Encana to acquire 30% interest in Kitimat LNG export terminal

Calgary-based Encana Corporation said March 18 that it will acquire a 30% interest in the planned Kitimat liquefied natural gas (LNG) export terminal, located on the west coast of central British Columbia, and the associated natural gas pipeline. The proposed Kitimat LNG export development is intended to open tremendous new market opportunities in the Asia-Pacific region for abundant supplies of Canadian natural gas.

“New and plentiful natural gas supplies and reserves have created a remarkable opportunity to expand our well-developed North American energy trade to other continents,” said Randy Eresman, Encana’s president and CEO. “With Encana’s investment in this planned international trade facility, we are helping lead a continental push to deliver exports of abundant natural gas, for the first time from Canada, to overseas markets. We are pleased to join the current owners, Apache and EOG, in expanding trade, generating investment and creating new jobs and additional government revenues. We expect that this project will help advance North America’s natural gas economy across the Pacific to markets where demand is growing and natural gas prices are more closely tied to oil prices.”

The proposed Kitimat LNG export development, located about 650 kilometres (404 miles) north of Vancouver at Bish Cove near the Port of Kitimat, has planned initial capacity, from the first of two potential phases, of about 700 million cubic feet per day (MMcf/d) of natural gas, or about 5 million metric tons of LNG per year. The development includes construction of a new 36-inch diameter natural gas pipeline – Pacific Trail Pipelines – running 463 kilometres (288 miles) from the Spectra Energy natural gas transmission system at Summit Lake, BC, to the planned Kitimat LNG export facility. Encana’s 30% interest in the development includes a capacity reserve of 30% in the Kitimat LNG export facility and matching capacity on the proposed pipeline.

The partners expect to complete the front-end engineering and design for the LNG export facility later this year, after which the partners will determine plans for a capital investment decision for the first phase of the development. Project construction could begin in 2012, with exports potentially starting in 2015. The project is operated by Apache Canada Ltd., which will own 40%, with Encana and EOG Resources Canada Inc. each owning 30% respectively. Encana’s acquisition transaction is subject to receipt of appropriate regulatory approvals and satisfaction of other customary closing conditions. It is expected to close in the second quarter of 2011.

Export volumes for the Kitimat LNG project are expected to be supplied by burgeoning natural gas resources in the Canadian provinces of British Columbia and Alberta – the Horn River Basin and the Montney geological formation. According to industry studies, recent BC discoveries indicate the province will have the resource capacity to more than double current production of about 2.8 billion cubic feet per day (bcf/d) to more than 7 bcf/d in the next 7 to 10 years. This is more than sufficient to supply BC, its current customers, and new markets opened by the Kitimat LNG export development.

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