EOG | Northwest Coast Energy News

Apache considering North American pricing for Kitimat LNG executives tell Miami conference

Apache is considering selling liquified natural gas shipped to Asia from Kitimat at North American prices, a industry-watching news site reports from an energy conference in Miami.

Argus Media says that Apache and its partners in KM LNG, EOG and Encana are still finding little interest in the original idea of selling the LNG at the Asian base price, called Japan Cleared Customs price, which is a percentage of the price of oil. The idea at that time was that profit would come from the difference between North American market price and the higher Asian price.

That was undercut when another group, Cheniere Energy, decided to sell natural gas to Asia from its Sabine Pass export terminal in Louisiana based on the “Henry Hub” North American market price for natural gas, plus a 15 per cent surcharge and a reservation fee.

Argus says Encana’s president for US operations Jeff Wojahn told investors at a Bank of America Merrill Lynch Global Energy Conference in Miami that the Kitimat developers are now considering “options typical for the Gulf coast export projects.”

Argus also quotes Apache manager of investor relations Castlen Kennedy as saying: ““Kitimat is progressing and we will announce a final investment decision (FID) soon. The local government is very supportive of us.”

Argus quotes Encana’s Wojahn as saying the FIB will come in the first quarter of 2013, using their own natural gas supplies. “All three of the partners have assets in the Horn River so it’s a natural area of development for the play. And the Horn River basin is a world-class shale gas basin, it’s waiting for an LNG pump, so it’s really positioned well.”

Apache delays Kitimat decision again, Wall Street Journal reports

The Wall Street Journal (subscription required) is reporting that Apache has once again delayed its decision whether or not to go ahead with the Kitimat LNG project.

So far there is no news release on the Apache site and no other media has matched the Wall Street Journal story.

Analysts are blaming the decision on the recent move by some players in the energy industry to sell natural gas to Asia at low North American prices, rather than the world price, which is determined as a percentage of the price of oil. A move by Asian countries to buy LNG at the lower North American market price would undercut the profitability of any LNG export project through Kitimat.

TransCanada to build Shell’s “Coastal Gaslink” natural gas pipeline to Kitimat

Shell Canada and its Asian partners have chosen TransCanada Corporation to design, build, own and operate the proposed natural gas pipline to Kitimat, now called the Coastal GasLink project.

The estimated $4-billion pipeline will transport natural gas from the Montney gas-producing region near Dawson Creek, in northeastern British Columbia to the proposed natural gas export facility at Kitimat, BC.

The LNG Canada project is a joint venture led by Shell, with partners Korea Gas Corporation, Mitsubishi Corporation and PetroChina Company Limited.

A news release from TransCanada says “Shell and TransCanada are working toward the execution of definitive agreements on the Coastal GasLink project.”

In the release, Russ Girling, TransCanada president and CEO says:

Our team has the expertise to design, build and safely operate pipeline systems. We look forward to having open and meaningful discussions with Aboriginal communities and key stakeholder groups, including local residents, elected officials and the Government of British Columbia, where we will listen to feedback, build on the positive and seek to address any potential concerns. Coastal GasLink will add value to British Columbians, particularly Aboriginals and communities along the conceptual route, by creating real jobs, making direct investments in communities during construction and providing economic value for years to come.

TransCanada says the company has approximately 24,000 kilometres of pipelines in operation in western Canada including 240 kilometres of pipelines in service in northeast BC. Another 125 kilometres of proposed additions either already having received regulatory approval or currently undergoing regulatory review. These pipelines form an integral and growing part of TransCanada’s NOVA Gas Transmission Ltd. (NGTL) System, which brings natural gas from Alberta to British Columbia to a hub near Vanderhoof.

Girling said in the release:

TransCanada is a leading energy infrastructure company in North America, with a 60-year history of safe, efficient and reliable operation of our assets and a respect for the communities and environments where we operate. We appreciate the confidence that Shell and its partners have placed in us to build, own and operate this natural gas pipeline in British Columbia. We will work collaboratively with them, Aboriginals and other stakeholders as we launch into the initial phases of consultation and regulatory review.

Project parameters

In it’s release TransCanada describes the potential Coastal GasLink pipeline project this way:

Receipt point: Near Dawson Creek, BC
Delivery point: Proposed LNG Canada facility near Kitimat, BC
Product: Natural gas from BC’s abundant Montney, Horn River and Cordova basins and elsewhere from the Western Canada Sedimentary Basin
Length of route: Approximately 700 kilometres of large diameter pipe
Initial pipeline capacity: In excess of 1.7 billion cubic feet of gas per day
Anticipated jobs: Estimated 2000-2500 direct construction jobs over a 2- during construction 3 year construction period
Estimated cost: Detailed cost information will be developed following completion of project scoping and planning. The current estimate is approximately $4 billion
Regulatory process: Applications for required regulatory approvals are expected to be made through applicable BC provincial and Canadian federal processes
Estimated in-service date: Toward the end of the decade, subject to regulatory and corporate approvals

Pipeline route

TransCanada says: “The final pipeline route will take into consideration Aboriginal and stakeholder input, the environment, archaeological and cultural values, land use compatibility, safety, constructability and economics.:

The Pacific Trails Pipeline would go cross country to Kitimat. (PTP)

At this point there are two possible routes for the pipeline west of Vanderhoof. One route would be to follow the existing Pacific Northern Gas route that roughly parallels Highway 16. The second possibility is a cross-country route, which may lead to controversy. The Pacific Trails Pipeline, which would feed the KM LNG partners (Apache, Encana and EOG) goes across the mountains from Smithers. While the PTP project has the approval of most First Nations in the regions, Apache and PTP are still in negotiations with some Wet’suwet’en houses over portions where the pipeline would cross the traditional territory of the houses. The much more controversial Enbridge Northern Gateway pipeline follows a similar cross-country route and faces much stiffer opposition than the Pacific Trails Pipeline, due to the content of that pipeline, mainly diluted bitumen and because, critics say, Pacific Trails managed to secure the most geologically stable cross country route earlier in this decade when the pipeline was originally planned to import, not export, natural gas.

TransCanada says the Coast Gaslink pipeline will also have an interconnection with the existing Nova Gas (NGTL System and the liquid NIT) trading hub operated by TransCanada. The company says:

A proposed contractual extension of TransCanada’s NGTL System using capacity on the Coastal GasLink pipeline, to a point near the community of Vanderhoof, BC, will allow NGTL to offer delivery service to its shippers interested in gas transmission service to interconnecting natural gas pipelines serving the West Coast. NGTL expects to elicit interest in and commitments for such service through an open season process in late 2012.

That means that the Asian customers will not be just dependent on natural gas from northeast British Columbia. Instead the “molecules” of natural gas from Alberta will join the stream heading to Kitimat. “Open season” in the energy industry is an auction where potential customers or transporters bid for use the pipeline.

In the release Girling says:

The potential Coastal GasLink pipeline project will allow British Columbians, and all Canadians, to benefit from the responsible development of valuable natural gas resources and will provide access to new markets for that gas. The project will also create substantial employment opportunities for local, skilled labourers and businesses as part of our construction team,” concluded Girling. “We know the value and benefits that strong relationships in British Columbia can bring to this project and we look forward to deepening those ties as our extensive pipeline network grows to meet market and customer needs.

TransCanada Corp. is no stranger to controversy, the company is the main proponent of the Keystone XL pipeline from Alberta to the US Gulf Coast. Portions of that pipeline were put on hold by President Barack Obama pending further review and Keystone has become a hot issue in the current American presidential election.

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

Apache posts job for Kitimat LNG construction manager

The Apache Corporation website has a posting for a construction manager for the Kitimat LNG project.

The posting says the job will initially based in Houston, Texas, with the manager coming to Kitimat sometime in the future.

The posting calls for the manager to provide an overall construction plan, co-ordinate and control the construction project from inception to completion aimed at meeting the Project’s requirements in order to produce a functionally and financially viable safe project that will be completed on time within the authorized budget and to the required quality standards.

Some of the job requirements give hints of the project to come:

Previous LNG Project experience including construction
Experience of modular and stick built construction
Working knowledge of safety system and management to maintain world class safety performance
Working knowledge environment system and management to maintain world class environmental performance
Knowledge of logistics in remote sites
Knowledge of heavy haul and lift works
Proven ability with advanced project management principles
Proven ability with people management
Experience in Canadian labor law and have deep experience working with unionized labor
Experience in working through cold weather climates

The site also has a posting for a Contracts and Procurement Manager.

Both postings expire on May 2, 2012.

Although Apache and its partners, Encana and EOG Resources now say that they have postponed the final go-ahead decision on the KM LNG project until the fourth quarter of 2012, as negotiations continue with Asian natural gas customers, the postings are indication that the project is progressing.

Apache waiting for sales deals before final green light for Kitimat LNG

There was no announcement of a green light for the Kitimat LNG project in today’s conference call by Apache Corp. with market anaylsts and journalists.

Apache CEO G. Steven Farris told the call that negotiations with overseas (likely Asian) buyers are at an advanced stage.

“Frankly we’re somewhat past the polite introductions and that kind of stuff with respect to buyers,” he said. “We’re now in the throes of actual negotiations.”

While Apache has yet to commit to building the $5-billion plant at Bish Cove, south of Kitimat, construction work has continued all winter at the site.

Market analysts still expect Apache and its partners in KMLNG, Encana and EOG, to give the go ahead sometime in the first quarter of 2012.

In a news release issued before the call, Farris, said “Apache’s balanced portfolio and returns focus fueled an outstanding year in 2011, setting records for production, earnings, revenues, proved reserves and cash flow.”
The release went on to say:

In the fourth quarter, earnings totaled $1.2 billion or $2.98 per diluted share, up from $670 million or $1.77 per share in the prior-year period. Production totaled 759,000 boe per day, up 4 percent from the year-earlier quarter, and cash from operations before changes in operating assets and liabilities* totaled $2.7 billion, up from $2 billion in the year-earlier period. Apache reported fourth-quarter adjusted earnings* of $1.2 billion or $2.94 per share.

Apache’s oil and natural gas liquids production was 50 percent of total volume in 2011 but contributed nearly 80 percent of revenues because of the wide gap between global crude oil and North American natural gas prices. Apache’s results also benefited from the price differentials between oil prices in basins linked to the West Texas Intermediate benchmark and higher prices for oil produced in the Gulf of Mexico, Egypt, Australia and the North Sea that represents approximately 76 percent of its crude production.

Apache ended 2011 with proved reserves of 3 billion boe, up 1 percent from 2010. Apache’s 2011 production was 273 million boe (MMboe). The company added 422 MMboe, or 155 percent of production, through extensions, discoveries and acquisitions. Divestitures and revisions totaled 113 MMboe. Apache spent $9.1 billion on exploration, development and acquisitions capital, excluding asset retirement obligations and capitalized interest.*

During 2011, with the continued downward pressure on North American natural gas prices, Apache transitioned its North American drilling program to oily and liquids-rich targets in the Permian and Anadarko basins, the Gulf of Mexico and Canada.

Apache, Shell mark LNG progress at District of Kitimat council

Eurocan site at Kitimat — Apache will build the work camp for the Kitimat LNG project at the old Eurocan site. (Robin Rowland/Northwest Coast Energy News)

As the financial and energy markets speculated Monday, Feb. 6, 2012 that Apache Corporation would make an official announcement during its quarterly webcast next week that the Kitimat LNG project will go ahead, a company report to the District of Kitimat Council, released this evening, is a strong indication that the project is a go.

Mayor Joanne Monaghan told the council that Apache has reported to the district that work at the site for the LNG terminal at Bish Cove has been “progressing well” through the winter and was now “progressing toward the construction phase.” Work so far at Bish Cove includes site preparation, building an access road and a temporary dock for the crew boat.

Monaghan said that Apache will begin work on a work camp for the Kitimat LNG project at the old Eurocan site “shortly.”

Monaghan also that the province of British Columbia told her that it estimates that there will be 800 permanent, long term jobs in British Columbia over the life of the projects 9,000 construction jobs over the 10 to 15 year multi-train (phase) plans from the KM LNG, BC LNG and Shell projects. Premier Christy Clark estimated that LNG projects will bring the province $1 billion in revenue. (For Premier Christy Clark’s statement see Vancouver Province Liberals shift strategy to LNG)

The mayor said that Apache plans to work closely with local contractors in general contracting, supplies, concrete supply, logging and land clearing and other supporting jobs.

Apache will be in competition with Rio Tinto Alcan for the local workforce and contractors. Last Thursday, RTA, which is working on a $3 billion modernization project at the Kitimat aluminum smelter, stole a march on Apache, by holding a day long conference for contractors and suppliers across British Columbia, including a tour of the plant, so they could bid on work during that project.

At the same meeting, district council was told that Shell has begun the official transition in its takeover the old Methanex site, which it recently purchased from Cenovus by applying for a licence of occupation at the site, which included asking for permission under district of bylaws to put a Shell Canada sign at the entrance to the site, replacing the current Methanex sign. The old Methanex site will be the base for Shell’s plans for its LNG project.

(This story has been updated and corrected after checking Christy Clark’s statement on LNG which at the council meeting was attributed, in part, to Apache)

Egyptian LNG terminal is model for Kitimat project: Encana

Energy

The rugged, rocky, windswept shoreline of Douglas Channel and Kitimat harbour are very different from the Nile Delta, a gigantic flat estuary, so much bigger than the Kildala or Giltoyees, warm, on the Mediterranean, a cradle of human civilization.

KBR, the main contractor for the Kitimat LNG project front end engineering, is basing its planning for the Kitimat terminal on a project it built in Egypt, Dave Thorn, Encana Vice President of Canadian Marketing told an investor conference call on Tuesday, Oct, 4, 2011.

Thorn told the call that plans for the Kitimat terminal are based on the “Seagas” terminal in Damietta, (also known as Dumyat) Egypt, 60 kilometres west of Port Said on the Nile Delta.

The terminal is used to export liquified natural gas from fields in Egypt to customers in Spain.

In 2000, what was then Haliburton KBR was given the contract for front-end engineering and design (FEED) through a joint venture in Egypt, Damietta LNG Construction Llc. The joint venture later got the contract to build the LNG terminal complex.

The terminal is formally called SEGAS, an acronym for the Spanish Egyptian Gas Company.

According to the Wikipedia entry, the output capacity of the plant is 5 million tons of LNG per year. The complex includes the LNG liquefaction train, inlet gas reception area (metering and analysis), natural gas liquids removal and fractionation area, a docking jetty for tanker loading and transportation, LNG refrigerated storage and export facilities (tanks and booms), utilities and supporting infrastructure (power, water and roads), gas metering and treatment facilities (acid gas removal and dehydration), refrigerant condensate and LNG storage (two 150,000 m³ PC LNG storage tanks). The total investment costs of the LNG complex were around US$1.3 billion.

Unlike Kitimat, where the natural gas will come from the Horn River Basin, the natural gas in Egypt is close to the terminal, in large fields under the Nile Delta. The plant is supplied by natural gas from the West Delta Deep Marine Concession Area about 140 kilometres (90 mi) from the LNG complex.

About 3.2 million tons of LNG is sold to Unión Fenosa Gas which has a receiving terminal at Sagunto, Spain. The rest is sold on the open market by the Egyptian Natural Gas Holding Company.

View Larger Map

In ancient history the port was known as Tarniat, It was later overshadowed by the growth of nearby Alexandria. From seventh to the twelfth centuries, under Muslim caliphs, Diamietta was both an important naval base and an import point for goods from as far away as China. Today, in addition to the LNG terminal, it has a major container port.

KBR, formerly Kellogg Brown and Root has been involved in construction, mostly in the energy industry, for more than a century. For many years the company was part of the Haliburton empire, but was spun off in 2007 and is now headquartered in Houston, Texas.
The company was recently involved in a number of scandals and lawsuits, mainly tied to its role as a prime contractor for the US military in Iraq.

China biggest customer for Kitimat LNG: Encana

Energy

China is probably the largest long
term customer for liquified natural gas that will be shipped through
the port of Kitimat, executives from Encana, one of the three
partners in the KM LNG project said in an investor conference call
Tuesday, Oct. 4, 2011.

India could also be big customer for
LNG shipped from the Horn River in northeastern BC through Kitimat,
Encana said.

Although Japan will be increasing its
purchases of liquified natural gas in the coming years, the immediate
situation with Japan is less certain. While the March 2011
earthquake and tsunami knocked out the Fukishima nuclear plant and
prompted Japan to scale back other nuclear plants and increase LNG
purchases, Encana says the country has still not come up with any
definite policies

Dave Thorn, Encana vice president of
Canadian marketing, who also oversees the Encana’s role in the
Kitimat project, said that China’s overseas imports now account for
eight per cent of its purchases of natural gas. That is expected to
rise to 10 per cent in the next few years. Thorn said there is a big
gap between current LNG contracts and what Encana says is long term
demand from China. He speculated that there could be increasing
demand from China during the 20 years or so the Kitimat LNG project
is exporting LNG. ( As well as projected population and
manufacturing growth, even in a weak economy, China is now heavily
dependent on coal, but is also investing in “green” projects
which means there could eventually be a switch from coal to natural
gas).

The fact that one giant Chinese
customer, PetroChina, pulled out of a deal with Encana earlier this
year doesn’t seem to be a setback. Thorn said that there is strong
interest from at least six unnamed major customers for LNG to be
shipped through Kitimat. “The expression of interest ranged from
simply LNG supply to existing or planned regasification facilities
through to participation all along the value chain from shipping,
equity interest in the Kitimat facility as well as upstream
participation,” Thorn said.

The Kitimat project is currently
undergoing a front end engineering evaluation by KBR. There is a
similar study under way on the Pacific Trails Pipeline that could
carry the natural gas to the terminal. Both studies are expected to
be complete by the end of 2011. Encana expects the National Energy
Board to approve KM LNG’s application for an export licence in
December. Encana and its partners, Apache Corporation and EOG
Resources, expect to make a final investment decision in January
2012.

If all goes as planned the Kitimat
terminal would be shipping 700 million cubic feet of natural gas a
day to Asia when the terminal begins operations in 2015. Encana and
its partners are already optimistic, talking about plans to double
capacity to to 1.5 billion cubic feet a day in the coming years.

What’s driving much of this is the
high price of natural gas in Asia, which is pegged to the price of
oil, compared to North America where natural gas prices are
determined by the marketplace. With shale gas increasingly abundant
the price on this continent has been dropping and that has affected
the bottom lines and stock prices of Encana and other natural gas
producers. Encana is also bolstering its bottom line by tapping
“liquid-rich reserves” (oil and natural gas) that may be found
in the areas where they are currently pumping natural gas.

The Horn River Basin area in
northeastern BC was a surprise discovery by an Encana crew in 2003,
said Kevin Smith, Encana Vice President of New Ventures. The company
then began to quietly acquire assets, either by buying land or by
leasing in the region. “The Horn River resource base is enormous,
highly accessible and will certainly play a large role in North
American and even global gas supply in the years to come,” Smith
told the conference call.

During the June NEB hearings in
Kitimat, witnesses described the Horn River formation as special but
were reluctant to go into detail. Smith said the shale in the Horn River
is “all the attributes for high productivity,” including large
reserves and “overpressured system” which helps extraction. “It
keeps getting better and better.”

As well as going west to Asia, natural
gas from Encana’s Horn River assets will go east to Alberta to fuel
bitumen sands production which Smith said will require an additional
1.3 billion cubic feet a day by 2020, This is likely to be
controversial with the environmental groups and bitumen sands
opponents who have always taken issue with the idea that clean
natural gas would be burned to help get crude of the dirtier bitumen
sands.

Encana says it has developed a “hub”
system in the Horn River where a central well site can use horizontal
drilling to tap areas where once many wells would have been needed.

“Fracking” or fracturing shale gas
requires large amounts of water. As was pointed out in the June
hearings in Kitimat, Encana has tapped an ancient, underground alt
water reservoir called Debolt which allows it to reuse the water from
the formation and minimizing use of local fresh water.

British Columbia is helping the shale
gas industry with favourable royalties in the northeast including
royalty credits for building infrastructure in the region.

Encana, however, is under pressure
from inflation. It faces rising costs from steel, labour and all
kinds of services. While it supplies the bitumen sands with natural
gas, it is also in competition with the Fort MacMurray area for
supplies and labour.

Encana conference call to update Kitimat, Horn River developments

Energy

Encana, one of the three partners in the KM LNG (Kitimat LNG project) will hold a conference call for executives and a simultaneous webcast, Tuesday, Oct. 4 at 9 a.m. MT, 8 a.m. PT to update on its Horn River shale gas development and also Encana’s view of the Kitimat project. Encana’s partners are Apache Corp. and EOG.

A news release from Encana says

Encana Corporation (TSX, NYSE: ECA) will hold a conference call and
webcast for the investment community highlighting its Horn River
resource play on Tuesday, October 4, 2011 at 9:00 a.m. MT (11:00 a.m.
ET). The presentation will be hosted by members of Encana’s senior
management team and will include information detailing the company’s
strategy, resource play hub development model and operations in the Horn
River play, as well information on the Kitimat LNG project.
A live webcast of the conference call will also be available via Encana’s website, www.encana.com, under Investors/Presentations & events, or directly at the following

URL:

Webcast link:
http://w.on24.com/r.htm?e=361512&s=1&k=56F984CEC6C224CE4C59E3D7FE8C9CB8

The Calgary Herald is speculating that Encana may be either selling some assets or announce that it has found development partners. For those in the know in the Alberta oil patch the sudden announcement has people in Calgary wondering what the announcement will be.

The Herald also quotes one analyst as wondering what is holding up the Kitimat LNG project.

Phil Skolnick of Canaccord Genuity said he’s hoping for “some clarity” on where the company is at in the joint venture process, as well as what’s preventing Kitimat LNG from moving full-steam ahead.

“What are the essential bottlenecks?” Skolnick wondered

Editor’s note:
With all the activity around town it’s certainly a surprise to hear the Kitimat project isn’t going “full steam ahead.” As far as Northwest Energy News is concerned if there were bottlenecks on the project at this end, the ever vigilant Kitimat rumour mill which has been churning another possible LNG project for more than a week now, would certainly have heard about it. Perhaps it is simply all the unusually stormy weather we’ve been having all summer has slowed things down.