Korea Gas Corp. (“Kogas”) and EnCana Corp. will jointly explore and develop three natural gas with Kogas looking to invest $1.1 billion over the next five years to extract over 1 trillion cubic feet of natural gas from land leases held by EnCana in northeastern BC’s lucrative Horn River Basin and Montney Basin.
The initial agreement is a three-year farm-in deal with EnCana where Korgas will invest $565-million to acquire a 50% interest about 10,000 hectares in the Horn River Basin, and roughly 52,000 hectares in the Montney.
The investment is another step towards B.C. becoming a major export hub of natural gas and Kogas’ second major investment into B.C. gas.
South Korea consumed ~1.2 trillion cubic feet (“Tcf”) of natural gas last year – far below the 443 million cubic feet it produces – making it heavily dependent on imported liquefied natural gas (“LNG”). As a result, Korgas is the world’s single largest buyer LNG in the world and currently operates three LNG import terminals and has plans to build two more. To say the least, natural gas is key to meeting Korea’s – and Asia’s – energy requirements. Korgas’ investment brings further international attention to the huge potential that the Horn River Basin represents. In October, another South Korean energy company, Korea National Oil Corp., acquired Calgary-based Harvest Energy Trust for $4.1 billion.
Kogas’ interest in BC’s Horn River Basin may really started back last June, when Kogas committed $20 billion to Kitimat LNG – a planned LNG export facility located in Kitmat, BC. (See HRN Kitimat LNG signs deal with Korea Gas Corp. worth $20 billion). According to the terms of the agreement, Kogas will acquire ~40% of Kitimat LNG’s production, or two million tonnes per year for 20 years with an option to acquire an equity stake in the terminal. The first natural gas to be shipped from Kitimat LNG is expected in 2014 and with the EnCana deal, Kogas will become both an exporter and importer of natural gas.
Apache Corp. acquired a 51% stake in Kitimat LNG in DATE. Apache holds major gas assets in the Horn River Basin and elsewhere. By investing in Kitimat LNG, Apache ensures an alternative customer to the U.S. for their Horn River natural gas.
Bill Gwozd, vice-president of Calgary consulting company Ziff Group is quoted:
“You’ll probably see more companies looking to invest in Canadian natural gas. The value chain proposition is increased by owning the resources.”
With low natural gas prices, industry players are taking advantage of lower valuations to invest in expanding their holdings and invest both upstream and downstream in the distribution. The reasons are simple. They foresee a bright future for natural gas as a low carbon energy source that is fast becoming a global commodity that can be shipped internationally and will no longer be limited to pipeline distribution.
Globe & Mail: South Korean firm joins EnCana in B.C. gas
