By REBECCA PENTY and BRADLEY OLSON
Chevrons plan to build a natural gas shipping terminal
on Canadas Pacific Coast faces mounting challenges with
the exit of its partner, Apache.
The proposal to liquefy the fuel in Kitimat, British
Columbia, the first to get export approval in Canada, was
already delayed by prior ownership changes including the
departures of Encana and EOG Resources. Its among more
than a dozen Pacific Coast LNG export plants being considered
by companies seeking higher prices for the fuel in Asia,
including Royal Dutch Shell and Petronas.
Chevron, based in San Ramon, California, probably wont
pursue Kitimat LNG on its own, given the cost overruns at its
in Australia, said Fadel
Gheit, an analyst with Oppenheimer & Co. in New York. The
cost to build Gorgon, where Chevron has partners including
Exxon Mobil Corp., surged to $54 billion from an estimate of
$37 billion in 2009.
The odds increase that there will be no Kitimat,
Gheit said in a phone interview on July 31. I would not
think that they would be interested in going it alone. They
had a bad experience in Australia with Gorgon and their
co-pilots were Exxon, the best in the business.
Apache, facing pressure from activist hedge fund Jana
Partners to cut spending and focus drilling in the US, heeded
the investors advice on July 31 by stating it will exit
the Canadian project and will sell its stake in the
Wheatstone LNG facility under construction
Apache gained 1.4% to $102.66 at the close in New York after
earlier rising to $104.57, the highest intraday since March
2012. Chevron fell 2.5%.
Kurt Glaubitz, a spokesman for Chevron, declined to comment
on Apaches departure from the project.
I dont think the complete exit by Apache has an
impact on Kitimat going forward one way or the other,
Apache Chairman and CEO Steve Farris said on July 31 on a
conference call with investors. It is a world-class
project with world-class reserves.
Chevron and Apache had already been seeking a buyer to
acquire part of their interests in Kitimat LNG to defray
costs. The project, the first to receive an LNG export
license from Canadas National Energy Board in 2011, has
yet to be sanctioned.
Petronas, plans to be the first to decide whether to proceed
with a Canadian LNG export project
. The Malaysian state-owned
company is targeting a decision on the C$9 billion ($8.3
billion) to C$11 billion proposal by the end of this year.
Kitimat LNG was initially considered by Calgary-based
developer Galveston LNG Inc. as an import terminal last
decade and the concept was switched to an export facility
after vast supplies of gas from shale across North America
flooded continental markets. Galveston attracted Apache as a
partner and was later acquired by EOG. Encana joined the
project in 2011.
Chevron stated it would enter Kitimat LNG the following year,
when Encana and EOG sold their stakes to focus on producing
onshore fuels. The project was delayed after Chevron joined
as the partners reorganized roles, undertook additional
studies and sought more partners to spread costs.
Kitimat LNGs early export license gave it a head start
on the other Canadian proposals, and it succeeded in lining
up pipeline approvals and aboriginal support.
After that, the project struggled to find buyers for its gas.
Apaches departure now pushes Kitimat LNG lower on the
list of the plants that may be built, Ed Kallio and Cameron
Gingrich, directors at Solomon Associates LLCs Ziff
Energy division in Calgary, said in a phone interview.
They were having issues finding markets, unlike Shell
and Petronas, Kallio said.
By losing Apache, Chevron may attract a partner with
experience developing LNG and contacts in the market that
missed the first wave of investment in Canada, said Uday
Turaga, CEO of ADI Analytics in Houston.
I dont think there will be a dearth of suitors
who may want to take Apaches place, Turaga said
in a phone interview. Its going to be a bit of
rough weather for the project
until additional partners
can be lined up.