Pacific Northern & Kitimat LNG strikes pipeline deal

Pacific Northern Gas Ltd. and Kitimat LNG Inc. Announce Partnership
to Develop Kitimat to Summit Lake Gas Pipeline
News Release, Kitimat LNG, 17-Jul-2006

Pacific Northern strikes pipeline project deal for northern B.C.
CBC, 17-Jul-2006

Kitimat gas line to serve oilsands
Shaun Polczer, Vancouver Sun, 18-Jul-2006

COMMENT: At the end of this deal, Kitimat LNG will own the existing (and greatly troubled) Pacific Northern Gas infrastructure and the new infrastructure. This begs the question, what company has the deep pockets? It isn't Galveston/Kitimat and it sure isn't PNG.

Pacific Northern Gas Ltd. and Kitimat LNG Inc. Announce Partnership to Develop Kitimat to Summit Lake Gas Pipeline

News Release
Kitimat LNG
17-Jul-2006

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - July 17, 2006) - Pacific Northern Gas Ltd. (TSX:PNG)(TSX:PNG.PR.A) and Kitimat LNG Inc. today announced the formation of Pacific Trail Pipelines Limited Partnership. Pacific Trail Pipelines, a 50/50 partnership between Pacific Northern Gas and Galveston LNG Inc., the parent company of Kitimat LNG, has been established for the purpose of developing the natural gas transmission pipeline system from Kitimat to Summit Lake, British Columbia (the "KSL Project") to serve Kitimat LNG Inc.'s proposed liquefied natural gas import, regasification and send-out terminal near Kitimat, B.C. (the "Terminal"). Kitimat LNG recently received the provincial environmental permit and certificate for the Terminal and expects to receive federal permits shortly. The KSL Project and the Terminal, the first of its kind to be located on the West Coast of Canada, are expected to commence operations in late 2009, subject to the satisfaction of a number of conditions, including obtaining LNG supply for the Terminal, B.C. Utilities Commission approvals for the KSL Project and financing.

Upon completion of the KSL Project, Pacific Northern Gas' existing mainline transmission system will be transferred to the Partnership and integrated with the KSL Project facilities. Pacific Northern Gas will continue to own and operate its existing gas distribution systems, including its Customer Care Centre in Terrace. Transmission system capacity will be increased from approximately 115 million cubic feet per day ("MMcf/d") to enable Pacific Trail Pipelines to accept delivery of up to 1,000 MMcf/d of regasified LNG from the Terminal. The KSL Project will entail the construction of approximately 470 kilometers of a 30 or a 36 inch diameter pipeline and any required compression facilities, at an estimated cost of $900 million or $1.2 billion, respectively.

"We are very pleased and excited about the potential benefits of the partnership arrangements," said Roy Dyce, President and Chief Executive Officer of Pacific Northern Gas. "Not only will our ability to provide safe, reliable and secure gas delivery service to existing customers be enhanced by construction of the KSL Project, current customers will also benefit from the economies of scale of the expanded system through significantly lower gas delivery rates upon commencement of operation of the new facilities."

Alfred Sorensen, President of Galveston LNG said, "Our partnership with Pacific Northern Gas will ensure the Terminal has the necessary pipeline facilities in place to move imported LNG into North American markets. This provides LNG suppliers with the certainty they need to choose our project over others being considered for the Pacific Coast and presents a major advantage for our project."

In addition, Pacific Trail Pipelines and Kitimat LNG today signed a Precedent Agreement to coordinate the process of obtaining authorizations for the KSL Project with the development of the Terminal. The agreement outlines, among other things, the key economic arrangements between Pacific Trail Pipelines and Kitimat LNG, as well as the targeted timeline and key milestones for construction of the KSL Project and the Terminal.

Pacific Northern Gas commenced the environmental regulatory review process of the KSL Project by filing a project description with the B.C. Environmental Assessment Office ("BCEAO") in September 2005. A copy of the project description is available on Pacific Northern's web site at www.png.ca. Project development activities, including engineering design, preliminary route selection and environmental studies, will now be continued by Pacific Trail Pipelines. Regulatory applications are expected to be filed by the Partnership with the B.C. Utilities Commission, the BCEAO and Canadian Environmental Assessment Agency by early spring 2007.

The route for the KSL Project will be determined through technical field studies and consultation with First Nations, the public and regulatory authorities. Pacific Northern Gas' existing right-of-way will be used where appropriate. Subject to commencement of construction of the Terminal and obtaining required regulatory approvals, Pacific Trail Pipelines expects to commence construction of the KSL Project facilities by the first quarter 2008.

Cumulative expenditures by Pacific Northern Gas and Kitimat LNG on the KSL Project are approximately $1.5 million to date with a further $6 million expected for the remainder of 2006. Pacific Northern Gas' expenditures to date on the KSL Project had been deferred with approval of the B.C. Utilities Commission. However these costs will now be transferred and expensed in the Partnership, which is not yet a public utility able to defer the KSL Project costs. As a result, Pacific Northern's previously reported earnings will be reduced by $0.4 million or 11 cents per share. Pacific Northern Gas' share of further KSL Project costs in 2006 will continue to be expensed until commercial arrangements for firm gas transportation services by the Partnership are in place. If development expenditures for the last three quarters of 2006 are expensed, earnings will be further reduced by an estimated $2.0 million or 55 cents per share.

"Completion of the KSL Project will substantially change the profile of Pacific Northern Gas as a gas transmission and distribution player in British Columbia by quadrupling assets and reducing the business risks of the Company," commented Mr. Dyce. "We have evaluated several financial options to fund our interest in Pacific Trail Pipelines and have concluded that traditional corporate financing is the best option. Pacific Northern Gas has therefore decided not to convert to an income trust while it pursues the KSL Project."

Headquartered in Vancouver, B.C., Pacific Northern Gas Ltd. (TSX:PNG)(TSX:PNG.PR.A) owns and operates natural gas transmission and distribution systems. The Company's western transmission line extends from the Duke Energy Gas Transmission system north of Prince George to tidewater at Kitimat and Prince Rupert, and provides service to 12 communities and a number of industrial facilities. In the northeast, PNG's subsidiary Pacific Northern Gas (N.E.) Ltd. provides gas distribution service in the Dawson Creek, Fort St. John and Tumbler Ridge areas.

Kitimat LNG Inc., a wholly owned subsidiary of Galveston LNG Inc., is a Calgary-based private company focused on the development of LNG and related facilities in North America. Further information about the Terminal project is available at Kitimat LNG's web site at www.kitimatlng.com.


CONTACT INFORMATION

Pacific Northern Gas Ltd. - Investor Inquiries
Elizabeth Fletcher
Chief Financial Officer
(604) 691-5684

or

Pacific Northern Gas Ltd. - Media Inquiries
Greg Weeres P.Eng.
Vice President Operations & Engineering
(604) 691-5680
www.png.ca

or

Kitimat LNG Inc.
Patti Schom-Moffatt, Director of Communications
(250) 279-0224 in Kitimat
or (604) 999-9058 in Vancouver
www.kitimatlng.com

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Pacific Northern strikes pipeline project deal for northern B.C.

CBC
Jul 17, 2006

VANCOUVER (CP) - Pacific Northern Gas Ltd. and privately owned Kitimat LNG Inc. of Calgary have signed a deal to develop a possible $1.2-billion gas pipeline linking Summit Lake to Kitimat in northern British Columbia.

The companies said Monday they had formed the Pacific Trail Pipelines Limited Partnership, a 50-50 joint venture to build a natural gas pipeline that would supply Kitimat LNG's proposed liquefied natural gas import, regasification and output terminal near Kitimat on the B.C. coast.

The companies said Monday's deal furthers the chances the project will succeed in competition from other LNG proposals for the West Coast.

In a related move, Pacific Northern also said Monday it has decided to pursue the project fully and will not turn itself into an income trust as it had considered in a bid to boost shareholder value.

Kitimat LNG, a private company based in Calgary, recently received provincial environmental permits for the terminal and expects to get federal permits shortly.

The LNG project, the first on the West Coast, is expected to begin operations in late 2009, subject to several conditions, including obtaining LNG supply for the terminal, B.C. Utilities Commission approvals and financing.

The Pacific Trails project will involve construction of about 470 kilometres of pipeline and any required compression infrastructure, at an estimated cost of between $900 million to $1.2 billion, depending on the size of pipe.

"We are very pleased and excited about the potential benefits of the partnership arrangements," said Roy Dyce, chief executive of Pacific Northern Gas.

"Not only will our ability to provide safe, reliable and secure gas delivery service to existing customers be enhanced by construction of the KSL Project, current customers will also benefit from the economies of scale of the expanded system through significantly lower gas delivery rates upon commencement of operation of the new facilities."

Alfred Sorensen, president of Kitimat LNG's owner, Galveston LNG, said the partnership "will ensure the terminal has the necessary pipeline facilities in place to move imported LNG into North American markets."

"This provides LNG suppliers with the certainty they need to choose our project over others being considered for the Pacific Coast and presents a major advantage for our project."

So far, Pacific Northern Gas and Kitimat LNG have spent $1.5 million on the project and expect to spend another $6 million the rest of the year. Those costs will now be transferred to the partnership, thereby reducing Pacific Northern's previously reported first quarter earnings by about $400,000 or 11 cents a share.

For the rest of the year, earnings will be further cut by $2 million or 55 cents a share, the company said.

"Completion of the KSL Project will substantially change the profile of Pacific Northern Gas as a gas transmission and distribution player in British Columbia by quadrupling assets and reducing the business risks of the company," said Dyce.

"We have evaluated several financial options to fund our interest in Pacific Trail Pipelines and have concluded that traditional corporate financing is the best option. Pacific Northern Gas has therefore decided not to convert to an income trust while it pursues the KSL project."

Pacific Northern Gas owns and operates natural gas transmission and distribution systems. The company's western transmission line extends from the Duke Energy pipeline north of Prince George to Kitimat and Prince Rupert, and provides service to 12 communities and a number of industrial customers.

In the northeast, the company provides gas distribution service in the Dawson Creek, Fort St. John and Tumbler Ridge areas.

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Kitimat gas line to serve oilsands

CALGARY -- A proposed $1-billion pipeline to move depressurized liquefied natural gas (LNG) from Kitimat could provide another gas source for Alberta oilsands producers when it comes online in 2009.

Calgary-based Kitimat LNG on Monday formed a partnership with B.C utility Pacific Northern Gas to build and operate the line, which will have initial capacity of one billion cubic feet per day.

"We've had significant interest from oilsands producers," Rosemary Boulton, Kitimat's president and chief executive officer, said in an interview. "We've had some good commercial discussions with them."

LNG is supercooled natural gas compressed into liquid form and loaded onto ships.

Once it lands onshore, it's restored to a gaseous state and transported through existing infrastructure to consuming markets.

The joint venture -- to be called Pacific Trail Pipelines Limited Partnership -- will move the depressurized gas 470 kilometres to Summit Lake in northeast B.C., where it will hook into the Westcoast Energy mainline owned and operated by U.S. pipeline giant Duke Energy. From there, it will continue west into Alberta or south into the B.C. Lower Mainland and Washington state, and on to other U.S. markets such as California.

But Boulton said the most attention so far has come from oilsands producers, who use about 500 cubic feet of natural gas to make one barrel of synthetic crude oil.

Potential buyers will eventually be required to sign long-term contracts to backstop the project.

The level of commitments received will determine the final diameter of the line -- 91 centimetres at a cost of $1.2 billion, or 76 centimetres costing $900 million -- although Boulton said the larger capacity is more "likely" at this point.

Kitimat in June received initial environmental approval to build the LNG station, while a second Calgary-based firm, WestPac LNG, submitted a regulatory application to build a smaller facility near Prince Rupert.

Meanwhile, Pacific Northern scrapped plans to convert into an income trust while it concentrates on building the new pipeline.

Pacific Northern spokesman Greg Weeres said the Kitimat line will significantly change the "look and feel" of the regulated utility, which currently markets 115 million cubic feet a day to businesses and residents along the Kitimat corridor.

"It will certainly increase the size of our asset base."

Pacific Northern received approval from B.C. regulatory authorities to convert into an income trust last August, but Weeres said the level of capital expenditures required to fund its portion of the joint venture is inappropriate for a royalty income vehicle.

"What we're saying is that traditional corporate financing is probably the best way to go," he said.

Pacific Northern Gas owns and operates natural gas transmission and distribution systems. The company's western transmission line extends from the Duke Energy pipeline north of Prince George to Kitimat and Prince Rupert, and provides service to 12 communities and a number of industrial customers.

In the northeast, the company provides gas distribution service in the Dawson Creek, Fort St. John and Tumbler Ridge areas.

Site preparation for the pipeline is scheduled to begin this fall with initial construction starting in the first quarter of 2007, around the time the partners expect to receive regulatory approvals.

Initial deliveries are expected to start in 2009, which Kitimat's Boulton said roughly coincides with an expected decline in gas supplies from Western Canada.

So far, Pacific Northern Gas and Kitimat LNG have spent $1.5 million on the project and expect to spend another $6 million the rest of the year. Those costs will now be transferred to the partnership, reducing Pacific Northern's previously reported first quarter earnings by about $400,000 or 11 cents a share.

For the rest of the year, earnings will be further cut by $2 million or 55 cents a share, the company said.

Kitimat is currently in discussions with international suppliers in countries such as Australia, Malaysia and Indonesia to feed the terminal. The company is hoping to firm up supply deals early next year.

According to the California Energy Commission, 16 separate LNG projects are proposed for the west coast of North America, from Mexico to B.C.

Those plans represent more than 11 billion cubic feet per day of import capacity, but not all are expected to proceed.

That's why it's important to send the message Kitimat plans to be first to market, Boulton said.

"It provides our project with an even greater level of certainty and differentiates us from other projects that don't have the pipeline piece in place.

"It's another milestone for moving our project forward."

© The Vancouver Sun 2006

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