Idemitsu Kosan Co. Ltd. – Japan's second-largest petroleum company – and AltaGas Ltd. have signed an agreement to pursue opportunities to export liquefied petroleum gas and liquefied natural gas, with each company taking a 50 per cent interest in the partnership.
Under the preliminary plans, liquefied petroleum gas products including propane and butane would be shipped by rail within Canada, and exports to Asia could begin as early as 2016.
Liquefied natural gas projects will take a bit longer, with feasibility studies to be completed in 2014 and an LNG terminal in service as early as 2017 – subject to regulatory approvals, construction schedules and consultations with first nations.
In the interim, Calgary-based AltaGas will look for a gas supply source, and look to expand capacity on the Pacific Northern Gas Ltd. pipeline system, which AltaGas acquired in 2011.
The partnership will first consider Japan – the world's largest LNG importer – for sales, but other Asian markets are a possibility down the line.
"We've had a lot of interest at AltaGas from Asian parties over the last 12 months or so," Debbie Stein, senior vice-president of finance and chief financial officer for AltaGas, said in an interview Tuesday.
"It's really driven by Canada's recent need for looking for new export markets. There have been lots of activities from Asian parties with companies in Calgary, looking for folks to partner up with, to be able to meet that growing demand from Asia."
Ms. Stein noted that demand will be determined in large part by whether Japan moves away from nuclear power generation following the 2011 earthquake and meltdowns at the Fukushima Daiichi nuclear plant.
She said details including the location of the terminal, which is likely to be smaller than the other LNG projects currently proposed, have yet to be determined.
"The work that the partnership has to do over the next several months is securing supply and sales contracts," Ms. Stein said.
Idemitsu Kosan is part-owner of one of the world's largest LPG suppliers, Astomos Energy Corp. Idemitsu Kosan president Kazuhisa Nakano said in a statement the company believes that "a joint venture with AltaGas will enhance the businesses of both companies while making a significant contribution to the national interests of both Canada and Japan."
Royal Bank of Canada analyst Robert Kwan said the deal is positive, though "very preliminary."
"A partnership with Idemitsu affords market access to Asia, which provides AltaGas with the opportunity to capitalize on the existing asset footprint of its Pacific Northern Gas subsidiary," Mr. Kwan said in a statement.
"Despite what could amount to being a significant capital-spend profile, we continue to expect AltaGas to deliver modest annual dividend growth in 2013 with the likelihood of more significant dividend growth in either 2014 or 2015 (i.e., after the Forrest Kerr hydro project [in northwestern British Columbia] is placed into service)."