Russian energy giant Gazprom plans to enhance its North American presence by partnering with Canadian pipeline companies Enbridge Inc. and Gaz Metro to supply the proposed Rabaska liquid natural gas terminal in Lévis, Que.
Gazprom's U.S. subsidiary signed a letter of intent Thursday to become an equity partner in the proposed $840-million Rabaska liquefied natural gas (LNG) project with the two Canadian companies and Gaz de France.
Gazprom would contract to supply all of the import terminal's capacity and expects to import Russian LNG supplied from the Shtokman liquefaction project under development in 2014.
Financial terms of the deal, expected to be completed this year, were not disclosed.
LNG will supply Canada first
The Shtokman gas field discovered in 1988 is located in the Barents Sea, which is part of the Arctic Ocean north of Norway and Russia.
The Rabaska terminal is designed to store and re-gasify up to 500 million cubic feet per day of natural gas.
"The North American market is promising but our priority with this project is to supply the local Canadian market," Gazprom vice-president Alexander Medvedev said at a news conference in Quebec city Thursday.
"We aren't coming with empty hands. I can tell you that we will honour our commitments to supply gas."
There are several LNG projects on the drawing board that would be required to bring natural gas from overseas fields to North America, which has been essentially self-sufficient in that commodity.
Russian LNG will supply the key Canadian markets in Quebec and eastern Ontario.
Project will diversify Quebec's gas supplies
Rabaska has already obtained the key federal and provincial government approvals to proceed with construction of the terminal in Lévis — across the St. Lawrence River from Quebec City — beginning in 2010.
Gaz Metro chief executive Sophie Brochu said the partnership with Gazprom confirms the viability and competitive strengths of the project.
"Through this venture, Quebec will be connected to one of the world's largest natural gas fields, which will contribute to diversification of its gas supplies while enhancing Quebec's competitiveness," she stated.
The new supply will benefit Ontario and Quebec's growing gas consumers, and support Ontario's increasing emphasis on the environmentally friendly fuel, added Stephen Letwin, executive vice-president of Enbridge.
Jean-Marie Dauger, chief operating officer of Gaz de France, said the Rabaska partnership results from relationships the French company established with Gazprom for more than 30 years.
Daniel Shteyn of Desjardins Securities said a long-term supply contract underpins the economic viability of Quebec LNG.
"Although visibility is lacking in regard to the ultimate economics of the potential supply agreement, the earnings impact to Gaz Metro would likely be more significant than the impact to either Enbridge or TransCanada, given that the LNG projects are relatively small on a consolidated basis for either of the latter companies," he wrote in a report.
Gazprom is Russia's largest company and the world's biggest natural gas producer, with reserves of 29 trillion cubic metres.
On the Toronto Stock Exchange, Gaz Metro's shares lost four cents to $15.96 in afternoon trading Thursday. Enbridge's shares gained 26 cents to $44.26.