LNG Partners books pipeline capacity with PNG


On September 25, 2008, Pacific Northern Gas (PNG) submitted an application to the BC Utilities Commission (BCUC) to enter into an agreement (a “term sheet”) with LNG Partners, whereby PNG would deliver 75 million cubic feet of natural gas from Summit Lake to Kitimat. LNG Partners would source the gas, and would be the shipper on the pipeline.

The BCUC proceeding and documents are at:

A description of the companies and the business arrangement is contained in PNG’s letter of application to the BCUC:

On August 21, 2008 PNG was approached by a representative of Maverick LNG Holdings Ltd. (“Maverick”) to secure an option to contract PNG’s uncontracted firm pipeline capacity (approximately 75 MMcflday) to transport gas sourced from Northeast B.C. to Kitimat.

The gas would then be cooled to LNG on a offshore floating liquefied natural gas production (“FLNG”) vessel moored in the Douglas Channel and stored on board for eventual offloading to an LNG carrier for export to Asian LNG markets. Maverick advised of their plan to commence their FLNG operations in the fourth quarter of 2010 or first quarter of 2011.

Maverick requested PNG to prepare toll proposals assuming a 3 to 5 year term and potential contract demands of 75 MMcUday, 120 MMcUday and 180 MMcfIday. PNG advised Maverick that the latter two expansion scenarios would require hydraulics studies to determine the new pipeline facilities required to meet the higher contract demands. It was subsequently acknowledged that the capital additions for the expansion scenarios would be significant in terms of both cost and scope having regard to the anticipated contract term of only 3 to 5 years. Therefore, PNG and Maverick decided to focus on negotiating the terms under which PNG could provide 75 MMcUday of firm gas transportation service to Maverick. In slightly less than a month, the parties were able to reach agreement on the Term Sheet. At Maverick’s request, the Term Sheet was entered into with LNG Partners, one of the partial owners of Maverick. Background information on LNG Partners and Maverick is provided in the next few paragraphs.

LNG Partners, LLC, a Delaware limited liability company, was formed in late 2000 by Thomas P. Tatham and Frank C. Wade for the purpose of applying developing LNG technology to the monetization or commercialization of “stranded” or undervalued natural gas resources. The two principal owners have been involved in many grass roots oil and gas projects historically and were responsible for developing a good part of the deepwater pipeline infrastructure in the Gulf of Mexico through Leviathan Gas Pipeline Partners, LP and Offshore Pipelines, Inc. respectively.

LNG Partners initial focus was on opportunities in Eastern Canada and Newfoundland and Labrador in particular. It was responsible for developing a multi-purpose LNG terminal and gas to wire strategy for Newfoundland and Labrador Hydro in the 2000-2003 time frame. While the initial proposed facility at Holyrood, Newfoundland was not built, an alternate site at Grassy Point, Placentia Bay, Newfoundland was obtained in 2005 by Newfoundland LNG Ltd., a partially owned LNG Partners subsidiary which has recently received (August 2008) all provincial and federal environmental approvals to construct a multi-purpose LNG terminal with up to 3 berths, 8 LNG storage tanks, a tug basin and up to 200 MW of local power generation.

In late 2005, LNG Partners initiated a second LNG project to develop small scale LNG production on board existing LNG caniers. Based on the results of conceptual engineering studies conducted with Hamworthy Gas Systems AS (Asker, Noway) and SNC-Lavalin (Canada) in early 2006, Maverick was formed in July 2006 and Maverick contracted to purchase its first LNG vessel, the Hoegh Galleon, which was delivered in October 2007 and renamed the Margaret Hill. Current plans are to modify the Margaret Hill to include the latest Hamworthy gas liquefaction technology for FLNG use. Maverick’s current plans are to complete the conversion of the vessel and obtain all requisite classification society permits for FLNG use by the fourth quarter of 2010. If this timetable is met, it is likely that the Margaret Hill will become the world’s first FLNG vessel to be placed in service with the intention that it be deployed to the Kitimat area. Evaluation of alternative mooring locations, related costs and permitting issues are currently in progress for the Kitimat operation. Maverick is in the process of acquiring 3 additional LNG carriers for prospective conversion to FLNG service and is also in the process of evaluating a number of prospective sites for initial production activities.

Posted by Arthur Caldicott on 26 Sep 2008



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