March 18, 2011 / 11:43 AM / in 7 years

UPDATE 5-Encana seeks new markets, buys into Apache plant

* Encana to buy 30 pct interest in export terminal

* Apache to sell 11 pct of interest; EOG 19 percent

* Encana, Apache shares climb, EOG up slightly (Updates stocks, adds Japan crisis impact on gas demand)

By Jeffrey Jones and Anna Driver

CALGARY/HOUSTON, March 18 (Reuters) - Encana Corp (ECA.TO) will buy a 30 percent stake in the planned Kitimat liquefied natural gas export terminal on Canada’s West Coast from Apache Corp (APA.N) and EOG Resources Inc (EOG.N) as it seeks to tap new markets for its burgeoning shale gas output.

Financial details of the deal were not disclosed, but Apache said Friday it will sell Encana 11 percent of its equity in the project, while EOG will sell 19 percent.

The deal gives Encana, Canada’s top gas producer, a piece of a project at the forefront of North American efforts to supply the fast-developing Asian market as domestic prices languish at around $4 per million British thermal units.

Analysts expect Japan’s nuclear crisis to drive up LNG demand, as the country struggles to make up lost power supply, providing more impetus to expand export capacity.

“Encana brings to the partnership tremendous credibility in Canada and we believe that this helps move the Kitimat project that much closer to fruition,” Houston-based energy investment bank Simmons & Co said in a note to clients.

“Encana also brings close ties to Asia as the company recently signed a large joint venture with PetroChina for Canadian gas.”

The cost of the Kitimat project was estimated at $3 billion about a year ago, and officials said the partners must complete front-end engineering to confirm a new estimate,

A boom in production, largely due to discoveries of massive shale gas fields in several regions, has created a supply glut in North America, pressuring prices for the fuel and prompting energy companies to seek new buyers.

Interest from potential buyers has been “quite high,” said Janine McArdle, president of Kitimat LNG and senior vice president-gas monetization at Apache and any contracts would be linked to crude prices rather than to natural gas prices.

The price discrepancy in North American and Asian markets was the driver behind the deal, one of several Encana is pursuing to find new demand for its gas, it said.

“LNG prices in Asia are $12 per mmBtu, and we know what they are here. There is a desire for energy and we have a surplus in North America,” said spokesman Alan Boras.

The project, located at Bish Cove near Kitimat, 400 miles (650 km) north of Vancouver, has planned capacity of about 700 million cubic feet of natural gas a day, or 5 million tonnes of liquefied natural gas a year. Operations would start in 2015.

It won environmental approvals in 2008 and 2009 and was the first LNG proposal for the Canadian Pacific Coast. Apache bought 51 percent and became operator a year later. Other plans have been proposed as British Columbia gas production climbed.

The plan calls for a 463 km (288 mile) pipeline to the facility from Spectra Energy Corp’s (SE.N) British Columbia transmission system, which carries the bulk of gas in Canada’s westernmost province to domestic and export markets.

The plant is expected to be fed by gas from the Horn River and Montney shale gas deposits, seen as some of the largest in North America. Encana said recent studies indicate British Columbia’s gas production could jump to 7 billion cubic feet a day in seven to 10 years from the current 2.8 bcfd.

Last month, PetroChina Co Ltd (0857.HK) paid $5.4 billion for a half interest in one of Encana’s largest British Columbia gas prospects, the richest foreign gas deal yet by a Chinese state oil company. That showed China’s interest in developing the resources and the technology needed to extract them.

Encana shares were up 47 Canadian cents, or 1.4 percent, at C$33.55 on the Toronto Stock Exchange. In New York, Apache rose $1.42, or 1.2 percent, to $130.03, and EOG dipped 8 cents to $108.60. ($1=$0.98 Canadian) (Additional reporting by Matt Daily in New York and Vaishnavi Bala in Bangalore; editing by Janet Guttsman)

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