Providing coverage of Alaska and northern Canada's oil and gas industry
November 2012

Vol. 17, No. 48 Week of November 25, 2012

BC LNG plans advancing

BG, Spectra lay out first timetables for project; Apache says no delay at Kitimat

Gary Park

For Petroleum News

The British Columbia government is doing all it can to clear the path for LNG exports out of the province while the industry players intensify their own battle for lead-off positions.

In the latest development, BG Group, with Spectra Energy as a pipeline partner, has provided its first outline of a timetable that points to a final investment decision about 2015 for a possible two-train LNG export facility at Ridley Island near Prince Rupert.

Some of the details were presented Nov. 13 at the Prince Rupert city council, including an approximate target of late this decade for a start of commercial operations, assuming a corporate sanctioning, BG spokesman David Byford said.

He said the 50-50 joint venture by BG and Spectra is discussing the proposal with a wide range of stakeholders, including First Nations, while the two companies are considering a route for what Spectra has indicated would be a 48-inch diameter pipeline covering 510 miles from gas supplies in northeastern British Columbia to the export facility.

In a late-summer statement, Doug Bloom, president of Spectra Energy Transmission West, said the pipeline could be designed to carry 4.2 billion cubic feet per day.

Byford said BG anticipates an environmental assessment, the submission of a project description and a regulatory review will occur from now through 2014.

Acting BG Canada President Steve Swaffield told the Prince Rupert council that the partnership with Spectra hopes to satisfy concerns raised about the joint venture’s ability to build a pipeline and the pipeline route.

He said preliminary permitting work has already started with the Canadian and British Columbia governments.

Many competitors

The project is locking horns with Apache-operated Kitimat LNG, Shell-operated LNG Canada, the BC LNG Export Cooperative and expectations that Imperial Oil and ExxonMobil will launch their own project, or take a partnership role in one of the established ventures.

In addition, Petronas and Progress Energy Resources are awaiting a final decision by the Canadian government on the Malaysian state-owned companies bid to take over Progress in advance of results from an LNG feasibility study by the two companies.

BG was chosen early this year by the Prince Rupert Port Authority to study the feasibility of an LNG terminal on Ridley Island, a process expected to take 12 to 24 months.

The authority said BG was selected from a “number of interested parties” because of its global LNG experience and ability to create a supply chain.

In 2004, BG acquired 132 bcf of proved gas reserves in Western Canada from El Paso and added to those holdings before selling the assets to Progress Energy in 2007, but there is no sign yet that BG and Petronas-Progress may team up.

Apache Chief Executive Officer Steven Farris, in a conference call Nov. 1, dismissed speculation that the Kitimat partners might be about to delay their venture.

“Despite some of the things you hear … Kitimat is still going forward and we’re very positive about it,” he said, although Apache and its partners Encana and EOG Resources have yet to secure a long-term buyer of LNG in Asia.

Asked by an analyst whether Kitimat would consider partnering with ExxonMobil, which hopes to close its takeover offer for Celtic Exploration to secure large volumes of natural gas to support an LNG operation, Farris said he had no comment to make.

Kitimat construction

An Apache spokesman said construction is under way on the Kitimat site, while Ellis Ross, chief of the Haisla First Nation, where the work has been taking place, brushed off rumors of a postponement.

However, industry sources say that Kitimat needs a large company to take over the operations and indentify ExxonMobil as the obvious candidate.

Asish Mohanty, senior gas analyst for Wood Mackenzie, said in a report that with more than half a dozen LNG export projects in various stages of planning for British Columbia, proponents will need to collaborate if there is any hope of bringing a large project onstream before 2020.

“There is quite a handful of projects that have some good things and some weaknesses and they are almost contrasting with each other,” he said.

Mohanty said Kitimat LNG and BC LNG have strengths in their backing from local stakeholders, as well as having most of their regulatory approvals in place, butting them ahead of Petronas-Progress, BG-Spectra and the Shell-led LNG Canada consortium.

He said the large LNG buyers in Asia “see a venture comprised of upstream independents who are not perceived as having the necessary LNG experience to carry such a project forward.”

Given the remoteness of the Kitimat-Prince Rupert locations only adds to the risk from a buyers’ standpoint, he said.

“Things can be delayed, as happened in Australia, and that is with experienced operators in place,” Mohanty said. “If something goes wrong or is delayed (LNG buyers) can supply the LNG from their own portfolios. When an Asian buyer puts pen to paper, they are very keen to have plugged all the holes. They are risk averse.”

He said that just completing a greenfield liquefaction project could take five or six years, which means urgent action is needed if there is any hope of achieving the British Columbia government’s goal of having three projects operating by 2020.

Wood Mackenzie has concluded that a “well-managed” Canadian LNG project could deliver gas to Asia for a competitive price of US$10-$12 per million British thermal units — compared with the current LNG prices in Asia of $14.50-$17.90.

A big opportunity for BC

In its own drive to ensure the pieces are in place, the British Columbia government said LNG proponents will be given the right to decide whether to use renewable energy to power their facilities.

Energy Minister Rich Coleman told the Globe and Mail that LNG is “too big of an opportunity” for the province not to allow investors to settle on their own options, although the government passed legislation in July that electricity produced by gas-fired plants would be considered clean energy.

By law, British Columbia must lower its greenhouse gas emissions by at least 33 percent below 2007 levels by 2020, but without the new legislation the climate-change agenda would have been derailed.

Coleman has also announced that the government’s deadline for an integrated resource plan, or IRP, laying out how the government-owned BC Hydro would serve LNG plants, will be extended to August 2013 (three months after the next provincial election) from the original target of December 2011.

He said that will allow time to negotiate with four LNG proponents — Petronas, Shell, BG and Apache — which he insisted are all committed to moving ahead with projects.

Negotiations on how the facilities planned by those companies would be powered are expected to take another couple of months and help shape British Columbia’s 20-year IRP.

“It would be crazy to do an IRP right now. I am very confident that LNG is a valid industry and, if we get our fundamentals right, this is going to change our economy for generations to come,” Coleman said, reflecting government estimates that LNG could be a C$1 trillion industry.

If only two projects went ahead, it is estimated the province’s total electricity consumption would increase by 25 percent.

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