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TransCanada to build $1.9-billion pipeline link for Kitimat LNG project

Kitimat LNG site, which is under construction near Kitimat April 8, 2014. It is owned by Chevron and Apache LNG.

John Lehmann/The Globe and Mail

A $1.9-billion pipeline pact with TransCanada Corp. is the latest boost for Kitimat LNG, a project that has been fighting to stay near the head of the pack in a heated race to export liquefied natural gas.

Under the deal announced Wednesday, TransCanada will build a 260-kilometre pipeline from natural gas fields in northeastern British Columbia to Summit Lake in the province's interior. TransCanada said its Merrick Mainline project will connect with Kitimat LNG's proposed Pacific Trail Pipeline that is slated to run from Summit Lake to a planned export terminal in Kitimat in northwestern British Columbia.

The Canadian units of U.S. energy giants Chevron Corp. and Apache Corp. co-own the Kitimat LNG project, which is seeking to send LNG by tankers to energy-thirsty customers in Asia.

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There are 14 B.C. LNG projects on the drawing board, but industry experts predict that there will only be four at most that come to fruition.

Pacific NorthWest LNG, led by Malaysia's state-owned Petronas, is considered by many industry experts as the front-runner in the competition to super-cool natural gas into liquid form in British Columbia. The LNG Canada joint venture, led by Shell Canada Energy, is often named as being in second spot behind Pacific NorthWest LNG.

Amid the jockeying for position, Kitimat LNG is sometimes seen as a third-place contender. Some industry observers have pointed out that Kitimat LNG hasn't announced the Asian buyers for its commodity, compared with Pacific NorthWest LNG's confirmation of customers.

Kitimat LNG, however, has obtained major federal and provincial environmental permits – approvals still being sought by major rivals.

Indeed, in terms of clearing hurdles, the Chevron-Apache venture is the leading LNG project in Canada, said Rod Maier, manager of external relations at Kitimat LNG and an executive at Chevron Canada Ltd.

"We've been doing the early site work, and that includes converting what was a forestry service road – sort of a quad bike trail – into a crushed-rock road. It will be a paved two-lane road out to site within a year," Mr. Maier said in a recent interview in Vancouver.

The preparation work on site and at the regulatory level are crucial. "There's the old saying, 'Only those who have walked the road know where the potholes are.' We think we have a significant advantage," Mr. Maier said.

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In the fall of 2011, Kitimat LNG became the first such project to receive an export licence from the National Energy Board. Five months ago, the Chevron-Apache team awarded a key engineering, procurement and construction contract to Texas-based Fluor Corp. and JGC of Japan.

"We've also done some early work on the Pacific Trail Pipeline, which is another key component of our project," Mr. Maier said. "We have benefits agreements with 15 of 16 First Nations that are along the pipeline right-of-way that runs from Summit Lake to Kitimat."

Apache is the operator on the natural gas drilling side, primarily in the Liard basin but also the Horn River play in northern B.C., near the boundary with Yukon and the Northwest Territories. TransCanada, through its Nova Gas Transmission Ltd. subsidiary, will start its Merrick Mainline at the Groundbirch section near Dawson Creek, B.C., aiming to open the line in early 2020.

Pacific NorthWest LNG will announce its final investment decision (FID) by the end of 2014, but Mr. Maier said Kitimat LNG is methodically working its way toward making its go or no-go call, and has not set a deadline. "In terms of FID, we need to make the right decision at the right time as opposed to being driven by a schedule," he said.

Mr. Maier said he is confident that Kitimat LNG will attain its target of signing up long-term buyers for 65 to 70 per cent of the project's production.

Mr. Maier also serves as interim chairman of the newly formed B.C. LNG Developers Alliance, whose four founding members are Kitimat LNG, Pacific NorthWest LNG, LNG Canada and BG Group PLC's Prince Rupert LNG. He said the B.C. government needs to formulate a tax regime on LNG this fall that provides competitive and stable fiscal terms.

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Calgary-based TransCanada noted that the Merrick line's construction hinges on Kitimat LNG making a final investment decision on whether to forge ahead with an export terminal to be built on the Haisla First Nation's territory.

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About the Author

Brent Jang is a business reporter in The Globe and Mail’s Vancouver bureau. He joined the Globe in 1995. His former positions include transportation reporter in Toronto, energy correspondent in Calgary and Western columnist for Report on Business. He holds a Bachelor of Commerce degree from the University of Alberta, where he served as Editor-in-Chief of The Gateway student newspaper. Mr. More

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