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Asia: Japan utilities buy into Mitsubishi Canadian shale gas project

https://www.chemnet.com   May 10,2011 Platts
A group of Japanese utilities have signed an agreement to acquire stakes in Canadian Penn West Energy's shale gas project in Cordova, northeastern British Columbia, by way of shares in a subsidiary of Mitsubishi, the companies said in a joint statement Monday.

Chubu Electric, Tokyo Gas and Osaka Gas have each agreed to take a 7.5% stake in Cordoba Gas Resources, a 100%-owned subsidiary of Mitsubishi that owns 50% of PWE's project, the companies said.

The utilities said that their participation in the project was a means to diversify their import sources. They added that they intended to discuss the option of importing Canadian shale gas as LNG "in the future."

A senior Tokyo Gas official told reporters Monday, however, that as yet "nothing has been decided" on their idea of importing shale gas as LNG.

Alongside the utilities' participation, state-owned Japan Oil, Gas and Metals National Corporation, or Jogmec, has taken a stake in another of Mitsubishi's subsidiaries, Shale Gas Investment, which will indirectly give Jogmec a 7.5% stake in Cordoba Gas Resources, according to Monday's joint statement.

The PWE joint venture aims to lift current output of approximately 30,000 Mcf/day to about 500,000 Mcf/day -- 3.5 million mt/year of LNG equivalent -- by 2014. Based upon third-party evaluations, Mitsubishi believes that the shale gas resources in this project are approximately 5 trillion-8 trillion cubic feet, or around 100 million-160 million mt/year, the companies said.

Asked about the economics of the possible LNG project, a senior Tokyo Gas official said they were unclear for the moment since LNG costs differed on a project-by-project basis. He added that the production levels planned for 2014 referred to gas supplies from the project and did not reflect an estimated level for any possible LNG project.

The official said that costs for an LNG project would be helped due to the fact that there was already an existing pipeline from Cordoba to the Pacific coast. So if the companies went ahead with an LNG project on the Pacific coast, it would not require as much new infrastructure as an entirely greenfield project.

The deals mark the first foray into shale gas projects by Japanese power and gas utilities as well as Jogmec. Neither the utilities nor Jogmec revealed financial terms of the deals.

The utilities have agreed to jointly develop the project alongside Mitsubishi, the group said. They have already raised C$1 billion ($1.04 billion) in project financing for CGR from the Japan Bank for International Cooperation and the Bank of Tokyo-Mitsubishi UFJ.

Mitsubishi announced in August last year that it was taking a 50% stake in the Canadian project.

At that time, Mitsubishi said it intended to promote development and production in this region for the next 50 years together with PWE and market Mitsubishi's equity share of production in the North American market, partly through CIMA Energy Ltd., a US-based gas marketing company in which Mitsubishi has a 34% stake.

Mitsubishi's total acquisition cost was approximately C$450 million, the company said in August. In addition to approximately C$250 million for the purchase of 50% of the existing assets, Mitsubishi would fund an additional approximately C$200 million for future exploration and development capital expenditure, it said.

There are already plans to construct an LNG export terminal in western Canada -- Apache's Kitimat LNG project -- on the coast of central British Columbia. Construction of the terminal could begin next year, with exports possibly starting in 2015. Apache owns 40% of the project, while EOG Resources owns 30% and Encana the remainder, following a deal announced in late March.

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