Another LNG player emerges

By Malcolm Baxter
Kitimat Northern Sentinel
October 15, 2008

KLNG is not the only company looking at exporting liquefied natural gas through Kitimat.

KLNG announced last month (Sentinel, September 24) it was reversing direction on its planned Kitimat plant, looking at exporting rather than importing.

Now an outfit called LNG Partners LLC is looking to do the same thing.

And as part of that it is seeking an arrangement with Pacific Northern Gas to use its existing pipeline to transport the gas here.

Greg Weeres, PNG vice-president of operations and engineering, told the Sentinel his company had made application to the BC Utilities Commission to approve that arrangement.

What it involves is LNG Partners paying PNG a non-refundable fee of $1.5 million in exchange for an exclusive six-month option to book the currently unused capacity in the PNG line to Kitimat.

That excess capacity exists because of the 2005 closure of the Methanex methanol plant - it had been PNG's biggest customer.

"The purpose of the option period is to allow them to evaluate whether they can make their proposed project work," said Weeres.

But if they cannot nail down all the numbers within that six months, LNG Partners has the option of purchasing a further six month option, again for $1.5 million.

And if they conclude they can make a go of it, LNG Partners would then negotiate a deal with PNG that would see the former's exclusive rights to use the spare capacity continue for between three and five years.

The arrangement is potential good news for PNG's existing customers even if the LNG Partners never get into production - at least in the short term.

That's because PNG proposes two-thirds of the option fee be used to reduce delivery rates - the amount the utility charges to deliver the gas to your door.

That rate has been hiked substantially over the past three years, in the main to make up for the loss of the Methanex revenue, but also to cover lost revenue resulting from a rate decrease for Eurocan and reduced usage by commercial and residential customers.

At the moment the delivery charge is almost one half of the cost per gigajoule of natural gas PNG charges.

But the company cannot yet say how much of a break customers might get. Weeres explained because this is very early in the process, PNG hasn't yet crunched the numbers.

However, he added, "Clearly there will be a benefit, you bet."

That benefit would rise dramatically should the LNG Partners project go-ahead - PNG calculates having its pipeline run at 100 per cent capacity would generate close to $15 million in extra annual revenue, $3 million more than it was getting from Methanex.

As for what an LNG Partners deal would mean for the proposed KLNG-PNG Pacific Trail pipeline project, Weeres emphasized it would have no impact on the Kitimat-Summit Lake line.

"It is certainly our intention to continue development of the KSL project regardless of what happens with LNG Partners," he said.

That position is echoed by KLNG - see KLNG says project timetable still intact