New entry in B.C. LNG field

Take your pick — it’s either shaping up as a rival or an extra.

Whatever the choice, the pieces seem to be coming together for a second LNG export terminal at Kitimat on the northern British Columbia coast.

In separate, back-to-back agreements with Merrill Lynch Commodities, Pacific Northern Gas and Teekay Corp. have laid the groundwork for a possible project.

Meanwhile, Kitimat LNG is seeking partners for a liquefaction terminal at Kitimat with plans to ship LNG to Asian markets.

The deals with Merrill Lynch involve a tentative contract for 75 million cubic feet per day of firm gas transportation service using existing capacity on PNG’s Western British Columbia pipeline system and plans to convert a ship into a floating LNG plant to be moored alongside a pier near Kitimat.

Merrill Lynch has deposited a C$1.5 million non-refundable option fee into an escrow account that will be released to PNG once the British Columbia Utilities Commission has approved a letter of agreement.

Merrill Lynch will have an exclusive option until Dec. 31 to contract for firm gas transportation capacity for a primary term of two to five years, with the right to renew for an additional two to five years. Alternatively, it may extend the initial option period by up to four- to six-month periods by paying C$1 million for each extension.

If Merrill Lynch exercises its option, the PNG pipeline system would be at full capacity utilization, generating almost C$15 million per year of incremental revenue for PNG and its customers. The startup date for transportation service is expected to be between Jan. 1, 2012, and Jan. 1, 2013.PNG is continuing to develop a pipeline to Kitimat through its interest in Pacific Trail Pipelines Limited Partnership.

The agreement with Teekay involves the joint development of a project to convert the S/S Arctic Spirit into a floating LNG plant, with Teekay LNG Partners having an option to participate in the project.

The converted vessel would have capacity to liquefy 75 million to 100 million cubic feet per day of pipeline quality gas, or about 500,000 metric tons per year of LNG, which could then be offloaded to other carriers for export.

Mark Kremin, Teekay’s vice president of gas services, said, “Reliable Canadian LNG supply should be very attractive for LNG buyers and end users.”

“This development will prove the feasibility of floating liquefaction and will provide an option for monetizing stranded gas resources in other parts of the world.”

Subject to regulatory and other approvals, the project is expected to start LNG operations in 2012.

With a fleet of 180 vessels, Teekay said it transports more than 10 percent of the world’s seaborne oil and has built a presence in the LNG shipping sector through Teekay LNG Partners.

Kitimat LNG is still seeking producer backing for a possible C$4.2 billion terminal to handle 3.5 million to 5 million metric tons per year of LNG.

Mitsubishi has signed a tentative agreement to acquire a minority stake in the project covering 1.5 million metric tons per year of capacity.

—Gary Park