Some time in the coming months, heavy equipment is slated to mobilize on the Pacific shores of British Columbia's north coast.
Not far from the aluminum smelting town of Kitimat, the machinery is to begin clearing the trees along Bish Cove to make way for a project that will usher in a new era for Canada's natural gas producers.
It likely won't happen until fall. But at a time of low North American gas prices and abundant new supply, the decision to construct a $3.5-billion liquefied natural gas (LNG) export terminal, the first of its kind in Canada, has nearly arrived.
When it is built, Kitimat LNG will connect the prolific gas fields of northeastern British Columbia with energy-hungry buyers in Asia. It will ship between one and two billion cubic feet of natural gas each day, depending on how big its owners, Apache Canada Ltd. and EOG Resources Canada Inc., decide to build it.
Either way, its impact will be unmistakable. It will help to further erode the already-struggling Canadian gas infrastructure that has for a half-century connected western gas with eastern markets. But it will, in recompense, provide a substantial new opportunity to energy companies that have seen gas prices mired at levels so low that many wells have been pushed to the brink of profitability.
It will, for the first time, provide Canadian producers access to a market where gas is priced not according to the vicissitudes of North American demand - a market that puts the industry at the mercy of winter cold, summer hurricanes and the major price swings they create. Instead, Asian gas prices track oil prices, which are typically more stable, more predictable and, in recent years at least, more lucrative.
And it will provide a potent new market for the major new gas fields that companies have discovered in recent years in northeastern B.C. The Horn River and Montney plays produce only modest quantities of gas for now. But give them a Pacific outlets - one that frees them from the thousands of kilometres of expensive pipe they'd have to travel through to compete in the U.S. - and they could become booming development areas.
In fact, the idea is so potent that Kitimat isn't the only potential West Coast LNG facility. Several sources have confirmed that a consortium of companies that includes Royal Dutch Shell PLC, Mitsubishi Corp. and Korea Gas Corp., spent most of 2010 examining options and scouting potential locations for a second LNG export terminal.
Shell played down the effort, with spokesman Phil Vircoe saying the company "is always exploring markets and customers for our products, including natural gas. That said, it is too early in the evaluation process to talk about any specifics about potential opportunities for our company."
Yet Shell is a major global LNG player, and it is clear that Canada's West Coast has gained substantial industry interest as an attractive area for gas shipments.
But while some say industry could easily support multiple terminals, it's clear Kitimat will come first, taking advantage of a confluence of events that make an investment decision likely in the second half of 2011. Kitimat LNG's owners have begun a nine- or 10-month front-end engineering and design process. Once that wraps up, they will make an investment decision that should allow them to begin site-clearing work before winter hits.
Regulators and first nations groups have already given their blessing to a new gas pipeline, called Pacific Trail, that would feed the terminal. And KM LNG Operating General Partnership, the joint venture formed to build and operate the terminal, has already applied for a gas export licence. The companies have said publicly that shipments could begin by 2015.
Rosemary Boulton, who served as chief executive officer of Kitimat LNG before it was sold to Apache and EOG, says too many stars have aligned for it not to proceed.
"We know that from an engineering perspective, there's nothing that can't be done there. And the forward curve on energy is really quite bullish, so from an economics perspective there's nothing that would stop that sale of gas," she said.
"They've got the pipeline [approvals]in place and all the market fundamentals are very strong. So it really all lines up."
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