Kitimat gas line to serve oilsands
LNG line would carry a billion cubic feet per day
canada.com
Shaun Polczer, CanWest News Service with files from Canadian Press
Published: Tuesday, July 18, 2006
CALGARY -- A proposed $1-billion pipeline to move depressurized liquefied natural gas (LNG) from Kitimat could provide another gas source for Alberta oilsands producers when it comes online in 2009.
Calgary-based Kitimat LNG on Monday formed a partnership with B.C utility Pacific Northern Gas to build and operate the line, which will have initial capacity of one billion cubic feet per day.
"We've had significant interest from oilsands producers," Rosemary Boulton, Kitimat's president and chief executive officer, said in an interview. "We've had some good commercial discussions with them."
LNG is supercooled natural gas compressed into liquid form and loaded onto ships.
Once it lands onshore, it's restored to a gaseous state and transported through existing infrastructure to consuming markets.
The joint venture -- to be called Pacific Trail Pipelines Limited Partnership -- will move the depressurized gas 470 kilometres to Summit Lake in northeast B.C., where it will hook into the Westcoast Energy mainline owned and operated by U.S. pipeline giant Duke Energy. From there, it will continue west into Alberta or south into the B.C. Lower Mainland and Washington state, and on to other U.S. markets such as California.
But Boulton said the most attention so far has come from oilsands producers, who use about 500 cubic feet of natural gas to make one barrel of synthetic crude oil.
Potential buyers will eventually be required to sign long-term contracts to backstop the project.
The level of commitments received will determine the final diameter of the line -- 91 centimetres at a cost of $1.2 billion, or 76 centimetres costing $900 million -- although Boulton said the larger capacity is more "likely" at this point.
Kitimat in June received initial environmental approval to build the LNG station, while a second Calgary-based firm, WestPac LNG, submitted a regulatory application to build a smaller facility near Prince Rupert.
Meanwhile, Pacific Northern scrapped plans to convert into an income trust while it concentrates on building the new pipeline.
Pacific Northern spokesman Greg Weeres said the Kitimat line will significantly change the "look and feel" of the regulated utility, which currently markets 115 million cubic feet a day to businesses and residents along the Kitimat corridor.
"It will certainly increase the size of our asset base."
Pacific Northern received approval from B.C. regulatory authorities to convert into an income trust last August, but Weeres said the level of capital expenditures required to fund its portion of the joint venture is inappropriate for a royalty income vehicle.
"What we're saying is that traditional corporate financing is probably the best way to go," he said.
Pacific Northern Gas owns and operates natural gas transmission and distribution systems. The company's western transmission line extends from the Duke Energy pipeline north of Prince George to Kitimat and Prince Rupert, and provides service to 12 communities and a number of industrial customers.
In the northeast, the company provides gas distribution service in the Dawson Creek, Fort St. John and Tumbler Ridge areas.
Site preparation for the pipeline is scheduled to begin this fall with initial construction starting in the first quarter of 2007, around the time the partners expect to receive regulatory approvals.
Initial deliveries are expected to start in 2009, which Kitimat's Boulton said roughly coincides with an expected decline in gas supplies from Western Canada.
So far, Pacific Northern Gas and Kitimat LNG have spent $1.5 million on the project and expect to spend another $6 million the rest of the year. Those costs will now be transferred to the partnership, reducing Pacific Northern's previously reported first quarter earnings by about $400,000 or 11 cents a share.
For the rest of the year, earnings will be further cut by $2 million or 55 cents a share, the company said.
Kitimat is currently in discussions with international suppliers in countries such as Australia, Malaysia and Indonesia to feed the terminal. The company is hoping to firm up supply deals early next year.
According to the California Energy Commission, 16 separate LNG projects are proposed for the west coast of North America, from Mexico to B.C.
Those plans represent more than 11 billion cubic feet per day of import capacity, but not all are expected to proceed.
That's why it's important to send the message Kitimat plans to be first to market, Boulton said.
"It provides our project with an even greater level of certainty and differentiates us from other projects that don't have the pipeline piece in place.
"It's another milestone for moving our project forward."
© The Vancouver Sun 2006 |
