Enbridge Inc. eyes LNG midstream role in B.C.

Northern Gateway proponent aims to add natural gas production to crude oil business

Enbridge Inc. (ENB:TSX) is among a number of companies interested in developing LNG (liquefied natural gas) export markets in B.C., according to company officials.

Enbridge, which entered the Canadian midstream business a year ago with the acquisition of a majority interest in the Cabin natural gas plant in the Horn River Basin, has been working with producers to come up with an industry-based solution for LNG, Leon Zupan, the company's president of gas transmission, told Enbridge's investor day in Toronto on October 3.

"After working in B.C. for the last 10 years on Northern Gateway [crude oil project], we believe we are in a very good position to develop a project there as well," he said.

"Reserve certainty and the ability to underpin LNG liquefaction is really the key," added Al Monaco, Enbridge's new president and chief executive officer. "I think the producers will look to us for that midstream capability which gives them certainty on that and where we can really leverage our low cost of capital – providing, of course, that we have the commercial underpinning for that."

Apache Corp. (APA:NYE), Encana Corp. (ECA:NYE) and EOG Resources Inc. (EOG:NYE), which have large gas holdings in the Horn River Basin, have indicated they are looking for a 20% partner for their planned LNG project at Kitimat.

TransCanada Corp. (TRP:TSX) has signed up to build a pipeline to an LNG terminal at Kitimat proposed by Royal Dutch Shell PLC and its partners, Korea Gas Corp. (KOGAS), Mitsubishi Corp. and PetroChina Company Ltd. Spectra and BG Group PLC are planning a pipeline to a potential LNG terminal at Prince Rupert.

Zupan said Enbridge believes that as operators continue to use technology to drill up shale gas formations in northeast B.C. and Alberta there is the potential to bring on large volumes of gas in a short period.

"We really believe there is a good opportunity to see LNG come on board in the future."

Zupan said key issues include:

•ensuring that producers have established the markets to justify drilling the large fields;

•ensuring that there is a good supply base that can be drilled out in the right period of time;

•the right infrastructure to get to the right tidewater port can be provided and;

•there is the right liquefaction player.

Analysts were told that the first two phases of Cabin have been commercially secured for $1.1 billion and that the first Cabin gas plant is 92% complete and is scheduled to be finished in December. The Cabin 2 gas plant is about 50% complete.

Zupan said Enbridge sees $4.5 billion in potential opportunities, including future phases of Cabin as more dry gas will be required for LNG exports. The company also sees additional projects as producers are looking for the midstream solutions to transport their gas and provide their facilities, especially those in the Duvernay and Montney.

The Alliance pipeline in which Enbridge has a 50% interest is also well positioned to capture rich gas supply growth and deliver it to the Aux Sable plant in Channahon, Illinois, of which Enbridge owns 43%, said Zupan.

The pipeline runs through the rich gas area in Canada and the northern U.S.

With the Alliance system running right through the liquids-rich Montney and Duvernay plays in Canada, where drilling is expected to increase, Enbridge believes it will be in a good position to capture that rich gas and bring it to market. •

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