LNG Co-op business plan outlined

The BC LNG Export Co-operative may not be on the scale of the KM LNG project - it is in fact one fourteenth the size in terms of its annual liquefied natural gas production - but that actually works in its favour.

The BC LNG Export Co-operative may not be on the scale of the KM LNG project – it is in fact one fourteenth the size in terms of its annual liquefied natural gas production – but that actually works in its favour.

So says LNG Partners’ Tom Tatham.

The Co-operative is a 50:50 partnership between LNG Partners – a Houston, Texas based company – and the Haisla Nation Douglas Channel LNG Limited Partnership (Sentinel, March 30).

The project intends to take advantage of unused capacity in the existing Pacific Northern Gas pipeline and liquefy natural gas on a barge moored in the Douglas Channel south of Moon Bay.

Tatham was in town for an April 14 open house at Riverlodge intended to fill Kitimatians in on the project and answer their questions.

Noting there is a big difference between what you can get for natural gas in North America and what Asian markets are ready to pay for LNG, Tatham said everybody is trying to get into the LNG export game these days.

“Fortunately for us, our project works within an existing pipeline,” he said, explaining that was a big advantage in terms of both costs – it doesn’t have to build a pipeline – and the speed with which it could start sending out LNG.

He expected the Co-op will be shipping LNG two years earlier than KM LNG or any other project.

LNG Partners has no gas fields of its own, it is simply offering a conduit for companies that do to get into LNG.

“The really big companies don’t want to fool with this,” he said of the relatively small scale of the proposed operation.

“But the mid-cap companies and the smaller companies love this. They never have a chance to get involved in an LNG project,” he said, adding the Co-op could have as many as a dozen producers coming up with letters of support for the Co-op concept.

Son Glenn Tatham agrees – he’s managing director of the Douglas Channel Energy Partnership, one of a half dozen intertwined entities that are part of this project.

And he explained those letters of support are important if producers want to get on board.

The first step is they have to qualify by being able to demonstrate that they can deliver at least 10 million cubic feet of natural gas a day for 20 years.

“You actually need to be a legitimate company that has a profile that goes out that far,” Glenn said.

Once qualified, the producer can support the project by submitting a letter of support that would be used by the Co-op in its application to the National Energy Board for a permit to export LNG and that letter gets the producer membership in the Co-op.

Once the project is a go, the Co-op next invites the members to bid in on supplying natural gas.

For example, Glenn said, the Co-op might seek bids to supply over a period of five years up to a total of 100 million cubic feet a day, the unused capacity in the PNG line.

Members then submit their bids on quantity and price for that five year period.

The Co-op then accepts the lowest bids until it reaches that 100 million cuft/d limit.

And on the other side buyers bid in for the equivalent amount of LNG over that same five year period with the highest bids winning out.

But there is a wrinkle in the system in that both the selling producer and the LNG buyer stand to get a dividend, if you like.

Glenn explained that there will be a spread between the selling and buying prices and that both suppliers and buyers will share in up to 80 per cent of that spread.

 

For example, if the gas producer sold to the Co-op for $4 a British Thermal Unit, it could end up getting $5.60/BTU because of the spread.

Asked if there were any liquefaction barges in operation now, Glenn replied, “There’s a very large scale barge that’s operating in Norway”. And a number of barges the size they proposed elsewhere.

“We’re not doing anything new and different.”

What would make their project unique is if they were to have a floating barge, but that wasn’t the plan. It would instead be “grounded” on a prepared bed.

As for the land that the barge will be beached on, Glenn confirmed it was Rio Tinto Alcan property but added RTA and the Haisla “have arrangements”.

Asked if the Haisla would own the land, he replied, “It’s yet to be determined. They may own it and lease it to the project or we may buy it together.”

Glenn said the next steps are completion of the detailed engineering study on the project  that would allow them to go to a contractor and get a guaranteed price, get an export licence from the National Energy Board and go through the environmental approval process.

He hoped all those steps would be completed by the end of the year triggering a “final investment decision. That’s when you kick things off and it takes about two years to get into service.”

That translated to being in production by the end of 2013 or early 2014 at the latest.

The project will create about 150 construction jobs with 20-30 permanent jobs, including maintenance.

“That’ll multiply,” Glenn added. “There will be a lot of support services.

X   X  X  X  X  X

The Co-operative’s attempt to piggy back on Apache’s application to export natural gas has been turned down by the NEB.

 

“Obviously the Kitimat LNG people were a little worried things might slow down and that’s always an issue,” said Glenn Tatham. “We respected that.” The NEB has not yet given a public hearing date for the Co-op application.

 

 

 

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