Tag: natural gas

KM LNG hearings wrap with concerns over conditions

Energy

The National Energy Board hearings into the application from KM LNG for an export licence to ship liquified natural gas to Asia through Kitimat wrapped up in Calgary Thursday, with the main participants expressing concerns over conditions on the licence proposed by the NEB.

The board panel reserved its decision. No date was given for a possible decision. Unlike the earlier hearings  in June which were held in Kitimat, the Phase 2 hearings were held in Calgary and only available to residents of Kitimat by audio webcast

On July 6 and July 8, the board panel issued a list of 12 proposed conditions on the export licence.  (The concerns of the Kitimat Rod and Gun were not among the 12. See story here)

Among the conditions the NEB wants to impose are a detailed reporting requirement that would include the name of  the LNG tankers loading the natural gas, the quantity of gas and the revenue in Canadian dollars as well as the sales contracts KM LNG may sign with its Asian customers.

Those proposed conditions brought strenuous objections from the proponents of the project, voiced by lead counsel Gordon Nettleton and echoed by other lawyers, saying that the conditions could actually scuttle the entire project. That is because Asian buyers, whether private companies or sovereign (government) agencies, place much stricter emphasis on confidentiality of the agreements than in North America. The lawyers warned that the potential Asian customers could walk away from any deals in favour of less regulated vendors in other countries if the NEB insists on full disclosure, especially if the details could be made public either through the Access to Information Act or by NEB procedures and policies.

Nettleton and the other lawyers recommended a compromise where  KM LNG would disclose to the board the total exports each quarter, the aggregate value in Canadian dollars for each quarter,  the “heating value” of the aggregate and export totals by destination country.

The lawyers also objected strenuously to conditions proposed to cover environmental and social effects of building the Kitimat LNG terminal  and the associated Pacific Trails pipeline.

These include filing a Marine Mammal Protection Plan and answer how KM LNG  would react to any potential effects on marine mammals of the ships passing up and down Douglas Channel and the BC Coast. 

One of the lawyers for the energy companies wondered why the board panel was interested in the shipping issues.”That’s what shps do, they use
existing shipping lanes,” he said. “Ships do not need permisson [now] to go up
Douglas Channel.  [This issue] has been examined bythe appropraite
authorites arnd should be accepted by the board without conditions.”

Other conditions wanted reports on potential effects and probable mitigation efforts for marine mammals, birds, fish and fish habitat, “listed fish and wildlife species,” vessel wake, ballast and bilge water management, fisheries and “First Nations traditional use activities.”

The lawyers mainly objected on legal grounds, since under the hearings for an export licence, (unlike a facility hearing like the Enbridge Joint Review panel)  the board is not supposed to be concerned about environmental issues.  There were also long, legal arguments whether the pipelines from the shale gas fields to Kitimat where “directly connected” under the legal definition used in the Canadian energy industry. The lawyers also argued that the environmental and social issues addressed in the NEB’s proposed conditions would be covered in parallel investigations by other government agencies, such as a Transport Canada review of the shipping plans for Douglas Channel,

At the same time, all parties pledged that they would be “good corporate citizens” in their undertakings to work with the Haisla First Nation and other residents of the Kitimat region and to respect the local environment.

NEB proposed conditions 1 – 9

A33_-_Letter_to_All_Parties_Phase_II_Update_and_Possible_Licence_Conditions_-_A2A2V5.pdf

NEB proposed conditions 10 – 12

A34_-_Letter_-_Possible_Export_Licence_Conditions-Environment_and_Socio-Economic_Matters_-_A2A3T7_.pdf

KM LNG to buy Eurocan site

460-eurocanplant1w.jpgThe closed Eurocan plant in Kitimat, the day it was sold, July 14, 2011.  (Robin Rowland/Northwest Coast Energy News)

KM LNG Operating General Partnership
(Kitimat LNG) has announced that it has entered into an agreement to
purchase the former Eurocan linerboard mill site in Kitimat from West
Fraser Timber Co Ltd.

KM LNG said in a news release that the sale is subject to obtaining government approvals for the
transfer of related permits and licenses. Financial details of the
transaction have not been disclosed:

“The Kitimat LNG partners are very pleased we have reached this
agreement with West Fraser,” said KM LNG President Janine McArdle. “The
purchase of the site marks another significant local investment in
Kitimat and is a great step forward for the Kitimat LNG project.”

The site provides the Kitimat LNG project with a suitable area for a
work camp, lay-down and storage area as the project continues to move
forward with clearing and grading at the LNG export facility site.

The Kitimat LNG export facility is planned to be built on First Nations
land under a unique partnership with the Haisla First Nation.

Kitimat LNG partners Apache Canada Ltd., EOG Resources Canada Inc. and
Encana Corporation are currently in marketing discussions with
potential Asia-Pacific LNG customers.

The partners expect to have firm sales commitments in place by the time
a final investment decision is made.  Initial shipments of LNG are
expected to begin by the end of 2015.

West Fraser closed the Eurocan mill at the end of January 2010, throwing about 500 people in Kitimat out of work. Most of the machinery in the plant has been sold and dismantling of equipment and demolition of some parts of the mill are wrapping up.

KM LNG plans to use the site as a work camp and storage area for the construction of the LNG terminal at Bish Cove on Douglas Channel south of the shuttered mill.

B.C. first nation challenges oil and gas tenures sale: Globe and Mail

Globe and Mail


The sale of oil and gas tenures in northeast British Columbia by the provincial government for $260-million is being challenged in court by a native band.
The Dene Tha, a first nation that straddles the B.C.-Alberta-Northwest Territories boundaries, has filed a petition with the Supreme Court of B.C. The band alleges that the B.C. Ministry of Energy and Mines failed to adequately consult with the first nation, or to undertake studies on the environmental impact of gas drilling, before selling the leases in the Cordova Basin, near Fort Nelson. Shale-gas deposits in the Cordova Basin are thought to be extensive.

Encana, PetroChina shale gas deal collapses

A  $5.4 billion deal between Canadian exploration giant Encana, one of the partners in the KM LNG project, and PetroChina collapsed Tuesday, sending shocks through both the financial markets and the energy exploration and production sector.

International analysts are already saying that China may be pulling back in its strategy to get a foothold in key resource areas and perhaps the Canadian energy sector was too optimistic.  Perhaps.

If the analysts are correct,  that means that some of the grand plans to export natural gas, at least to China, may still go ahead, but won’t immediately  turn British Columbia back into the fabled Golden  Mountain that brought the labourers from China more than a century ago to build the railways. Nor does this mean a major threat, at this point, to plans to export gas through Kitimat as there are plenty of buyers in Japan, Taiwan, South Korea and Malaysia looking at northeast BC shale gas.

    The Wall Street Journal Heard on the Street blog says

E&P executives across North America should also be nervous. While some speculate Canadian-resource nationalism has spread from potash to energy, there is little evidence of this, given other similar deals haven’t been blocked. The alternative explanation is that foreign buyers of North American gas assets may actually care about such quaint notions as return on investment.

That isn’t good news for an E&P sector that consistently lives beyond its means.

London’s Financial Times says

Although China has gained a reputation for buying up resources around the world at any cost, a string of recent failed deals suggests the country’s resources companies are starting to drive harder bargains and are becoming more selective. In April, China’s Minmetals withdrew a $6.5bn offer for Equinox, an Australian-Canadian copper miner, rather than raise its bid after a higher offer emerged from Barrick Gold.

Chinese oil companies have also recently walked away from, or missed out on, prized oil and gas assets in Brazil …

The failure of the Encana-PetroChina deal is a surprise to the industry because Chinese companies have recently been investing aggressively in shale gas assets to gain the expertise needed to develop China’s own reserves.

Reuters reported from Edmonton that it was Encana who walked away from the deal:

Encana, Canada’s No. 1 natural gas producer, said the two companies could not find common ground, despite a year of negotiations, and walked away from a deal that would have seen PetroChina take a one-half stake in Encana’s massive Cutbank Ridge field in northern British Columbia.

“We just reached the point where we determined we just couldn’t go forward” said Alan Boras, a spokesman for Encana.

The deal would have been the largest in a string of investments by Asian companies in North America’s prolific shale gas discoveries, while Encana investors were counting on the cash to shore up a balance sheet battered by more than two years of weak natural gas prices…

The CBC report had analysts disagreeing on Encana’s role:

John Stephenson, portfolio manager with First Asset Investment Management in Toronto, called the scuttled deal “a complete and utter failure.”

“I think they just couldn’t agree on anything and I think they were premature maybe in announcing this before they had an operating agreement in place,” he said….

But Lanny Pendill, an energy analyst with Edward Jones in St. Louis, commended Encana for its discipline….Its willingness to walk away from a deal after a year of work shows “if push comes to shove, they’re going to make the decision that’s in the best interest of Encana and Encana shareholders.

The Globe and Mail says Encana has plenty of assets in shale gas, especially the Horn River developments which were often mentioned as the main source for shale based natural gas that could be shipped through Kitimat:

With the PetroChina joint venture out of the picture, Encana still has lots of potential. For starters, back in April, the company said it was looking to start discussions on joint venture proposals for its Horn River and Greater Sierra assets. On the heels of Tuesday’s announcement, Encana said that the prospects for these projects are looking up, and raised its 2011 expected proceeds from them to between $1-billion and $2-billion, up from $500-million and $1-billion

Encana news release (on Encana site)

Encana news release 0621-petrochina-jv-negoiations-end.pdf

Is energy player Nexen Kitimat’s next “gentleman caller?”

Another big energy company is looking for a way to get its shale gas from northeastern British Columbia to the lucrative markets of East Asia.

At Monday’s Canadian Petroleum Producer’s investor conference in Calgary, Nexen announced it was looking for a joint venture partner to export the shale gas through a west coast port to Asia.

Nexen wants to find a partner with expertise in producing and selling liquefied natural gas, said Marvin Romanow, chief executive officer. The Calgary-based company last month opened the books on its shale-gas resources for review by interested parties.
“We looked for folks with good contacts in LNG,” Romanow said

Canadian Press reported:

 

Nexen Inc. (TSX:NXY) is on the hunt for a partner to help develop its vast holdings in the Horn River Basin. LNG expertise would be attractive in a partner, but Nexen is open to a variety of marketing strategies for its gas, chief executive Marvin Romanow said.
“I think you want to think about treating your market access as a portfolio, not as a single killer strategy.”

So it is likely that Nexen and its prospective partners, whether from Asia or North America, will be next in line of “gentleman callers” making their way to Kitimat to check out Douglas Channel. 

To use a theatrical and old movie analogy for a moment, Kitimat,  with its isolated location and the devastating closure by West Fraser of the Eurocan plant, up until this spring, the town was seeking big money corporate saviours in the same way as Tennessee Williams’ stricken, lonely Laura pined for a “gentleman caller” in The Glass Menagerie. 
Now with the world wide gold rush in shale gas production aimed at the Asian market, Kitimat seems to be taking on a new movie role, the nice, plain, intelligent next-door girl that all the boys ignored until she suddenly comes in to an unexpected inheritance. Now all the boys are calling on her and so  are fancy guys from out of town. 386-Nexenshale_June2011.jpg
 Nexen is a Calgary-based energy company, first known as Canadian Occidental Petroleum. It began with operations in the Alberta oil patch and later in the Gulf of Mexico.
In 1991, the company made a major oil discovery in Yemen and that financed later expansion into the Alberta oil sands,  deep water drilling the Gulf of Mexico and exploration in northeastern British Columbia shale oil.
At the  Calgary conference, Nexen said it wasn’t currently drilling any new wells in Yemen and was slowing maintenance of wells while it waits renewal of its contract with the government. Given the current unrest in Yemen, it may be a while before a new government is formed that can sign a new 50/50 contract with Nexen.
On shale gas, Nexen says on its website:

While we weren’t looking at shale gas five years ago, today we have captured significant resource potential-enough to double our current proved reserves-in the heart of one of North America’s best shale gas plays. We are improving productivity and driving down costs as we improve equipment utilization, drill longer wells and initiate more fracs per well.
Shale gas can be brought on quickly, fuels our short-term growth and complements the larger projects in our portfolio.

Webcasts from the CAPP conference

PDF of Nexen’s Powerpoint presentation. (On the Nexen investor page, lower right)

PNG ratings give hint what of financial markets think of Kitimat

The outlook for Pacific Northern Gas issued by Canada’s Dominion Bond Rating Service on Friday not only gives an indication of the financial health of the company, it also gives a window into what the financial markets think of the prospects for Kitimat and the region,

DBRS gave Pacific Northern Gas “Secured Debentures and Cumulative Redeemable Preferred Share ratings… BBB (low) and Pfd-3 (low), respectively, both with Stable trends,” DBRS said a news release dated June 10, 2011.

DBRS says that like all utilities, PNG has a stable financial outlook, but “it still has a higher level of business risk when compared with other DBRS-rated utilities.”

The DBRS report goes on to say:

Economic conditions in PNG’s Western system remain weak, but are showing signs of improvement, albeit at a slow pace. Signs of economic improvement in the region include Rio Tinto Ltd.’s (Rio Tinto) announcement of an additional $300 million investment on preconstruction activities for the US$2.5 billion proposed modernization of its aluminum smelter in Kitimat, B.C.; the proposed Phase 2 of a new container handling facility at the Port of Prince Rupert; and continued modest growth in the oil and gas sector in the Northeast system area.

The closure of the West Fraser Kitimat [Eurocan] paper mill in 2010 resulted in some loss of customers in the region, which was offset by the increase in customers in the Northeast system service area. Despite the challenges in the Western system area, PNG has been able to maintain a stable customer base.

In the longer term, the competitiveness of natural gas as a fuel and heating source still remains a key focus for PNG, especially in the Western service area; however, residential and commercial electricity rates are expected to rise in the near term according to BC Hydro’s Service Plan. The proposed electricity price increase and current low gas price environment are expected to keep PNG’s delivered natural gas rates competitive with electricity rates in PNG’s Western system.

DBRS also liked the fact that much of the money paid by the KM LNG partners for the Pacific Trail Pipeline was supposed to go PNG shareholders:

In March 2011, PNG completed the sale of its 50% stake in Pacific Trail Pipelines Limited Partnership (PTP) for a gross consideration of $30 million. The Company has declared special dividends of approximately $22 million, which represents all of the initial payment. A final cash payment of $20 million will be paid if the purchasers make a decision to proceed with the construction of the Kitimat LNG export facility in British Columbia.

There is no guarantee that the final payment will be made.

Going forward, if the net proceeds from the second payment are retained and reinvested in the Company, this could have a longer-term positive impact on PNG’s creditworthiness. However, the extent of any credit impact will depend entirely on the amounts to be retained and how they are reinvested.

But as the Northern Sentinel reported, the BC Utilities commission wasn’t so happy with the dividend, especially when it came to the PNG “transportation charges” it levies on consumers and businesses. The Sentinel says Pacific Northern Gas agreed to pay $500,000 toward the transportation charges to avoid a court fight with the BCUC, after the commission questioned why PNG was not passing on some of the money from the sale to lower the charges.

It should be noted that $500,000 is just six per cent of the $30 million net proceeds PNG received for the sale.

In the long term, the DBRS report says: “increase[d] utilization on its Western system, [has] the potential to increase PNG’s margins and lower the average cost of transporting gas for all customers.” “Increased utilization” likely refers to the various liquified natural gas projects that may make further use of PNG facilities.

DBRS says that PNG expansion and diversification plans could eventually lower its financial market risk profile:

“through electricity and renewable energy generation. In 2010, it acquired the 9.8 MW McNair Creek “run of river” hydroelectric generation facility in British Columbia for $17 million. It also recently formed Narrows Inlet Limited Partnership with Skookum Power Corp. to undertake an investment of up to $2.5 million to advance the Narrows Inlet Project to the start of construction. The $190 million project was awarded a 30-year energy purchase agreement with British Columbia Hydro & Power Authority (BC Hydro) in spring 2010.”

As some energy executives have come to realize, but others have ignored,  high PNG natural gas transportation charges are one main reason that the industry is mistrusted, if not hated, across the political spectrum from right to left in northwestern BC, a political constituency that goes far beyond the environmental activists.

At every public meeting on energy and pipeline issues, there are always questions about the PNG transportation charges, even at meetings on the Enbridge bitumen pipeline, which has little do with  the natural gas charges here (although Enbridge is a major consumer natural gas supplier in eastern Canada).

At the information meeting in Kitimat earlier this summer, Thomas Tatham, managing director of BCLNG  Energy Co-operative, which hopes to build the second LNG terminal near Kitimat harbour, promised that his company, using PNG lines, would absorb the transportation charges  for Kitimat consumers.

Enhanced by Zemanta

Australia, Canada rivals in “new frontier” of liquified natural gas

Canada and Australia are rivals in the “new frontier” of liquified natural gas export sales to Asia, a panel of energy marketing executives told the National Energy Board Tuesday at hearings into the KM LNG in Kitimat.

The “marketing panel” testifying before the board included Kenny Patterson, Vice President LNG Marketing and Shipping for Apache Energy, Sean Bolks, Apache Director of Corporate Risk Management, Jamie Bowman, Vice President of Marketing for EOG and David Thorn,Vice President, Canadian marketing for Encana and two consultants.

Patterson told the NEB at more than one point during his testimony that Canada was the “new frontier” for liquified natural gas, and so was attracting a good deal of interest from countries across East Asia who need more natural gas supplies.

Patterson and the other executives on the panel refused to be specific on who the customers actually are, despite cross-examination from NEB counsel Parvez Khan and additional questions from the NEB presiding member Lynn Mercier.

Patterson said Apache couldn’t go into individual buyers, so Khan asked: “How many different buyers n a general sense?” to which Patterson replied that in Asia, the KM LNG partners, which include Apache, EOG and Encana, were general discussions with seven to eight major Asian LNG companies as well as other smaller players.

That answer came despite the fact that earlier in the day in Kuala Lumpur at the Asia Oil and Gas Conference, Mate’ Parentich, general manager of LNG marketing at Apache, said the company would soon conclude talks on the sale of 85 percent of liquefied natural gas from the Kitimat terminal.

Asked for specifics by Bloomberg News, a Houston based Apache spokesman Bill Mintz then said that no binding contracts had yet been signed for the Kitimat project.  

Bloomberg later moved a corrected and updated version of the story, including the statement that no contracts have yet been signed.

Khan asked about one Memorandum of Understanding signed with KM LNG. Again the panel refused to be specific. Bowman said the MOU had been signed with the previous partnership in KM LNG and while the MOU had not yet expired, it was subject to further negotiations. 

Khan and Mercier were both aware that any agreements with potential buyers were “subject to regulatory approval,” which, of course, is the National Energy Board’s role, but again they were unable to drag any specifics out of the executives on the marketing panel.

The panel members told the NEB members that Korea and Taiwan are already well established LNG markets and China was beginning to be more aggressive as an LNG buyer. Japan, which was devastated by the earthquake in March and lost of a lot nuclear powered electrical generation capacity is now scrambling to catch up with its Asian neighbors. The executives told the NEB panel that both Indonesia and Malaysia will also become more important buyers for LNG in the Canadian market as their domestic demand grows.
383-NEBlowman0607_02.jpg

Noting that Patterson is based in Perth, Australia, Mercier asked the executives about the recent announcement by Shell that it would build a floating LNG platform off Australia.

Panel members replied that the Asian markets want long term, secure sources of supply, with multi-billion dollar contracts for between 10 and 20 years. As stable, market-driven countries with ample supplies of natural gas, both Canada and Australia could fulfill those needs, panel members said. Companies operating in both countries would require those multi-billion, multi-year contracts to justify the investment in natural gas extraction and transportation.


Jamie Bowman, Vice President of Marketing for EOG  listens as fellow panel members testify before the NEB. (Robin Rowland/Northwest Coast Energy News)

Enbridge, Veresen, Williams to acquire condensate plant, pipeline from EOG: CP

Canadian Press


Enbridge, Veresen, Williams to acquire condensate plant, pipeline from EOG

Three North American pipeline companies including Calgary-based Enbridge Inc. (TSX:ENB) are buying a natural gas processing plant and pipeline in the U.S. Midwest from EOG Resources, Inc. (NYSE:EOG) for US$185 million.

The Stanley Condensate Recovery plant and Prairie Rose pipeline connect to the Alliance gas pipeline, which is owned 50-50 by Enbridge and Veresen Inc. (TSX: VSN), and will supply a Chicago-area processing plant operated by the partners.

Malaysia buys stake in BC shale, eyes West Coast LNG export terminal

A Canadian energy company, Progress Energy Resources, based in Calgary, has agreed to sell 50 per cent its stake in  a BC shale gas development called North Montney to Malaysia’s state oil firm Petronas  for $1.07 billion Canadian ($1.09 billion US). The two plan to build  an LNG export terminal somewhere on the BC West Coast for the export of liguified natural gas to Malaysia and possibly other parts of Asia.

The Progress news release says:

Petronas and Progress will 
establish an LNG export joint venture (the “LNG Export Joint Venture”) 
to be 80 per cent  [by Petronas] and 20 per cent owned [by Progress], respectively. The LNG Export
 Joint Venture will launch a feasibility study to evaluate building and
operating a new LNG export facility on the West Coast of British
Columbia. Petronas would be the operator of this facility, and Petronas 
and Progress would jointly market the LNG utilizing Petronas’
well-established and extensive network of customers in the largest LNG
markets globally.

 No location was mentioned for the proposed LNG terminal.

In the news release Michael Culbert, President and Chief Executive Officer of Progress was quoted as saying:

“We look forward to working with West Coast British Columbia communities as we pursue this opportunity to build a new facility that will add value to British Columbia’s natural resourceswhile creating considerable long-term local economic benefits.”

Culbert also said in the news release:

 

“This is a breakthrough transaction for Progress: the partnership we are
launching will enable us to accelerate our growth strategy….
”We are very pleased to form this long-term partnership with PETRONAS.
They share our belief that our North Montney shale assets are a
world-class resource that deserves significant investment.  We look 
forward to benefitting from PETRONAS’ significant global expertise
 including their leadership in developing infrastructure and accessing
 LNG markets. As well as enhancing Progress shareholder value, this 
partnership will also generate substantial economic benefits for local
communities and the province of British Columbia, while leveraging the 
environmental benefits of Canada’s abundant and clean-burning natural
 gas resources globally.

This is the first time that Petronas has entered the Canadian energy market, an indication of the growing scramble in Asia for BC oil shale and likely Alberta oil sands.  

Petronas, the national oil and gas company of Malaysia is one of the Fortune Global 500, with oil, gas and petrochemical interests in more than 30 countries. The company calls itself  one of the world’s leading LNG companies and is involved in all parts of the LNG business, from liquefaction and shipping to re-gasification and trading. As well as Malaysia, it has assets in Australia, Egypt and the United Kingdom.

For the public, Petronas is best known as the owner of the giant twin towers that dominate the skyline of Kuala Lumpur.

 Links

Enhanced by Zemanta

Alaska pipeline development doesn’t bode well for NWT project: Alberta Oil

Alberta Oil Magazine 

Darren Campbell column

As everyone returns to the office after the Victoria Day long weekend, supporters of the star-crossed Mackenzie Gas Project (MGP) are left to wonder what the future holds for the $16.2 billion proposed pipeline scheme now that BP plc and ConocoPhillips have announced they are dropping out of the race to build an Alaska natural gas pipeline.

What does a couple of Big Oil companies giving up on their plans to build a pipeline have to do with the fortunes of a project proposing to ship natural gas from the Northwest Territories’ Mackenzie Valley to southern markets?