Spectra & BG to Build Gas Line

Texas-based Spectra Energy Corporation ( SE - Analyst Report ) and British natural gas giant BG Group plc have inked a Project Development Agreement to construct a pipeline in Canada’s British Columbia. Per the agreement, both the companies will initially hold a respective 50% stake and jointly develop plans for a new natural gas transportation system that is estimated to cost around C$8 billion ($8.2 billion).

The new pipeline will start from northeast British Columbia and end at BG Group’s potential liquefied natural gas (LNG) export facility in Prince Rupert. The transportation system is being built to carry fuel from the northern British Columbia shale-gas fields to the proposed LNG-export facility. Spectra Energy will be liable for the construction and operational activities, while BG Group will look to contract the projected capacity.

The proposed 850 kilometer (525 mile) long transportation system will have a capacity to carry about 4.2 billion cubic feet of natural gas daily. The system will also be linked to the Spectra Energy system at Station 2 (southwest of Fort St. John) - an emerging natural gas center that collects supply from numerous areas of the province and other supply basins in Western Canada.

The new line is in the early planning stage. The companies will have to work out the permitting process for the intended transportation system and discuss various issues with its stakeholders. Based on the results of these dealings, the project construction is unlikely to commence before 2015, while the line is anticipated to come online by the end of this decade.

A number of LNG based infrastructure has been proposed for northern British Columbia, as the region has immense shale-gas deposits. Further, its proximity to the Pacific coast makes LNG development feasible. Among the various gas-liquefaction projects announced so far, the Kitimat LNG’s facility – owned by Apache Corp. ( APA - Analyst Report ) , Encana Corporation ( ECA - Analyst Report ) and EOG Resources, Inc. ( EOG - Analyst Report ) is considered to be most sophisticated, while the remaining are still in their initial development phases.

Spectra Energy carries a Zacks #3 Rank (Short term Hold rating). Longer term, we maintain our Neutral recommendation on the stock.