Canada's Kitimat LNG Signs Contract with Apache Corporation for Natural Gas Supply

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Researched by Industrial Info Resources (Sugar Land, Texas)--Kitimat LNG (Calgary, Alberta), a fully owned subsidiary of Galveston LNG Incorporated (Calgary), has signed an agreement with Apache Corporation (NYSE:APA) (Houston, Texas) for the supply of natural gas to Kitimat's proposed natural gas liquefaction complex. Kitimat LNG is proposing to develop a liquefied natural gas (LNG) plant and terminal at Bish Cove, Port of Kitimat, in northern British Columbia. Project engineering and building activity is expected to begin by the end of this year, with commissioning targeted for 2013.

The Kitimat LNG terminal will include a natural-gas liquefaction facility along with on-loading, delivery and LNG storage facilities. The facility will house two storage tanks, each with a capacity of 210,000 cubic meters, while the send-out capacity will be between 3.5 million and 5 million tons per year. As part of the agreement, Apache Corporation is expected to supply between 200 million and 300 million cubic feet per day of gas. The project is expected to require 700 million cubic feet per day. Under the agreement, Apache Corporation also has the option of acquiring a stake in the LNG terminal project. There is a proposal to construct a 250- to 500-megawatt combined-cycle cogeneration power plant adjacent to the LNG terminal. Kitimat LNG has also signed an agreement with EOG Resources Incorporated (NYSE:EOG) (Houston) for the supply of natural gas to the project.

Kitimat LNG aims to export the processed LNG to overseas markets, primarily South America and Asia. In June, the firm signed a memorandum of understanding with Korea Gas Corporation (SEO:036460) (Gyeonggi-Do, South Korea) to supply 300 million cubic feet per day of LNG. In July, Gas Natural SDG SA (MCE:GAS) (Barcelona, Spain) signed an agreement with Kitimat LNG to procure 200 million cubic feet per day of LNG. Kitimat LNG is also in the process of concluding discussions with a third buyer.

The entire cost of the LNG terminal project is estimated to be $3.8 billion, which includes an investment of approximately $1.08 billion on a 15-kilometer pipeline network. The pipeline, which will be constructed and operated by Pacific Trails Pipelines Limited, will carry gas supplies to the project. Pacific Trails Pipelines is a 50:50 joint venture between Pacific Northern Gas Limited (Vancouver, British Columbia) and Galveston LNG. Once the natural gas reaches the LNG terminal, it will be condensed to a liquid state at temperatures of around minus 160 degrees Celsius. The LNG then will be transported by special tankers and shipped to export markets worldwide.

On commencing operations, the Kitimat LNG project is expected to link Canada and North America to LNG markets in Asia and the Americas. The 15-kilometer Pacific Trails pipeline, which will be linked to the network of Spectra Energy Corporation (NYSE:SE) (Houston), will also open doors to markets in the Pacific region. The development of the LNG terminal is expected to give a boost to the development of infrastructure and usher greater economic activity in northern British Columbia. The Kitimat LNG terminal is also expected to provide permanent employment to about 100 people in the area.

Canada's proven natural gas reserves are estimated to be 57.56 trillion cubic feet. Apache Corporation, in collaboration with Encana Corporation (NYSE:ECA) (Calgary), owns 419,990 acres of land in the Horn River Basin. The two firms have drilled 28 wells in the area, with 10 horizontal wells beginning production. About 32 wells are expected to be in production by first quarter of 2010.

The Horn River Basin region in northeastern British Columbia is estimated to contain huge reserves of natural gas and is drawing a lot of attention from international oil and energy companies. The heavily forested area is now being compared to the Barnett Shale gas play in northern Texas. Currently, Barnett is the largest natural gas-producing location in the U.S. The geology and topography of the Horn River Basin is considered to be similar to that of Barnett. The availability of natural gas in this region has led to many companies procuring land for exploration.

Devon Energy Corporation (NYSE:DVN) (Oklahoma City, Oklahoma) has purchased 153,000 acres of land and commenced activity. The company has started drilling wells vertically to depths of 7,000 to 9,000 feet and horizontal wells up to 4,000 feet in depth. Quicksilver Resources Incorporated (NYSE:KWK) (Forth Worth, Texas), which owns 127,000 acres of land in the region, has drilled two wells and is confident of recovering more gas from Horn River Basin than from Barnett. Quicksilver is expecting a natural gas recovery of about 5 trillion cubic feet in Barnett.

Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas), Canadian Natural Resources Limited (NYSE:CNQ) (Calgary), Nexen Incorporated (NYSE:NXY) (Calgary), Imperial Oil Limited (TSX:IMO) (Calgary), and Talisman Energy Incorporated (NYSE:TLM) (Calgary), have also made investments in Horn River Basin. Industry experts are of the opinion that a shale in Barnett can produce between 3 billion and 4 billion cubic feet per day of gas during production. In comparison, some Horn River Basin fields can yield about 10 billion cubic feet per day of gas when operational. In the long term, sources indicate that with adequate investments, federal support, and assistance and infrastructural development, Horn River Basin has the potential to become one of the most significant gas fields in North America.

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