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BC rides LNG rollercoaster: First Nations partner in 15th plan
When it comes to British Columbia’s LNG outlook, the lineup of players keeps getting longer, while warnings about the province’s chances of competing in the global arena keep getting stronger.
The latest entry into the congested field of hopefuls comes with a new twist: A self-governing aboriginal community of 750 people has joined a startup company in signing a deal to develop what would be a massive LNG export terminal on the west coast of Vancouver Island.
The partnership’s dream has been formally launched with an application to the National Energy Board for permission to ship 30 million metric tons a year of LNG to Asia over 25 years, using four trains and starting with 12 million metric tons in 2022.
Members of the Huu-ay-aht First Nations, HFN, are working with project leader Steelhead LNG to build a liquefaction and tanker terminal near Bamfield on the southwest corner of the island.
Capital costs have been estimated at US$30 billion, making the Steelhead project one of the costliest of the 15 proposals now in the works.
The plus for the partners is the planned location of the terminal, putting it much closer than any of the other British Columbia ventures to the prized Asian market.
800-mile pipeline required But the biggest physical obstacle is building an 800-mile pipeline from the gas fields in northeastern British Columbia to the West Coast, crossing the Georgia Strait to Vancouver Island then traversing a difficult terrain to the Alberni Inlet, where the partners have rights to about 750 acres of flat, protested land and a deepwater terminal with open access to the Pacific Ocean and potential markets in Japan, China and South Korea.
Steelhead Chief Executive Officer Nigel Kuzemko, while conceding a final investment decision is probably four years away, said his company has the edge over its rivals as the first to establish a partnership with a First Nation.
He said the HFN’s understanding of environmental issues, acquired over many generations, provides an edge.
But he concedes that getting gas from the British Columbia fields to the terminal site is one of the first economic questions that must be addressed.
HFN economic development officer John Jack said Steelhead is admired for the way it approached the aboriginal community “rather than trying to get all this on their own and then coming to us after the fact.”
Steelhead hopes to reach a joint venture agreement with HFN which would help facilitate deals with other First Nations along the pipeline route.
Parent private equity firm Steelhead hopes to leverage the contact list of its parent company KERN Partners, whose financial backers are dominated by Canadian pension funds and North American university endowments.
The Calgary-based private equity firm has more than C$2.3 billion in assets under management, with stakes in a number of smaller Canadian companies including Legacy Oil + Gas, Black Swan Energy and Seven Generations Energy and is engaged in talks with a number of independent operators to secure its gas supplies, Kuzemko said.
The company hopes to attract Asian investors to the project, Kuzemko said.
“What appeals to Asian buyers is that we are independent,” said the chief executive officer who has experience in the LNG sector working with Shell, Australia’s Santos, Qatargas Operating Co. and Russia's Gazprom and helped develop plans for Australia’s Gladstone project.
Kuzemko said he has assembled a team of executives who have worked in Australia to ensure that British Columbia’s planned tax regime does not spiral out of control.
Report urges swift action Separately, a University of Calgary report has joined the chorus of those who are warning that unless the British Columbia government can act swiftly to enter the global LNG market it could lose out to international competitors, notably the United States, Australia, Qatar and Mozambique.
Michal Moore, director of energy and environmental policy at the university’s public policy school, said that unless British Columbia has LNG plants under construction by 2018 it will fall behind those who have contracts locked up in Asia.
He said late arrivals face potentially higher capital and financing costs, along with the risk that the premium prices paid for LNG in Asia may taper off.
The 86-page report notes that the British Columbia government is behind its original goal of having at least one terminal operating by 2015, while Cheniere Energy expects to have LNG ready for export from the U.S. Gulf Coast as early as next year.
Moore told a news conference in Vancouver it is unlikely that British Columbia will even proceed with three plants.
“The market is large and it is growing, but there are lots of countries and companies lined up to provide adequate supply to meet the demand in the short term and in the long term. So, to imagine the market is infinitely large and infinitely growing ... is simply a mistake,” Moore told reporters.
Coleman cites ‘tremendous progress’ British Columbia Natural Gas Development Minister Rich Coleman, who is responsible for the LNG agenda, has shown no signs of doubt, insisting his government has “made tremendous progress,” with global LNG companies “showing a strong commitment (to B.C.) and making large investments.”
The University of Calgary report was critical of the province’s plan to impose a new tax on LNG production, arguing LNG was being singled out for a special tax on top of existing corporate taxes and royalties on gas extraction.
“If the British Columbia government is concerned that its citizens are not getting their fair share, that should be addressed in the royalty system and not through an LNG tax,” said university researcher Jennifer Winter.
- Gary Park
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