• Tuesday, August 14, 2018
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B.C.’s LNG dream still within reach

By BCShippingNews 13 July 2018
Artist's rendering of the LNG Canada site in Kitimat (courtesy LNG Canada).
Keeping track of LNG proposals...some are more positive than others when it comes to seeing light at the end of the pipeline...

In early 2012, the B.C. government of the day released an LNG strategy that looked to have the first LNG plant “up and running by 2015, with a total of three LNG facilities operating by 2020.” Even the Honourable Rich Coleman, then Minister of Energy and Mines, noted that “these are bold targets...” A number of factors have played a role in delaying B.C.’s dreams of a strong LNG industry — global LNG markets, licence approval processes, etc. — but the fact remains that B.C.’s LNG industry is still alive and inching forward.

What started out as 20 projects in 2012 has been reduced to 15 following the cancellations of Aurora LNG, Grassy Point LNG, Prince Rupert LNG and Pacific Northwest LNG and the indefinite shelving of Douglas Channel LNG. The remaining proposals are at various stages — some much more positive than others when it comes to seeing light at the end of the pipeline.

Current climate

B.C. has a 200-year supply of natural gas. Given that the U.S. is now a net exporter of LNG (and expected to become the third-largest exporter in the world by 2020), finding new markets for Canada’s resource is becoming a critical, even urgent task, one not going unnoticed by the provincial government.

Photo above: Artist's rendering of the LNG Canada site in Kitimat (courtesy LNG Canada).

In March 2018, Premier John Horgan announced a new framework for natural gas development in the province that provides for relief from provincial sales tax; new GHG emission standards; electricity rates that are consistent with other industrial users; and elimination of the LNG income tax that had required LNG-specific tax rates. The new approach also set out conditions for all projects that guarantee a fair return for B.C.’s natural resources; jobs and training opportunities; respect and partnerships with First Nations; and protecting B.C.’s air, land and water.

While the announcement was made to facilitate a positive financial investment decision later this year by LNG Canada (the largest project proposed for B.C.), Green Party leader Andrew Weaver and the three-member caucus that holds the balance of power in the B.C. government expressed concern that development of an LNG industry will thwart B.C.’s efforts to meet GHG reduction targets. In stating his position, Weaver promised that if the measures were to go ahead “unamended,” the Greens would no longer have confidence in this government. Whether he follows through on bringing the government down over this issue remains to be seen.

In terms of the global market outlook for natural gas, demand continues to grow around the world. Predictions from Shell indicate an increase by at least one-third by 2040. According to Shell’s recent LNG Outlook 2018, “The LNG market has continued to defy expectations, growing by 29 million tonnes in 2017. Based on current demand projections, Shell sees potential for a supply shortage developing in the mid-2020s, unless new LNG production project commitments are made soon.” ExxonMobil was even more optimistic with their predictions, expecting 40 per cent growth over the same timeframe.

Yes, yes and fingers crossed

Canada’s first shipment of LNG left FortisBC’s Tilbury LNG facility in mid-November 2017 destined for China. The LNG ISO-container shipment of approximately 17 tonnes was transported by container ship rather than LNG tanker, but was nonetheless a milestone. Subsequent LNG ISO-container shipments have also gone by container ship.

WesPac Midstream – Vancouver LLC is proposing to build a marine jetty next to the Tilbury LNG facility. The marine jetty would provide the capability to dock and load LNG barges or carrier ships directly from the Tilbury LNG facility, rather than just by container ship. This project is still in the early days of the planning and consultation phase. Current activities are within the Environmental Assessment process managed by the BC Environmental Assessment Office.

Coupled with the expansion project at Tilbury — which will add 1.1 million gigajoules of LNG storage capacity and according to the latest project schedule is expected to be operational later this year — FortisBC is one of the front-runners in B.C.’s LNG export industry.

Having been granted a 40-year licence from the National Energy Board (NEB) to export approximately 2.1 million tonnes of LNG per year, Woodfibre LNG cleared another hurdle this past March when it received environmental approval from the Minister of Environment and Climate Change for changes to its cooling technology. Despite reports in October 2017 that they were delaying the start of construction, Woodfibre spokesperson Jennifer Siddon noted that significant progress on the project has been made. This past December, KBR, Inc. was selected to carry out Pre-Notice to Proceed services. This followed the completion of a competitive Front End Engineering Design (FEED) process which was announced in October 2016. The next project milestone will be the award of an Engineering, Procurement and Construction contract sometime this year with construction on the terminal expected to start by late 2018/early 2019. Should all go according to plan, Siddon expected Woodfibre LNG to be operational by the early to mid-2020s.

Well over 10 times the size of Woodfibre at 26 mtpa (at full capacity) and representing the largest energy investment project ever to be built in Canada, LNG Canada is working towards its FID, which they expect their Joint Venture Participants to announce later this year, although the exact timing is up to the JVPs to determine. It has achieved all of its regulatory permits and a 40-year export licence from the NEB, and recently announced the successful bidder for the Engineering, Procurement and Construction Contract. The joint venture between JGC Corporation and Fluor Corporation will be responsible for directly hiring the majority of the thousands of skilled workers that will be required during the five-year construction period.

While careful to not disclose their decision prematurely, a sign that things are looking positive came when BC Energy Minister Michelle Mungall told reporters that Petronas was back at the table and now investing with Shell’s LNG Canada project. While neither Petronas nor LNG Canada has confirmed the report, if true, it would be a very good sign nonetheless.

Maybe

Beyond the three above, three additional LNG proposals continue to make progress albeit have indicated final investment decisions are still at least a couple of years away.

Steelhead LNG is developing the Kwispaa LNG project on Huu-ay-aht First Nations-owned land in the Alberni Inlet, just 11 nautical miles from the open ocean. Steelhead LNG and Huu-ay-aht First Nations executed lifecycle Relationship Agreements in June 2017, and in January 2018, Steelhead LNG shortlisted four global contractors for the FEED work, with two successful bidders to be announced in Q3 2018. Steelhead LNG has also provisionally nominated Hyundai Heavy Industries to supply the hulls for the At-Shore LNG™ units. A Project Description is expected to be filed in mid-2018, with FID expected in 2020. Steelhead LNG has been granted NEB export licences for up to 24 million tonnes per annum for 25 years, with Phase 1 starting with 12 mtpa in 2024.

The Chevron and Woodside joint partnership project known as Kitimat LNG has received all major provincial and federal environmental assessment certificates as well as its NEB export licence to ship 10 million tonnes per year. Currently in the FEED phase, the project website notes that FID is dependent on “finalizing the engineering and design work, establishing a stable and competitive fiscal framework from government, gaining additional First Nations support and securing firm LNG sales agreements.” In what could be taken as a sign that news may come soon, a recent Globe and Mail news item reported that Chevron is in talks with Petronas to sell a minority stake in the project.

In the meantime, WCC LNG Ltd., whose 30-mtpa project is just north of Prince Rupert, announced that while remaining in the Pre-Application stage of the environmental assessment process, the Imperial Oil/ExxonMobil project will continue at a slower pace throughout 2018, citing uncertain LNG market conditions and economic uncertainties. No timeline has been established for an FID.

Maybe not

There are six projects that, at present, look doubtful — or at the very least, still have a long process ahead of them.

Discovery LNG, proposed for the old Elk Falls Paper Mill, while having obtained its NEB export licence for 20 mtpa, is still looking for investment partners and has not yet identified a pipeline route.

Likewise, Orca LNG, while having been granted an export licence for six floating facilities with a capacity to ship 24 mtpa, hasn’t yet confirmed their location (except to say that it would be in the Prince Rupert area) and have not yet confirmed whether they would build a new pipeline or use existing infrastructure.

Cedar LNG has received approval from the NEB for one of its three applications for floating facilities but has yet to secure approval for another two and have still not settled on a pipeline route.

And while the official word from Altagas on Douglas Channel LNG and Triton LNG is that “both projects are on hold,” with their LPG terminal moving ahead on Ridley Island, it is unlikely either of these projects will proceed anytime soon. Watson Island LNG is also another one unlikely to be realized. The project, while never officially cancelled, no longer has a website.

You never know

Five more projects that have been announced but are at very early stages of development and could go either way include NewTimes Energy LNG which has received NEB approval for a 12-mtpa floating facility but has not yet selected a location; Nisga’a LNG which has yet to submit an application but is first looking to attract investors; the Kitsault Energy Project north of Prince Rupert for 20 mtpa which is described as “still speculative;” the Canada Stewart Energy project which has been granted an export licence but has still to reach an agreement on a pipeline that would supply a floating facility to start before moving to a land-based infrastructure; and — while Shell may have cancelled their Prince Rupert LNG project, Engbridge’s Spectra is trying to find another partner for the Westcoast Connector pipeline that was associated with it.

Conclusion

Predictions that B.C. would have three terminals exporting natural gas by 2020 will obviously not happen. However, it is looking like at least three will be operating by the mid-2020s — WesPac at FortisBC’s Tilbury facility, Woodbridge, and LNG Canada (Mark Turner, Senior Marine Advisor for LNG Canada reported to BC Shipping News in 2017 that, once the FID is made, construction will take about five years). Optimistically beyond that, another three have a good shot of moving ahead although timing is less certain.

That being said, all projects are still at the whim of global markets and economies as well as cumbersome government approval processes, political machinations and social licence. Time will tell.