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Shell joins Kitimat LNG hunt

SHELL CANADA has joined the list of major energy companies pursuing the idea of locating a liquefied natural gas (LNG) export plant in Kitimat.

The company last week announced it had purchased the old Methanex site from Cenovus, another energy company.

Already a company called KM LNG made up of Encana, Apache and EOG is preparing a plant site on the strength of a LNG export licence it has just received and a second company called BC LNG Co-operative is advancing its own plans.

All wish to sell to Asia where prices for natural gas are much higher.

Cenovus has been using the Methanex facilities to import a crude oil thinner called condensate which it then ships to Alberta.

Back in 2005 Cenovus entered into a five-year agreement with Methanex under which Methanex handled the condensate being imported by Cenovus through the closed methanol plant’s terminal.

Under that agreement Cenovus had first right of refusal if Methanex decided to sell the site within that five year period.

And after that five years, assuming no other buyer had come along, Cenovus would have to buy it from Methanex.

Cenovus did that in November of last year, but when delivering its first quarter results for 2011 stated it planned to sell the site.

Explaining the sale, Cenovus spokesman Rhona DelFrari said “terminal service is not part of Cenovus’ core business, we are in the oil and gas industry.”

Therefore it had never been the company’s intention to keep the property.

“So, over the last few months we have been speaking with various parties about the potential sale of [the site].”

DelFrari added Cenovus believed the sale was in the best interests not just of its shareholders, but also the community of Kitimat.

As for what happens now with the importing of condensate, she said the amount going through the Kitimat terminal represented about 20 per cent of the company’s needs.

And that would continue for “the foreseeable future”.

However, she added, “Possibly, at some point in the future when Shell makes a decision about the future of that terminal, then we may have to look elsewhere for our diluent.”

But since Cenovus had signed the original deal with Methanex, “many more sources of diluent have opened up in North America so we’re confident we will be able to find diluent elsewhere.”

As for how much Shell has paid for the site, DelFrari said that under a confidentiality agreement it could not be released.

Cenovus bought the site from Methanex for about $37 million.

Shell spokesman Stephen Doolan also declined to reveal the purchase price.

“It’s in the early stages so we can’t really get into details on the cost side,” he said in an interview.

As for whether Shell intended to locate an LNG plant on the site, he would only say that Shell and its joint venture partners were “exploring the potential.”

He said those partners are Korea Gas, Mitsubishi of Japan and the China National Petroleum Company.

“Getting the location is part of the early stages of exploring the project,” Doolan repeated.

Not surprisingly, Kitimat mayor Joanne Monaghan was upbeat about the announcement.

“I was really pleased,” she said. “This is good news for Kitimat.”

(With files from The Northern Sentinel in Kitimat, BC.)

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