Canada's Kitimat LNG hopes to start terminal construction Q3 2009
COMMENT: There are a set of interdependencies here. It's a variation on "for want of a button ..."
- No dirt will be dug until the capital to build the Kitimat LNG (KLNG) import terminal (estimated in 2005 as $500 million, likely substantially higher today) has been secured.
- No capital will be secured for the LNG terminal, until the capital to build the Kitimat-Summit Lake expansion (KSL) of the Pacific Natural Gas pipeline (estimated also since 2005 as costing $1 billion) has been secured, because without the KSL, the gas from KLNG is as locked in as if it were still in the ground in Deeper Petrostan. The two projects, KLNG and KSL are for each, a sine qua non. That is, it's neither or both.
- No capital for either project will secured until KLNG can demonstrate to lenders or investors that the project(s) will safely provide a return on the investment.
- That means, KLNG has to secure customers who want gas from its operation, and KSL has to secure shippers who will utilize the pipeline. And we're not talking a token, here - the ROI will only be secured by a high utilization rate of both the terminal and the pipeline - which again, mean the same thing, really.
- The exception to this equation is if KLNG can persuade anyone (including itself) to build a honking big gas-fired generation plant in Kitimat. Hello, BC Hydro. Kitimat LNG has pondered this possibility.
- No customer will commit to either project unless it knows gas will be forthcoming. At best, customers might sign contingency agreements, or take options, requiring KLNG to show them the money, that is, show that it has long term LNG supply contracts.
- Securing long term contracts for LNG may be the biggest challenge KLNG and other importers face. There may be enough gas in the world, but there isn't enough liquifying capacity to meet demand. Japan, Korea, China - these are the global price setters. Not North America. Also, the price of LNG, like the price of natural gas, follows the price of oil. LNG suppliers have no incentive at present to sign long term supply contracts. The oft-repeated wisdom is that carriers are rerouted at sea, as the shippers, or owners of the contents, discover better spot pricing. Not good when you are depending on gas for your tar sands cooker, need to know your pipeline is full and flowing, and are depending on ships arriving at your terminal.
This article confirms that Kitimat LNG still does not have customers, and that it has made no headway with the only possible supplier mentioned (and the nearest source), Russia's Gazprom. My take is, this is a bad news article for KLNG and KSL, not good news. My track record with predictions? Ah, did you have to ask?
Platts
www.platts.com
15-Jul-2008
Tokyo (Platts)--15Jul2008
Calgary-based Kitimat LNG expects to start construction of its proposed LNG import terminal in British Columbia, Canada in the third quarter of 2009, if it finalizes commercial agreements in the next six months, Kitimat LNG president Rosemary Boulton said Tuesday.
"We are working closely with potential customers, and if we can finalize commercial arrangement in the next six months, we will start construction in the fall of 2009, in the third quarter," Boulton told the 3rd Annual LNG World conference in Tokyo.
That would fit in with the environmental assessment issues, she added.
Kitimat LNG plans to commission its 1 Bcf/d LNG import and regasification terminal near the port of Kitimat in 2012-2013, Boulton said, adding that 2013 was the "most likely" start-up timeline.
The facility can be further expanded to 1.6 Bcf/d, "once we get commercial certainty, contracts," she said.
Boulton declined to name the customers Kitimat LNG was in talks with, saying the company was "in the middle of discussions."
With Russian gas giant Gazprom, which has been increasingly looking at North American terminal capacity for its future LNG, Boulton said Kitimat LNG has not progressed towards any commercial agreement with the company.
"We had preliminary discussions with them, but we have not really been able to progress [anywhere] towards commercial arrangements with Gazprom," she said on the sidelines of the conference.
The terminal will be able to handle LNG carriers of up to 266,000 cubic meters and is permitted to have three LNG storage tanks with a capacity of 160,000 cu m each.
A gas transmission system, Pacific Trail Pipelines, is to be built from the LNG import terminal to Summit Lake in British Columbia, from where the gas can further access key North American markets, including California, through a number of existing pipelines.
PTP has already received provincial environmental approval in June, and expects to receive federal approval in the third quarter of 2008, Boulton said.
PTP, a $1 billion, 470 kilometer pipeline will provide the terminal with a direct connection to the existing Spectra Energy Transmission pipeline system on the West Coast, which is linked with other major pipelines running to a number of Canadian and US destinations.
If the LNG terminal is later expanded to 1.6 Bcf/d, more compressors will be added to PTP, Boulton said.
PTP is a 50:50 partnership between Canada's privately-owned Galveston LNG, which is Kitimat LNG's sole parent, and Pacific Northern Gas, which owns and operates gas transmission and distribution systems.
--Anna Shiryaevskaya, anna_shiryaevskaya@platts.com>anna_shiryaevskaya@platts.com
--Takeo Kumagai, takeo_kumagai@platts.com