Canada's LNG projects may spark merger boom - analyst

Mon Feb 6, 2012 2:58pm EST

* LNG plans could spark acquisitions, joint ventures

* Planned facilities need additional gas reserves

CALGARY, Alberta Feb 6 (Reuters) - A handful of liquefied natural gas export facilities proposed for Canada's Pacific Coast could spark a round of acquisitions and new joint ventures as the projects' backers look to secure sufficient natural gas supplies to fill their facilities, an analyst said on Monday.

Spurred by low North American natural gas prices and the discovery of big new shale and other unconventional gas fields in northern British Columbia, a number of companies are mulling construction of LNG export facilities to tap Asian markets willing to pay high prices for the fuel.

Canada's National Energy Board has already handed LNG-export licenses to two planned liquefaction projects on the Pacific Coast near Kitimat, British Columbia: Kitimat LNG, backed by Apache Corp, Encana Corp and EOG Resources ; and to BC LNG, a privately held 13-member co-operative.

As well, Royal Dutch Shell Plc and partners Korea Gas Corp, Mitsubishi Corp and China National Petroleum Corp have bought land for a potential LNG export terminal at Kitimat. Progress Energy Resources Corp and Malaysian joint-venture partner Petronas are carrying out a feasibility study for a project of their own.

While interest is hot, some of the potential projects do not have enough gas in the ground to support their export plans and may look to acquire it, Andrew Potter, an analyst at CIBC World Markets, said on a conference call. That could lead to a round of acquisitions and joint venture deals as the backers look to secure supplies for their multibillion-dollar projects.

"There is going to be more consolidation of upstream resource as companies get more serious about LNG projects," Potter said. "The six to ten (billion cubic feet of natural gas) per day of ... export plans for the Kitimat area that are on the table right now require about 44 tcf (trillion cubic feet) to 100 tcf of resources to underpin those facilities."

Potter said that the projects led by Shell and Progress would each need to have about 32 tcf of gas available to feed their plants and now only own about 18 tcf of natural resources.

"What that implies is there is still going to be a huge appetite for (joint ventures) and outright acquisitions," Potter said.

Potter said Encana would likely start the 2012 round of joint venture and merger activity as it wraps up the search for a partner for its Cutbank Ridge holdings in northeastern British Columbia, while Progress could also find additional partners for its extensive shale gas properties.

He also highlighted junior firm Painted Pony Petroleum Ltd as a potential acquisition or joint-venture target "given the fairly large resource base for such a small company."

Potter also said that the planned export terminals will require new pipelines connecting them with the northeastern shale gas fields. While the Apache-led Kitimat LNG is planning a pipeline to serve its project, the analyst expects that eventually one or two large pipelines will be built to serve the region's facilities.

"There is no logic at all to seeing three to five facilities built with three to five independent pipelines," he said.