No FID on Kitimat LNG in 2015, Chevron tells investors

Chevron will not be making a final investment decision on the Kitimat LNG project in 2015, Pat Yarrington, the company’s vice president and chief financial officer told the first quarter earnings conference call Friday, May 1.

All FIDs for Chevron projects around the world, with one exception, are on hold for this year Yarrington said.

“In terms of other FID projects, part of the reduction that we took in our capital spending from 2014 to 2015 really did relate to the pacing of other major capital projects,” Yarrington said.  “Kitimat is a primary one there, we moved spending on that out considerably.  We are only limiting ourself to appraisal work and continuing to look at the design and the cost structure. “

Overall, in all aspects of the company’s operations, Yarrington said Chevron is “aggressively pursuing cost reductions” by reopening contracts with suppliers, resulting in $900 million in agreed reductions around the world.

Chevron Gorgon LNG project
Chevron says Gorgon Project  in Western Australia is  now 90 per cent complete. All Train 1 modules and 13 of 17 Train 2 modules are on their foundations. (Chevron)

Meanwhile, two of Chevron’s LNG projects in Australia have reached “key milestones,” she said. As for the Gorgon project  in Western Australia, she said. “We’re on schedule for Gorgon startup in the third quarter of this year and first commercial cargo before the end of the year.”

The Gorgon Project is a joint venture between the Australian subsidiaries of Chevron (47.3 percent), ExxonMobil (25 percent), Shell (25 percent), Osaka Gas (1.25 percent), Tokyo Gas (1 percent) and Chubu Electric Power (0.417 percent) supplied by the Greater Gorgon Area gas fields. It includes the construction of a 15.6 million tonne per annum (MTPA) liquefied natural gas (LNG) plant on Barrow Island and a domestic gas plant with the capacity to supply 300 terajoules of gas per day to Western Australia.

“We’re on schedule for Wheatstone,” Yarrington said. “We’ve had seven of 24 major process modules delivered on site, the trunk line is installed and hydro tested, the dredging is complete, the piling has been completed, the roofs are on both of the LNG tanks. We continue to make good processs both on shore and off shore.”

The Wheatstone Project  is an LNG and domestic gas operation near Onslow, in the West Pilbara region of Western Australia. The project’s initial capacity is expected to be 8.9 million metric tons per year of LNG.

Chevron promotional video showing Gorgon is one of the world’s largest natural gas projects and the largest single resource development in Australia’s history. (Kitimat residents note the cruise ship docked at the project)

As well, Chevron in Australia has announced new gas discoveries as a result of further drilling success in the Greater Gorgon Area located in the Carnarvon Basin, a premier hydrocarbon basin offshore northwest Australia.

In a news release, Chevron said:

The Isosceles-1 exploration discovery well encountered approximately 134 metres (440 feet) of net gas pay in the Triassic Mungaroo Sands in 968 metres of water (3,175 feet). The well fulfilled the second year work commitment in the exploration program. It is located in the WA-392-P permit area approximately 95 kilometres (60 miles) northwest of Barrow Island, off the coast of Western Australia.
“This discovery is a continuation of our exploration success and further positions our company as a key supplier for future liquefied natural gas (LNG) demand in the Asia-Pacific region,” said Melody Meyer, president, Chevron Asia Pacific Exploration and Production Company

Overall Chevron (NYSE: CVX) reported earnings of $2.6 billion ($1.37 per share – diluted) for first quarter 2015, compared with $4.5 billion ($2.36 per share – diluted) in the 2014 first quarter. Foreign currency effects increased earnings in the 2015 quarter by $580 million, compared with a decrease of $79 million a year earlier.

Sales and other operating revenues in first quarter 2015 were $32 billion, compared to $51 billion in the year-ago period.

Apache sells Kitimat LNG stake to Australia’s Woodside Petroleum

Apache CorporationApache Corporation today announced it has agreed to sell its interest in two LNG projects, Wheatstone LNG and Kitimat LNG, along with accompanying upstream oil and gas reserves, to  Australila’s Woodside Petroleum Limited for a purchase price of $2.75 billion.

The news release says:

Apache will also be reimbursed for its net expenditure in the Wheatstone and Kitimat LNG projects between June 30, 2014, and closing which is estimated to be approximately $1 billion.

Under the terms of the agreement, Apache will sell its equity ownership in its Australian subsidiary, Apache Julimar Pty Ltd, which owns a 13-percent interest in the Wheatstone LNG project and a 65-percent interest in the WA-49-L block which includes the Julimar/Brunello offshore gas fields and the Balnaves oil development. The transaction, which has an effective date of June 30, 2014, will also include Apache’s 50-percent interest in the Kitimat LNG project and related upstream acreage in the Horn River and Liard natural gas basins in British Columbia, Canada.

Woodside PetroleumBased on current estimates, Apache’s net proceeds upon closing are expected to be approximately $3.7 billion. Receipt of proceeds from this transaction will trigger an estimated $650 million cash tax liability, approximately $600 million of which is associated with the income tax due on Apache’s Overall Foreign Loss account balance. Upon incurring this income tax liability, Apache estimates that it will have the flexibility to repatriate cash generated from foreign operations and/or future international strategic transactions with minimal U.S. cash tax impact.

“Today’s announcement marks the successful completion of one of our primary strategic goals of exiting the Wheatstone and Kitimat LNG projects. Apache recognizes the contribution of our employees who have worked so diligently on these projects since their inception, and we sincerely thank them for their tremendous effort. I would also like to thank Woodside’s CEO and Managing Director, Peter Coleman, and his entire staff for their hard work and professionalism in bringing this transaction to a successful conclusion. I am proud of Apache’s legacy in advancing the Wheatstone and Kitimat LNG projects, and I am confident that Woodside’s participation will have a positive impact in seeing these world-class LNG facilities through to first production. We look forward to the redeployment of the proceeds from this sale, which may be used to reduce debt, repurchase shares and to pursue other opportunities that enhance our asset base and drive profitable production growth,” said G. Steven Farris, chairman, chief executive officer and president.

Upon completion of the transaction, Apache will continue to hold upstream acreage offshore Western Australia in the Carnarvon, Exmouth, and Canning basins along with related hydrocarbon reserves and production. Apache will also retain its 49-percent ownership interest in Yara Holdings Nitrates Pty Ltd and 10-percent interest in the related ammonium nitrate plant.

The transaction is expected to close in the first quarter of 2015 and is subject to necessary government and regulatory approvals and customary post-closing adjustments. The sale of the Kitimat LNG project is subject to certain operator consents.

Aussie energy company eyeing Apache stake in Kitimat: media reports

The Australian Business Review is reporting that Woodside Petroleum, a cash rich Australian energy company, has its eye on Apache’s 50 per cent stake in the Kitimat LNG project. As part of any deal, Woodside would probably also have to buy Apache’s stake in the Australian Wheatstone LNG project, which is also up for sale.

The months-long process by Apache to find a new home for its West Australian domestic gas business and its stake in the under-construction Wheatstone LNG project — as well as its stake in the Kitimat LNG project in Canada — has drawn plenty of interest from parties in that neck of the woods.

The cashed-up, project-hungry Woodside Petroleum has been interested from the outset in the Kitimat stake, but is also said to be prepared to make an offer on Wheatstone if Apache is determined to sell the assets together


WoodsideEarlier,  another Australian newspaper, The Age reported that Woodside’s petroleum and LNG operations had “revenue of $US5.3 billion for the first nine months of 2014. Compared with the corresponding period in 2013, revenue was 28.7 per cent higher for the 2014 period.”Part of the money came from selling natural gas assets in the United States.

According to The Age:

Woodside’s LNG production rose to a record 5.1 million tonnes for the first nine months of Woodside’s fiscal 2014. The record production represents a rise of 17.6 per cent on the same period for 2013. Behind the result was the operational performance of the Pluto LNG facility (Woodside’s interest is 90 per cent). Pluto lifted LNG production by 24.3 per cent on the corresponding period in 2013, to 3.1 million tonnes. Pluto also produced 2.2 million barrels of condensate for the first nine months of 2014. Oil production rose by a mammoth 33.3 per cent on the same period in 2013, to 8.8 million barrels.

On November 6, according to the Sydney Morning Herald, Woodside’s CEO Peter Coleman warned that the Asian customers for LNG who are holding out for cheaper prices could face a  “supply crunch” and “By holding out for a cheaper price, customers are potentially exacerbating project FID [final investment decision] delays and may unwittingly help bring on a supply crunch.”

He called on suppliers and customers to work together to  ensure supply projects went ahead.

The Woodside website describes the company as  “Australia’s largest independent dedicated oil and gas company and one of the world’s leading producers of liquefied natural gas.​​​​​​”

It goes on to say

As we aspire to become a global leader in upstream oil and gas, we are guided by the Woodside Compass. The Compass links Woodside’s core values – respect, integrity, working sustainably, working together, discipline and excellence – with our vision, mission and strategic direction.

Woodside has an extensive portfolio of facilities which we operate on behalf of some of the world’s major oil and gas companies.
We have been operating the landmark Australian project, the North West Shelf, since 1984 and it remains one of the world’s premier liquefied natural gas (LNG) facilities.

With the successful start-up of the Pluto LNG Plant in 2012, Woodside now operates six of the seven LNG processing trains in Australia.

Why BC should watch the Australian election: LNG and natural gas are suddenly a top issue

Could the future of northwestern British Columbia’s hoped for natural gas boom depend on the outcome of this weekend’s Australian general election?

While the mainstream media in North America has mostly been following the personal feud between Prime Minister Kevin Rudd and Opposition Leader Tony Abbott or speculating whether or not Wikileaks founder Julian Assange’s party will make a ripple or a splish, a natural gas crisis has rocketed high on to the Australian election agenda.

I’ll be the first to admit that I know very little about Aussie politics, but I couldn’t ignore all the LNG and natural gas Australian election related stories that suddenly started showing up in my alerts.

LNG train “on ice”

This morning came the alert that Chevron has put the development of another train at its giant Gorgon LNG facility “on ice” (as a pun enabled headline writer in the Western Australian put it)

Chevron and its partners in the Gorgon LNG project on Barrow Island are expected to postpone work on detailed design and engineering of a fourth processing line at the mega project until at least next year as they battle to contain the soaring cost of the foundation development.
As reported by WestBusiness at the weekend, Chevron’s latest internal cost review is understood to have placed a final cost on Gorgon’s three-train venture of up to $US59 billion ($65.6 billion), or 13 per cent above the last confirmed budget revision of $US52 billion.
Chevron is refusing to discuss the status of the cost review and is understood to have told its Gorgon team to “value engineer” in the hope of substantially reducing the latest overrun on a project that was originally supposed to cost $US37 billion to complete.

 

Raw logs all over again

For a resident of northwestern BC, one thought comes to mind from the media reports on the LNG situation in the Australian election, it’s raw logs all over again.

It appears from those media reports that while Australia has huge reserves of shale-based natural gas, the way the country has structured its LNG boom, major industries and consumers are becoming alarmed that domestic natural gas prices for both will soon skyrocket. There are calls for whatever party wins the election to pass legislation that would create “domestic gas reservation” so that Australians won’t see the gas exported while they pay higher prices for what’s left over.

Most of the shale gas reserves are in Western Australia, while the population—and industry– are concentrated far away on the east coast.

That is leading to another controversy, demands that eastern Australia develop its coal gas reserves, which, of course, brings to mind Shell’s decision to forgo development of coal gas deposits in the Sacred Headwaters and the ongoing fight by the Tahltan First Nation to stop Fortune Minerals’ open pit coal mine in the Sacred Headwaters at Klappan.

Then there’s another vexing issue that northwestern BC is facing and soon have to deal with. In the election, some Australian politicians and unions are calling for curbs on the use for temporary (and not so temporary) foreign workers.

Another factor is the growing cost of natural gas extraction and LNG export, which has, in the midst of the election campaign, pitted Chevron against Australian unions, with Chevron executives (as they did in other contexts before the election call) pointing to Canada—that means Kitimat, folks — as the cheaper alternative.

Rising prices

The Australian has reported that a poll, commissioned by the nation’s manufacturers, so it is somewhat suspect, that:

Manufacturers  will today claim that most Australians want a policy of domestic gas reservation and that this would sway voter intentions, a move set to renew the acrimonious debate over rising gas prices.
Manufacturing Australia will release a survey it commissioned where 35 per cent of people said it was “quite likely” and 13 per cent “extremely likely” that it would sway their decision at the election if a party made a policy pledge on the issue.Those uncertain stood at 21 per cent.

In one Australian riding, a local candidate wants one per cent of Australia’s gas be reserved just for the State of Queensland.

Bob Katter flew through Gladstone as fast as the wind whistled through Spinnaker Park on Monday, where he told local media he wanted to reserve a domestic gas supply for Australia and scrap the 457 visas that bring foreign workers into the country….

Mr Katter said mineral processing was under enormous pressure in Australia with copper processing wiped out in northern Queensland and to counter that, the Katter Australia Party would reserve 1% of the gas supply for Queensland.
“Because of the escalating skyrocketing cost of coal, gas and electricity in the past eight years, one per cent of the gas will be reserved for the benefit of the people in Queensland if not Australia,” he said.

“That gas will be used to produce electricity at prices our retirees can afford, and young families can afford, and most importantly that our mineral processing plants have prices for processing they can afford.”

 

Coal gas

Another story in The Australian quotes James Baulderstone of the Australian energy company Santos:

THE NSW gas industry has warned of higher gas prices, job cuts and a significant risk to the state’s energy security if the coal-seam gas sector is not developed.
James Baulderstone, vice-president of eastern Australia at Santos, said without indigenous gas of its own, NSW had no ability to control its energy supply security.
“NSW faces prospective gas shortages as long-term contracts underpinning the state’s gas supply expire over the next two to three years, the very time in which the commencement of LNG exports from Queensland will see annual gas demand in eastern Australia triple,” he said.
“Looming natural gas shortages in NSW could be avoided by the timely and balanced development of the state’s already discovered reserves of natural gas.”

The Australian Liberal Party (which like BC’s is actually conservative) supports coal gas projects. But it also wants to force energy companies to develop gas reserves they have leased.

Chevron and the unions

Also embroiling the election is the growing dispute between Chevron and the Australian unions.
As the Australian Financial Review reported, Chevron is claiming that high costs are slowing the LNG projects and blaming the government of Prime Minister Kevin Rudd.

The federal government has rejected claims from Chevron that Australia’s high-cost economy is threatening the nation’s biggest energy project, Gorgon, even as the Maritime Union of Australia demands a 26 per cent pay rise and more than 100 other benefits for its members, including Qantas Club memberships and iTunes store credits.

As Chevron’s $52 billion Gorgon project became embroiled in the ­election campaign, trade union officials accused Chevron of seeking to dodge responsibility for poor labour productivity and high costs.

The union’s demands for employees working for 19 offshore oil and gas contractors around Australia include a 26 per cent raise over four years, no foreign labour without consultation, union control of hiring and four weeks holiday for every four weeks work.

(Note there are accusations of biased reporting during this election, especially from the media owned by Rupert Murdoch. I could find no independent confirmation of union demands for airline memberships and iTunes credits) 

The Australian Labour minister, Gary Gray, who is from Western Australia, and according to reports, in a tough re-election fight, is blaming Chevron and the other energy companies for “failing to control the costs of their staff and contractors.”

“We do need our companies to get better in managing their productivity issues,” he said.

Prime Minister Kevin Rudd said he had studied China’s latest five-year economic plan and concluded Australia’s industrial relations system wasn’t hurting the industry.

Boom or bust?

The Australian Financial Review quotes Chevron Australia managing director Roy Krzywosinski as saying Australia has a two-year window to get ­policy settings right and fix industrial relations and productivity or risk losing out on billions of further investment in liquefied natural gas projects.

It goes on to make a reference to Shell and operations in Canada—again that’s Kitimat folks.

after the unprecedented rush of LNG investment in the past four years, Australia has become the most costly place worldwide for new plants, while new competition is emerging in North America and east Africa.

Shell, which has slowed its $20 billion-plus Arrow LNG project in Queensland, said construction costs in Australia are now up to 30 per cent higher than in the US and Canada.

Mr Krzywosinski said LNG projects are “long-term projects that transcend governments” and Chevron would work with all sides of politics to get policy settings right.

This Australian blogger warns:

The investment surge in LNG – often favourably compared with the Apollo moon program in its magnitude – is in some ways a bubble. Firms have rushed in, extrapolated an endless supply/demand imbalance for their product, ignored global competition, over-paid for assets and developed with little thought to what others were doing, grossly inflating input costs in the process.

The blogger goes on to say

This fallout is typical of the “built it and they will come” attitude that seized energy and mining executives in the final stages of the “commodity super cycle” boom. A similar story, with different dynamics, is playing out in coal and next year in iron ore.
The unions are largely not to blame for the cost blowouts even if they are a party to them. They are, after all, unions. What does capital think will happen if it hands them such a card to play?

Sound familiar?
Australia a mirror of the BC election?

Again it appears from this far off shore, that the Australian election is somewhat mirroring the recent BC provincial election and not only because of the issue of LNG. The Labour PM Kevin Rudd returned to power after three years on the back benches,  coming back after the party dumped PM Julia Gillard.

Like BC, the Australian Liberal Party is really conservative. The Liberal Leader Tony Abbott, wants to abolish Australia’s carbon tax but Abbott is also threatening to fine companies that don’t lower prices if (or when) the carbon tax is abolished.

The polls show that the Liberal Party is leading, but that Kevin Rudd is more popular than Tony Abbott. Rudd is running an attack campaign against Abbott, warning of the consequences of an (conservative) Liberal victory. Sounds a bit like Christy Clark.

Given the split in the polls, with the leader of one party more popular than the leader of the party that is leading the polls, this video of the editors of The Australian which accompanies this story  shows their senior editors are awfully confident, perhaps over confident, about the polls. I know given what happened in BC, Alberta and even Israel, I’d be a lot more skeptical.

We’ll know the outcome of the Australian election by this time next week. As for LNG, given the volatility of the market, who knows?

 

(Editor’s Note: Tony Abbott and the Australian Liberal Party won a landslide victory in the weekend vote)

 (Note some of the Australian media sites appear to be metered and allow only one viewing)

Kitimat in “horse race” with Australian LNG project Chevron says

Gorgon project in Australia
The Gorgon LNG project in Western Australia. Chevron says  Gorgon Project work continues to progress with the installation of the second of three amine absorbers, two condensate stabilization modules and a recycled gas compression module. (Chevron Australia)

Kitimat LNG is in a “horse race” with an LNG project in Western Australia–and at this point, according to the Australian media–Kitimat is winning, even though the Australian Gorgon project is much further ahead while the Kitimat LNG project at Bish Cove hasn’t really started.

The Australian reports come from the same conference call Chevron held with financial analysts last week, when the company said the final investment decision for Kitimat LNG has been postponed to 2014.

The Brisbane Times  is quoting Chevron as saying that expansion of the Gorgon “will be in direct competition with exports from North America, which have a cost advantage.”

Chevron has a 47.3 per cent stake in Gorgon. Shell which is developing its own project at Kitimat, LNG Canada, has a 25 per cent stake in Gorgon. ExxonMobil holds 25 per cent.

”In the case of Gorgon train four … we are happy to see both of them move forward,” Chevron vice-chairman George Kirkland told analysts late last week, referring to the competition with Kitimat. ”[There is] a bit of a horse race between them at this point.”

Shipping gas to north Asia from Canada is cheaper than exports from Australia, he said, although the challenge is to find markets for the gas. ”The development cost at Kitimat … may end up being less than in the case of Gorgon,” he said, which ”has the benefit of [being a] brownfield development on the plant side”.

”We’re going to offer volumes … and interest in the plant as a combination,” Mr Kirkland said of the Kitimat marketing plans. ”We think that’s a big advantage.

”Our goal is to maintain our … first-mover advantage … We have had some initial discussions with Asian buyers.”

The Gorgon project in the northwestern area of Western Australia. (Chevron Australia)
The Gorgon project in the northwestern area of Western Australia. (Chevron Australia)

According to Wikipedia, the Gorgon area of Western Australia is the site for a number of liquified natural gas projects. The projects are off shore and close to the export terminals, much different from British Columbia where the gas fields are in the Peace River district in the northeast of the province.

Wikipedia says

The Gorgon field is centered about 130 kilometres (81 mi) off the north-west coast of Western Australia, where the water depth is approximately 200 metres (660 ft). Other fields in the group lie to the north, such as Jansz-Io, which covers an area of 2,000 square kilometres (770 sq mi), in a water depth of 1,300 metres (4,300 ft).

Chevron says

It is one of the world’s largest natural gas projects and the largest single resource development in Australia’s history.
The Gorgon Project is developing the Gorgon and Jansz-Io gas fields, located within the Greater Gorgon area, between 130 and 220 kilometres off the northwest coast of Western Australia.
It includes the construction of a 15.6 million tonne per annum (MTPA) liquefied natural gas (LNG) plant on Barrow Island and a domestic gas plant with the capacity to supply 300 terajoules of gas per day to Western Australia.
Gorgon LNG will be off loaded via a 2.1 kilometre long loading jetty for transport to international markets. The domestic gas will be piped to the Western Australian mainland.
The Gorgon joint venture is investing approximately $2 billion in the design and construction of the world’s largest commercial-scale CO2 injection facility to reduce the project’s overall greenhouse gas emissions by between 3.4 and 4.1 million tonnes per year. The Australian Government has committed $60 million to the Gorgon Carbon Dioxide Injection Project as part of the Low Emissions Technology Demonstration Fund.

Gorgon project wharf
A view of construction on the 2.1-km (1.3-mile ) LNG wharf with 24 caissons in place. (Chevron Australia)

 

In May, Reuters reported that the $52 billion Gorgon liquefied natural gas (LNG) development was 60 per cent complete. At the time, Reuters said Chevron planned to start engineering and design work for an expansion by the end of the year.

Parts of the Gorgon project are in an environmentally sensitive area, Barrow Island, which has been a nature reserve in Australia since 1910.

Wikipedia says

Barrow Island’s ecology. The island is a Class A nature reserve, and home to theflatback turtle (classified as a vulnerable species) and numerous other animals not found on the Australian mainland. Other concerns are related to the adequacy of quarantine procedures on Barrow Island to protect against the introduction of non-endemic species, and risks associated with geological sequestration of CO2.It was reported in November 2011 that native animals on Barrow Island had been accidentally killed daily with a known total of 1550 since construction began.

Chevron says

The Gorgon Project is being undertaken in accordance with strict environmental standards to preserve the island’s ecology.
Central to the Gorgon Project’s commitment to protect the conservation values of Barrow Island is the Quarantine Management System (QMS), which directs
the Project’s quarantine operations. The QMS is the largest non-government quarantine initiative in the world and was considered to be “likely world’s best practice” by the Western Australian Environmental Protection Authority. The Project’s gas processing facilities are being constructed within a 300 hectare ground disturbance limit, which represents 1.3 percent of Barrow Island’s uncleared land area.

Gorgon Project Overview Chevron document pdf

Gorgon-Progress Update August 2, 2013 pdf

Chevron takes over Kitimat LNG operations from Apache, EOG and Encana

logoChevronApache has a new partner in the Kitimat LNG project, Chevron Canada Ltd and, in effect,  Chevron is taking over the project from Apache who has been unable to find customers for the liquified natural gas project in Asia.

A news release from Apache announced “a broad agreement with Chevron Canada Limited to build and operate the Kitimat LNG project.”

Chevron Canada and Apache Canada each will become a 50 per cent owner of the Kitimat LNG plant, the Pacific Trail Pipeline and 644,000 gross undeveloped acres in the Horn River and Liard basins. Chevron Canada will operate the LNG plant, which will be located on the northern British Columbia coast, and the pipeline.  Apache will continue to develop shale gas resources at the Liard and Horn River basins in north eastern BC.

Encana and EOG Resources — currently 30 percent non-operating partners in Kitimat LNG and Pacific Trail Pipeline — will sell their interests to Chevron and exit the venture. As part of the transaction with Chevron, Apache will increase its ownership of the plant and pipeline to 50 percent from 40 percent.

G. Steven Farris, Apache’s chairman and chief executive officer said in the company news release, “This agreement is a milestone for two principal reasons: Chevron is the premier LNG developer in the world today with longstanding relationships in key Asian markets, and the new structure will enable Apache to unlock the tremendous potential at Liard, one of the most prolific shale gas basins in North America.” “With experience developing LNG projects, marketing expertise and financial wherewithal, Chevron is the preferred coventurer to join Kitimat LNG,” Farris said. “Apache has a proven record in finding and developing shale gas resources in Canada and is the logical operator for the upstream elements of the joint venture.”

In its news release, Chevron quoted  vice chairman George Kirkland as saying:  “The Kitimat LNG development is an attractive opportunity that is aligned with existing strategies and will drive additional long-term production growth and shareholder returns.”

“This investment grows our global LNG portfolio and builds upon our LNG construction, operations and marketing capabilities. It is ideally situated to meet rapidly growing demand for reliable, secure, and cleaner-burning fuels in Asia, which are projected to approximately double from current levels by 2025.”

The  two-train (stage) Kitimat LNG Project is still working through the Front-End Engineering and Design (FEED) phase. Construction has continued at the Bish Cove site throughout the summer but has slowed down to the uncertainty over the future of the project and some environmental problems.

Current plans call for two liquefaction trains, each with expected capacity of 5 million tons of LNG per annum (about 750 million cubic feet of gas per day). Kitimat has received all significant environmental approvals and a 20-year export license from the Canadian federal government.

The 290-mile (463-km) Pacific Trail Pipeline is planned to provide a direct connection between the Spectra Energy Transmission pipeline system and the Kitimat LNG terminal.

While the Apache release says: “The project has strong support from many of the First Nations along the route,”  there is no support at this moment from the Wet’suwet’en, in the area from Burns Lake through Smithers to the mountains, because some houses are strongly opposed to the pipeline on their traditional territory.

In the Apache news release, Farris says: “”We want to thank and acknowledge EOG and Encana for their contribution to the development of the Kitimat project. We appreciate the hard work of many employees and contractors to advance the project to this stage and the strong support the plant and pipeline projects have received from local communities, provincial and federal officials and the Haisla and other First Nations.

“Construction of the plant and pipeline will have a significant economic impact, and the operational phase will provide opportunities for employment as well as royalties and tax revenues for the Federal, Provincial and local governments for many years,” he said. “Chevron and Apache will continue to develop this project in a safe and environmentally responsible manner.”

As the news releases point out Chevron is a major player in Australia’s LNG projects, considered by many to be Canada’s rival in finding market for natural gas in Asia. Chevron is the operator and led marketing efforts at Wheatstone, a two-train plant with capacity of 8.9 million tons of LNG a year that is expected to commence operations in 2016. Chevron also operates the Gorgon LNG project in Australia and LNG Angola.

Much of the media attention is also on the deal for the natural resources northeastern BC, with, Chevron Canada acquiring approximately 110,000 net acres in the established Horn River Basin from Encana, EOG and Apache, and approximately 212,000 net acres in the Liard Basin from Apache. Chevron Canada Limited and Apache will each hold a 50 percent interest and Apache will operate these two natural gas resource developments.

In its news release, Encana concentrates on the natural gas deal, quoting Randy Eresman, Encana’s President & CEO, “This investment by Chevron, a multinational LNG player, represents a key step in the development of LNG export from Western Canada. Our main goal since we first acquired an interest in Kitimat LNG almost two years ago was to help ensure the progression of this project towards its development. While we are no longer a direct participant in this project, we continue to support LNG export as vital to diversifying markets for North American natural gas.”

The company goes on to say that: “The sale of Encana’s interest in the proposed Kitimat LNG export facility is consistent with the company choosing to focus on its core business. In addition, this transaction reduces Encana’s future capital commitments. The proceeds from this transaction will help to strengthen the balance sheet and provide further financial flexibility to fund capital programs and develop key and emerging resource plays.”

The Financial Post points out that “the Chevron deal leaves most of the LNG projects in the hands of foreign companies, which have competing interests in LNG projects across the world.” That means that the Haisla Nation, with its partnership with the BC LNG project, is one of the few Canadian players left in the LNG scramble.

 

PetroChina in multi-billion dollar LNG buying spree in Canada and Australia

PetroChina went on a multi-billion dollar natural gas buying spree Thursday, Dec. 13, 2012, picking up shares in operations in both Canada and Australia.

In Canada, Encana, one of the partners in the Kitimat LNG project, signed a joint venture arrangement with Phoenix Duvernay Gas, a wholly owned subsidiary of PetroChina, to explore and develop Encana’s extensive undeveloped Duvernay naturgal gas holdings in west-central Alberta. According to an Encana news release, Phoenix will gain a non-controlling 49.9 per cent interest in Encana’s approximately 445,000 acres in the Duvernay play for total consideration of C$2.18 billion.

Hours earlier, PetroChina agreed to pay $1.63 billion for BHP Billiton’s 10 per cent share for an Australian LNG development, known as Browse, that like the KM LNG project in Kitimat had been delayed by the uncertainty in the LNG market. The other partners in the Browse are Woodside Petroleum, Chevron Corporation, Royal Dutch Shell and BP.

Encana says the PetroChina/Phoenix investment is significant for the Duvernay, which Encana describes as a “liquids rich play” with potential for natural gas, butane and oi development.

THE Encana release quotes Randy Eresman, Encana President & CEO. “A transaction of this magnitude keeps us on track to create a more diversified commodity portfolio and maintain our balance sheet strength. It is a strong endorsement of Encana’s position as a reliable long term partner.”

The release also quotes Zhiming Li, Phoenix’s President & Chief Executive Officer, as saying The Duvernay project will combine Phoenix’s integrated upstream and downstream capabilities and financial resources with Encana’s proven resource play hub expertise. This joint venture will build a foundation for the successful development of the Duvernay play and help to diversify our business portfolio. Encana is our ideal long term partner for the development of our future natural gas business.”

The company goes on to say:

Having entered into several joint venture transactions in 2012, these types of arrangements have become an important part of Encana’s business model. Joint ventures help the Company to achieve a highly efficient deployment of capital throughout its vast exploration and development asset base as Encana transitions to a more diversified portfolio of commodities.

Significantly, the Encana release, while talking about LNG development and export, it makes no mention of the Kitimat KM LNG project, instead looking south to Louisiana.

These relationships have the potential to increase natural gas demand as a number of Encana’s partners are actively exploring opportunities to export liquefied natural gas (LNG), while some are industrial consumers looking to transition to natural gas as fuel for their operations. An example is a recent agreement with Nucor Energy Holdings (Nucor) which is designed to support Nucor’s increased use of natural gas for its facilities, such as its direct reduced iron facility currently under construction in Convent, Louisiana.

Reports say PetroChina paid a premium price for the Australian Browse natural gas project, anticipating that if it comes on stream, as planned in 2018, the current glut in the natural gas market will have eased and once again LNG will be a seller’s market.

The Browse project at James Price Point on the north-western coast of Australia is facing similar opposition to projects in British Columbia, including some of the site’s aboriginal landowners and from some environmental groups.

The opposition to the Australian Browse project, according to reports,  reflects a split in the local aboriginal community.  While Wikipedia says that 60 per cent of the local aboriginal people voted in favour of the project, there is also fierce opposition, according to the Australian Mining Journal, which reported in 2009:

[A] number of Traditional Owners, as part of the Save The Kimberley organisation, issued a statement which said there is not unanimous support for this site.

In a signed declaration, Traditional Owners have affirmed that they do not support the imposition of an industrial site on their country and will legally challenge the authenticity of any agreements entered into by the Kimberley Land Council supporting the proposal.

The statement said that “…many local Indigenous people are disgusted by the apparent abandonment of the established process put in place by the previous State government. Concerns include the threats made earlier in the year by the Premier regarding compulsory acquisition of land and the pre-empting of the Joint State and Commonwealth environmental and cultural assessment process via announcements by Woodside and the Premier.”

 

A company called Woodside Petroleum, which leads the LNG venture wants to build the “greenfield” onshore terminal but is facing competition from Shell’s proposed offshore floating LNG “given the land access challenges and soaring development costs in Australia,” even though Shell also has a stake in the Browse project.

The Encana PetroChina deal comes a week after the Conservative government approved the takeover of Nexen by the China National Offshore Oil Corporation (CNOOC) and the take over by the Malaysian state oil company Petronas of Progress Energy. Petronas and Progress Energy have announced plans for an LNG export facilty at Lelu Island, opposite Port Edward, near Prince
Encana spokesman Jay Averill told the Globe and Mail the Duvernay deal will not need approval from Investment Canada because PetroChina will only gain a 49.9-per-cent, non-controlling share of the specific Encana assets.

In Australia, in October, CNOOC bought a stake in Queensland Curtis LNG from British energy company BG. BG, in partnership with Spectra Energy has also announced plans for an LNG facility at Prince Rupert 

Related links

Petroleum Economist
PetroChina pays premium for Browse stake

Calgary Herald

PetroChina inks $2.18B deal with Encana Joint venture to invest $4 billion to develop Alberta Duvernay

 

 

Rio Tinto worried about LNG “shortage” in Australia

On the opposite site of the world, Kitimat, site of the Rio Tinto Alcan aluminum smelter, is poised to become a major export port for Canadian liquefied natural gas.

Apache expects first LNG cargo from Kitimat in 2016

Map of Apache Corp LNG projects in the Pacific Region
A map of Apache Corp's liquified natural gas projects, including Ktimat, as presented to the UBS conference on May 22, 2012 (Apache)

Apache said Tuesday, May 22, 2012, that it expects the first LNG cargo leave the Kitimat terminal for Asia sometime in 2016, with possible further expansion in the future.

Patrick Cassidy, director of Apache’s Investor relations division, was making a presentation to the UBS Global Oil and Gas Conference in Houston, Texas, on the company’s future plans.

One slide in the Power Point presentation summed up Apache’s Pacific strategy, both at Kitimat and its chief rival, the Wheatstone project in Western Australia.

Apache said the final investment decision for the first train or phase the Kitimat LNG is still expected later this year. Previous reports have indicated the decision will likely come in the fourth quarter as Apache and its partners line up customers in Asia.

Originally the KM LNG partners said the project would start up in 2015, but delays, including the unusually harsh winter in Kitimat, which slowed construction at the Bish Cove site,  and the search for customers for the natural gas, has pushed the date back to 2016.

Apache  Corp. owns 40 per cent the KM LNG partnership,  Canada’sEncana Corp. and EOG Resources each  own 30 per cent each.

Two other projects are planned for Kitimat, the smaller BC LNG co-owned by Houston-based investors and the Haisla Nation and a larger project announced last week by Royal Dutch Shell.

LINK: Apache presentation to UBS Conference

 

Alberta Oil magazine describes Kitimat LNG projects as high stakes poker

It looks like the Chinese curse (and journalist’s blessing) “May you live in interesting times,” has come to Kitimat, especially when it comes to selling LNG to Asia.

In the past months the world liquified natural gas market has become more volatile with increased competition across the globe and, in some cases, political factors adding to the molecule mix.

In the past few days, Alberta Oil magazine has published a series of articles on the Kitimat LNG projects, describing the projects as a high stakes poker game.

The point is that the potential Asian buyers for BC (and US) liquified natural gas want a secure supply and they’re not sure what is going on on this side of the Pacific.

That’s apparently why the first project, KM LNG, has put off the final go ahead project from the first quarter of 2012, as originally expected, to the now likely the fourth quarter of 2012.

That has left a lot of uncertainty in town, despite assurances from two of the KM LNG partners, Apache Corporation and EOG Resources that they are optimistic that there will be a deal with Asian gas buyers, even if it means Asian equity in the KM LNG project.

That uncertainty in Kitimat has led to widespread rumours, none substantiated, that the three proposed projects, by KM LNG, by the Houston-Haisla BC LNG partnership and Shell, may be consolidated in one way or another.

At Kitimat council on Monday, April 2, Mayor Joanne Monaghan said “There has been a rumour around recently that Apache is stopping their working for a year and I talked to the CEO, Tim Wall, yesterday and he assured me that that was not true.”

Work is continuing on the KM LNG site at Bish Cove.

This morning, April 5, 2012, Alberta Oil reported that EOG Resources boss still bullish on Kitimat LNG, quoting a company called Bernstein Research that met with EOG’s top executive, CEO Mark Papa, who told Bernstein that EOG considers its 30 per cent holding in KM LNG as a “core holding.”

In a Thursday research note, Bernstein’s Bob Brackett says EOG is willing to sell some of its stake in the Kitimat project to a buyer (likely of the Asian persuasion) looking for equity in the upstream portion of project. “EOG expects to dilute a portion of its stake for that purpose,” Brackett writes.

A day earlier, Alberta Oil reported in Global LNG players jockey for space on a crowded field noting that Australia’s LNG megaprojects are facing competition from North America and cost inflation as the number of projects increase. At the same, US LNG projects are trapped in the current mire of US politics, with many politicians wary of the energy-starved US exporting natural gas.

In Apache Canada makes global push amid fierce competition, the article that uses the poker analogy,  the magazine quotes Asish Mohanty, senior research analyst, global LNG, with Wood Mackenzie

Kitimat is due to start pumping out five million tonnes of LNG by 2015, widely viewed as a market “sweet spot” because it beats a number of major Australian projects – among them Shell’s massive Prelude endeavor – into production. “It’s a bit of a race,” Mohanty at Wood Mackenzie says. “The general impression in the industry is that before these Australasian projects start up it’s going to be a sellers’ market.”

Mohanty also looks at the problem of cost inflation and limited resources, a problem Kitimat already faces with not only the three proposed LNG projects but RTA’s Kitimat Modernization Project.

Companies that specialize in engineering, procurement and construction of liquefaction facilities number fewer than 10 internationally, Mohanty says. He expects many of them will be kept busy by construction of several LNG projects underway in northwest Australia, including ongoing work at the massive Gorgon plant at Barrow Island. The Chevron-led venture is due to begin pumping out 15 million tonnes of LNG annually by 2014-15. “All of these are massive projects,” the analyst says. “What that means is order books are pretty full. There is a scarcity of resources in places like Australia right now.”

The shortfall could potentially squeeze Canadian LNG forays. “The fact that most of the B.C. facilities are going to be ‘green-field’ will not make it easy for them to meet a timeline compared to a lot of others.”

 

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