Nat gas bite to be less?

Local natural gas users are benefitting from a plan to liquefy natural gas for export overseas.

Local natural gas users are benefitting from a plan to liquefy natural gas for export overseas.

And that could mean the hike in Pacific Northern Gas’ delivery charges to its customers will not be as great as expected (Sentinel, January 5).

The benefit comes from $1 million payments being made by the company which wants to liquefy the gas to PNG.

The regularly-scheduled payments – the most recent one was made January 1 – are made to keep on reserving space in PNG’s northwestern pipeline.

PNG received permission from the BC Utilities Commission to treat last year’s option payment as revenue and apply it to the utility’s income. PNG is asking for the same to take place for its 2011 business plan.

What that means are lower gas delivery charges for PNG’s existing customers than might otherwise be the case, says company official Craig Donohue.

“Basically we were able to utilize those option fees,” he said of PNG’s 2010 revenue stream.

The option payments are placed in a bank account with the expectation it will be credited against payments to be made to PNG should the export plan go ahead.

The export plan dates back to 2008 when Merrill Lynch Commodities signed an option agreement with PNG to reserve space. It called for payments of $1 million to be made every six months.

The other key portion of the Merrill Lynch plan involved a deal with a shipping company called Teekay Corporation to liquefy the gas on a plant based on a ship anchored just offshore.

Merrill Lynch was subsequently sued by another company called Maverick which said it had actually developed the plan.

And in January 2010 Teekay indicated the plan was being abandoned because it was not profitable enough.

Regardless, Merrill Lynch made another payment the end of June 2010 to reserve the space for another six months and it also settled the lawsuit with Maverick.

The result is that a Maverick-controlled entity called LNG Partners is taking over the Merrill Lynch plan, including scheduled option payments.

“The option agreement is alive and well,” he confirmed. “Nothing changed from what we had in place before with the new transportation service agreement we now have [with LNG Partners].”

In fact, said Donohue, the new agreement extends the option period by six months until June 30, 2012.

By that date LNG Partners must tell PNG on what date it wants to begin transporting gas. It’s a date that can be no later than January 1, 2015.

Donohue said PNG isn’t aware if LNG Partners will stick with the original plan to liquefy gas on a ship before being piped onto ocean-going tankers or choose another method.