Pipeline Planned for Canada Gas Exports

By EDWARD WELSCH

Updated June 5, 2012, 1:31 p.m. ET 

CALGARY, Alberta—TransCanada Corp. TRP +1.78% said it plans to build and operate a four billion Canadian dollar ($3.85 billion) natural-gas pipeline connecting one of North America's richest gas basins to a Canadian export terminal planned by Royal Dutch Shell RDSA +2.96% PLC and several Asian partners.
The pipeline is the latest project stemming from a $12 billion plan by Shell to send North American gas to eager Asian markets. New drilling technology across the continent has made vast new reserves of gas accessible, sending prices tumbling.
To cope, energy companies—and the Canadian government—are scrambling to open up new exports routes, particularly to Asia, where gas is still fetching high prices. Canadian oil producers, facing bottlenecks getting all their fresh crude production to the U.S., have also been recently pushing to send more exports to Asia.
Canada's federal government has encouraged the push, promising earlier this year to help speed regulatory approval for big energy and mining projects, and the infrastructure that goes along with them.
Last month, Shell formally announced a project to ship 1.6 billion cubic feet a day of super-chilled gas by tanker from a deep-water port in Kitimat, British Columbia, to customers in Asia. It is the largest of three liquefied-natural-gas export terminals planned in Canada and is expected to be completed by the end of the decade. Shell owns 40% of the project, with PetroChina Co., 0857.HK +1.92% Korea Gas Corp. 036460.SE +0.36% and Japan's Mitsubishi Corp. 8058.TO +2.02% each owning 20% stakes in the venture, called LNG Canada.
Shell is just one of several energy companies building LNG export terminals in Canada and the U.S. to create outlets for an overabundance of gas caused by shale-drilling technology that has unlocked massive new reserves. The oversupply caused North American gas prices to fall to a 10-year low below $2 per million British thermal units earlier this year, compared with spot prices in Asia as high as $18 per million BTUs recently.
TransCanada's so-called Coastal GasLink pipeline will ship gas produced from the Montney gas basin in northeastern British Columbia, starting at a terminal in Dawson Creek and stretching 435 miles west to the Kitimat terminal. The Montney is thought to be one of the richest shale gas basins in North America, but it is also one of the farthest from any large U.S. market, making it ideal for LNG export.
The pipeline will go through a regulatory process that includes input from British Columbia aboriginal groups, which have influence over energy projects in the province through their claims to traditional territory. These groups have slowed other pipeline projects, and it is unclear how the federal government's promise to streamline approval will affect the regulatory process for TransCanada. In the past, oil, rather than gas pipelines, have drawn the most opposition from native groups because of the fear of spills.
There are two other Canadian LNG export projects in the works. A project by Apache Corp. APA +3.01% plans to start out smaller and earlier, aiming to send 700 million cubic feet a day from Kitimat by 2016. A later phase envisions increasing output to 1.4 billion cubic feet a day.
Houston-based Apache owns 40% of the project, with natural-gas producers Encana Corp. ECA +2.92% and EOG Resources EOG +3.32% each owning 30% stakes.
The Canadian government also issued an export license to the BC LNG Export Co-operative, made up of 13 small gas producers, which plans to ship up to 250 million cubic feet a day from Kitimat. The project is a joint venture between Houston's LNG Partners LLC and British Columbia's Haisla First Nation and is at an earlier stage of planning than the other projects.