B.C. emerges as natural gas player

David Ebner
Globe and Mail
Tuesday, Aug. 11, 2009

As gas supplants forestry as the province's economic driver, key industry players such as Korea Gas are lining up to grab their share

For four years, Alfred Sorensen and his tiny team at Galveston LNG Inc. worked to develop a natural gas import terminal on B.C.'s northwest coast, but were unable to court international producers to support the project.

Then, a year ago, the seven-person company came up with a new idea: Export gas to Asia. It seemed improbable, but Mr. Sorensen saw great potential in British Columbia's far northeast, where new drilling technology was unlocking vast shale gas reserves in the Horn River region.

Now, his proposed $3-billion Kitimat liquid natural gas project has the backing of some of the biggest names in the business – including the world's largest gas importer, Korea Gas Corp., and U.S. gas producers EOG Resources Inc. (EOG-N74.90-1.30-1.71%) and Apache Corp. (APA-N86.67-1.73-1.96%) , two key players in the Horn River.

The change from an import to an export facility is emblematic of the changing B.C. economy and the province's emerging role as a significant gas producer on a global scale.

British Columbia currently produces 2.5 billion cubic feet of gas a day – less than a quarter of rival Alberta's output – but the potential at Horn River alone is huge. Companies such as Apache, EOG and EnCana Corp. believe Horn River itself could eventually produce more than four billion cubic feet a day, similar to what is generated at a giant field in Texas called the Barnett Shale.

Beyond Horn River, northeastern B.C. appears to be rich with gas trapped in barely porous rock.

This is a resource that industry is only now able to extract profitably. The Montney play south of Horn River has also sparked serious interest.

“The scale of the resources is enormous,” said Jock Finlayson, executive vice-president of the Business Council of British Columbia.

“It's a big piece of the future here.”

The ascent of natural gas in B.C.'s economy comes alongside the decline of forestry, the province's traditional cornerstone industry. The value of gas exports in the past decade has almost tripled, standing at $3.2-billion last year, while softwood lumber has fallen by more than half, to $3.6-billion.

For gas producers, an export terminal is an attractive option because gas prices in Asia are often significantly higher than in North America, making up for the extra cost to move the commodity a far greater distance than to producers' usual customer, the United States.

And for a company such as Korea Gas, a connection with B.C. gives it one more option as it works to ensure future supplies.

Mr. Sorensen said it was Korea Gas that turned heads. The company's chief executive officer, Kang-Soo Choo – who regularly deals with the likes of Russia's OAO Gazprom, the world's biggest natural gas company – personally worked on the deal, braced by the view that B.C. can deliver on a promise of long-term supply. A memorandum of understanding specifies that Korea Gas would buy 40 per cent of the facility's planned 700 million cubic feet a day of capacity.

“They brought the real credibility,” Mr. Sorensen said.

Deals with Spain's Gas Natural, EOG and Apache quickly followed.

The export terminal is to be located near Kitimat, B.C., and Galveston is now focused on securing financing for the project and formalizing the preliminary deals with Korea Gas and others. A final decision on building is set for next June and the facility could be in operation in late 2013.

Gas for export is liquefied by super cooling the commodity to -160 degrees. It is then moved to its destination by ship and, once there, turned back into gas at a regasification terminal.

The B.C. government has actively marketed the province's natural gas potential, including to Korea Gas, which Mr. Sorensen said helped the process advance.

Last week, the province again displayed the importance it places on natural gas, introducing a one-year, ultralow royalty for new wells drilled from September through next June to encourage companies to keep working even with the current low gas price and weak economy.