the Western Canada Sedimentary Basin.

Chevron has also submitted a revised plan to B.C. and federal regulators, targeting the start of terminal construction in 2023, following a final investment decision, with production starting in 2029. Front-end engineering is scheduled to take place in 2020-21, at which point negotiations will start for export contracts.

Chevron and Woodside have also proposed construction of a pipeline from the Summit Lake area of the B.C. interior to the terminal facility near Kitimat.

They said that pipeline would be designed to connect with TC Energy’s planned 160-mile Merrick pipeline route in northeastern B.C.