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Pacific Northern Gas Ltd. and Kitimat LNG Inc. announce partnership to develop Kitimat to Summit Lake gas pipeline

VANCOUVER, July 17, 2006 – Pacific Northern Gas Ltd. (TSX:PNG)(TSX:PNG.PR.A) and Kitimat LNG Inc. today announced the formation of Pacific Trail Pipelines Limited Partnership. Pacific Trail Pipelines, a 50/50 partnership between Pacific Northern Gas and Galveston LNG Inc., the parent company of Kitimat LNG, has been established for the purpose of developing the natural gas transmission pipeline system from Kitimat to Summit Lake, British Columbia (the `KSL Project`) to serve Kitimat LNG Inc.'s proposed liquefied natural gas import, regasification and send-out terminal near Kitimat, B.C. (the `Terminal`). Kitimat LNG recently received the provincial environmental permit and certificate for the Terminal and expects to receive federal permits shortly. The KSL Project and the Terminal, the first of its kind to be located on the West Coast of Canada, are expected to commence operations in late 2009, subject to the satisfaction of a number of conditions, including obtaining LNG supply for the Terminal, B.C. Utilities Commission approvals for the KSL Project and financing.

Upon completion of the KSL Project, Pacific Northern Gas' existing mainline transmission system will be transferred to the Partnership and integrated with the KSL Project facilities. Pacific Northern Gas will continue to own and operate its existing gas distribution systems, including its Customer Care Centre in Terrace. Transmission system capacity will be increased from approximately 115 million cubic feet per day (`MMcf/d`) to enable Pacific Trail Pipelines to accept delivery of up to 1,000 MMcf/d of regasified LNG from the Terminal. The KSL Project will entail the construction of approximately 470 kilometers of a 30 or a 36 inch diameter pipeline and any required compression facilities, at an estimated cost of $900 million or $1.2 billion, respectively.

"We are very pleased and excited about the potential benefits of the partnership arrangements," said Roy Dyce, President and Chief Executive Officer of Pacific Northern Gas. "Not only will our ability to provide safe, reliable and secure gas delivery service to existing customers be enhanced by construction of the KSL Project, current customers will also benefit from the economies of scale of the expanded system through significantly lower gas delivery rates upon commencement of operation of the new facilities."

Alfred Sorensen, President of Galveston LNG said, "Our partnership with Pacific Northern Gas will ensure the Terminal has the necessary pipeline facilities in place to move imported LNG into North American markets. This provides LNG suppliers with the certainty they need to choose our project over others being considered for the Pacific Coast and presents a major advantage for our project."

In addition, Pacific Trail Pipelines and Kitimat LNG today signed a Precedent Agreement to coordinate the process of obtaining authorizations for the KSL Project with the development of the Terminal. The agreement outlines, among other things, the key economic arrangements between Pacific Trail Pipelines and Kitimat LNG, as well as the targeted timeline and key milestones for construction of the KSL Project and the Terminal.

Pacific Northern Gas commenced the environmental regulatory review process of the KSL Project by filing a project description with the B.C. Environmental Assessment Office (`BCEAO`) in September 2005. A copy of the project description is available on Pacific Northern's web site at www.png.ca. Project development activities, including engineering design, preliminary route selection and environmental studies, will now be continued by Pacific Trail Pipelines. Regulatory applications are expected to be filed by the Partnership with the B.C. Utilities Commission, the BCEAO and Canadian Environmental Assessment Agency by early spring 2007.


The route for the KSL Project will be determined through technical field studies and consultation with First Nations, the public and regulatory authorities. Pacific Northern Gas' existing right-of-way will be used where appropriate. Subject to commencement of construction of the Terminal and obtaining required regulatory approvals, Pacific Trail Pipelines expects to commence construction of the KSL Project facilities by the first quarter 2008.

Cumulative expenditures by Pacific Northern Gas and Kitimat LNG on the KSL Project are approximately $1.5 million to date with a further $6 million expected for the remainder of 2006. Pacific Northern Gas' expenditures to date on the KSL Project had been deferred with approval of the B.C. Utilities Commission. However these costs will now be transferred and expensed in the Partnership, which is not yet a public utility able to defer the KSL Project costs. As a result, Pacific Northern's previously reported earnings will be reduced by $0.4 million or 11 cents per share. Pacific Northern Gas' share of further KSL Project costs in 2006 will continue to be expensed until commercial arrangements for firm gas transportation services by the Partnership are in place. If development expenditures for the last three quarters of 2006 are expensed, earnings will be further reduced by an estimated $2.0 million or 55 cents per share.

"Completion of the KSL Project will substantially change the profile of Pacific Northern Gas as a gas transmission and distribution player in British Columbia by quadrupling assets and reducing the business risks of the Company," commented Mr. Dyce. "We have evaluated several financial options to fund our interest in Pacific Trail Pipelines and have concluded that traditional corporate financing is the best option. Pacific Northern Gas has therefore decided not to convert to an income trust while it pursues the KSL Project."

Headquartered in Vancouver, B.C., Pacific Northern Gas Ltd. (TSX:PNG)(TSX:PNG.PR.A) owns and operates natural gas transmission and distribution systems. The Company's western transmission line extends from the Duke Energy Gas Transmission system north of Prince George to tidewater at Kitimat and Prince Rupert, and provides service to 12 communities and a number of industrial facilities. In the northeast, PNG's subsidiary Pacific Northern Gas (N.E.) Ltd. provides gas distribution service in the Dawson Creek, Fort St. John and Tumbler Ridge areas.

Kitimat LNG Inc., a wholly owned subsidiary of Galveston LNG Inc., is a Calgary-based private company focused on the development of LNG and related facilities in North America.

For more information, or to arrange interviews, contact Patti Schom-Moffatt, Director of Communications and Consultation, Kitimat LNG at 250.279.0224 or 604.999.9058.

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