Kitimat LNG Receives Government Permit Giving Access to North America’s Fastest Growing Natural Gas Market

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Researched by Industrial Info Resources (Sugar Land, Texas). Kitimat LNG, Incorporated (Calgary, Alberta), a subsidiary of Galveston LNG, Incorporated (Calgary, Alberta), has received government permit approval for a planned LNG terminal to be located on the coast of British Columbia near the Port of Kitimat on Bish Cove. Both the Canadian and British Columbian environmental assessment agencies have given approval for the new $650 million LNG terminal. In addition to the government approvals, Kitimat LNG has signed a partnership agreement with the Haisla First Nation in order to proceed with the new LNG terminal. Clearing both of these major hurdles positions Kitimat LNG to construct the first LNG import terminal on the Canadian/U.S. west coast. The permitting approvals received for the new facility not only allow the construction of an initial one billion cubic foot per day marine LNG receiving terminal, but also allows a possible phase II expansion that would increase regasification capacity to a total of 1.4 billion cubic feet per day of natural gas.

The scope of the first phase of the project will include an offshore LNG carrier berth and unloading jetty, two 162,000 cubic meter LNG storage tanks providing 6.8 billion cubic feet of natural gas equivalent storage, an NGL separation unit, a vaporization area, and a natural gas send-out pipeline. The new LNG terminal will receive four or five LNG shipments per month, which equates to approximately 1.8 million tons of LNG to be imported per year from Papua New Guinea. In September 2006, Kitimat LNG signed a Heads of Agreement with Liquefied Natural Gas, Limited of Australia for 1.8 million tons per year of LNG that would be purchased on a delivery basis at the Kitimat LNG terminal. The second phase of the project, if constructed, would include additional marine handling facilities and a third 160,000 cubic meter LNG storage tank adding an additional 3.4 billion cubic feet of natural gas equivalent storage bringing the total storage capacity for the LNG terminal to 10.2 billion cubic feet. The regasified natural gas from the terminal will be exported to through an existing pipeline system owned by Pacific Trail Pipelines, which is a 50/50 partnership between Galveston LNG, Incorporated and Pacific Northern Gas (Vancouver, British Columbia). The partnership intends to reverse the flow on the existing pipeline and add compression in order to move the natural gas eastward to the growing oil sands market in Alberta and to interconnections with existing pipelines that connect with natural gas markets further east in Canada and the U.S.

One major advantage Kitimat LNG has positioned itself for is the ability to access the natural gas market in Alberta, which due to the oil sands construction boom is the fastest growing natural gas market in North America. The demand for natural gas in the oil sands sector of Alberta could increase by 3005 to 3.5 billion cubic feet per day by 2015. The only other major pipeline scheme planned to bring new natural gas supplies into the area is the Mackenzie Gas Pipeline project headed by Imperial Oil (Calgary, Alberta) with a capacity of 1.5 to 2 billion cubic feet per day. It is presently stuck in a quagmire of politics involving the government and the aborigines. Even if this pipeline were cleared for construction, it would take approximately four or more years to put the pipeline into service if all went smoothly. Working in tandem with this pipeline’s problems is the fact that domestic Canadian natural gas production in the Western Canadian Sedimentary Basin is in a state of decline that has been evident for over a decade. In 2005, three and a half times as many new wells were drilled in the area verses the number of new wells drilled in 1998, yet total production rates for the wells stayed stagnant at approximately 4 billion cubic feet per day. On top of this, initial production rates from these new wells have fallen by approximately 75% to 262,000 cubic feet per day (mcf/d) over the past ten years. The present scenario provides Kitimat LNG with both a timing and geographic edge over any other natural gas project in the growing natural gas market in the oil sands region of northern Alberta.

As far as engineering and construction progress is concerned, Kitimat LNG has already completed its front-end engineering and design (FEED) studies, which were performed by Tractebel Engineering based in Belgium. Kitimat LNG expects to select an E+P+C (engineering, procurement and construction) contractor for the initial phase of the Kitimat LNG terminal in the third or fourth quarter of 2007. Commercial LNG supply and financial closure are expected in the fourth quarter of 2007. All things considered, construction on the Kitimat LNG terminal is scheduled to begin by mid-2008, with a completion and in-service date targeted for the fourth quarter of 2010.

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