The Rising Influence of Rising Affluence

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Encana Buys Stake in Kitimat LNG-Export Terminal

[Financial terms were not disclosed. ECA’s own PR is at http://finance.yahoo.com/news/Encana-to-acquire-30-percent-bw-1457607669.html?x=0&.v=1 .]

http://ca.finance.yahoo.com/news/Encana-buy-30-per-cent-stake-capress-2837323165.html

›By Lauren Krugel
Friday March 18, 2011, 3:07 pm EDT

CALGARY - Canadian natural gas giant Encana Corp. is looking to tap into lucrative overseas markets by taking a 30 per cent stake in an export terminal planned for the northern British Columbia coast.

"New and plentiful natural gas supplies and reserves have created a remarkable opportunity to expand our well-developed energy trade to other continents," chief executive officer Randy Eresman said in a release Friday.

At the facility in Kitimat, B.C., the gas will be converted into a liquid in ultra-cold temperatures. The liquefied natural gas, or LNG, can then be loaded onto specialized tankers and sold around the world.

North America is currently awash in natural gas as new technology unlocks huge volumes from shale formations that had once been too costly to exploit. Virtually all of North America's gas moves around the continent by pipeline and has not yet had meaningful access to burgeoning Asian markets.

The supply glut in North America has dampened the price producers like Encana (ECA) are able to fetch for their gas, so there's good reason to look abroad.

"We expect that this project will help advance North America's natural gas economy across the Pacific to markets where demand is growing and natural gas prices are more closely tied to oil prices," Eresman said.

The current operator of the project, U.S.-based Apache, will own 40 per cent, while Encana and third partner EOG Resources Canada Inc. will each own 30 per cent.

Engineering and design work is underway on the Kitimat terminal, which will have an initial capacity of 700 million cubic feet per day. The three companies could begin exporting gas in 2015. The National Energy Board is in the process of reviewing the project.

The company's did not disclose financial details of the deal. Preliminary construction costs are estimated to be about $3 billion.

Encana and Apache already work together developing land in the Horn River Basin in northeastern B.C.

"Encana is a natural partner with Apache and EOG for the Kitimat project," said Janine McArdle, president of Kitimat LNG and a senior vice-president at Apache.

Citing industry studies, Encana said the province could increase production from its current level of 2.8 billion cubic feet per day to more than seven billion bcf/d within the next decade.

Meanwhile, the partners are in talks with potential Asia-Pacific customers interested in buying the gas.

Earlier this year, Encana inked a $5.4-billion joint-venture with PetroChina to work together on B.C. and Alberta shale lands.

At the time, Eresman said a push into the LNG scene was on Encana's radar.

"We are, of course, very interested in the expansion or the creation of an LNG export market from North America and we do think it makes a tremendous amount of sense for that market to be linked to the Asian market from a proximity point of view,'' he told a February conference call.

He said LNG wasn't part of Encana's negotiations with PetroChina, "although I fully understand and appreciate the desire for PetroChina to link up with LNG in North America.''

Encana also has a farm-out agreement with Korea Gas Corp. Korea is one of many Asian countries with an appetite for liquefied natural gas.

The demand for liquefied natural gas in Asia is enormous, said Ed Kallio, with Ziff Energy Group. Asian demand is expected to more than double from about 18 to 19 bcf/d to 42 bcf/d by 2020, he said.

Most long-term LNG contracts in Asia track robust oil prices more closely than they do lacklustre North American gas prices, Kallio added.

"If you can take gas and sell it into an oil-referenced market, you're getting a huge uplift on the price, on the value of your gas," [no kidding] he said.

And LNG demand is likely to grow if countries around the world become increasingly wary of nuclear power. Several reactors at a Japanese nuclear facility were badly damaged in last week's massive earthquake and tsunami, and officials have been scrambling to prevent a full-scale meltdown for several days.

"There have to be questions as to whether you'd consider replacing that capacity with more nukes, or with another source of energy," Kallio said.‹