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BC favors LNG over energy goal Abandons pursuit of self-sufficiency to ensure electricity available for gas production, liquefaction; Clark: opportunity won’t last Gary Park For Petroleum News
BG Group has taken the first formal steps to toss its hat into British Columbia’s crowded LNG export ring.
At the same time, the British Columbia government of Premier Christy Clark is opting to invest in power generation to fuel its fast-moving LNG plans rather than chasing energy self-sufficiency.
In abandoning a cherished goal of her predecessor Gordon Campbell, Clark said it is more important to seize the LNG opportunity “that will not be before us forever.”
BG, the United Kingdom-based LNG player, underscored the rapid push towards exports from Canada by announcing an agreement with the Prince Rupert Port Authority to study the feasibility of a terminal on 200 acres of the offshore Ridley Island.
That process is expected to take 12 to 24 months, but BG would not discuss any further details, timing, scope, gas supply sources or possible markets to back a project, although a spokesman said Prince Rupert is one of a number of possible LNG terminal sites BG is considering on the British Columbia coast.
Shaun Stevenson, marketing and business development vice president with the port authority, said BG was chosen from a “number of interested parties” because of its global LNG experience and its ability to create a supply chain.
BG entered the Canadian upstream in 2004 by acquiring 132 billion cubic feet of proved reserves from El Paso for C$455 million and later added more assets in Western Canada and the Northwest Territories.
It sold the production holdings to Progress Energy for C$526 million in 2007 and has no remaining upstream presence in Western Canada.
Prince Rupert advantages The port authority, which operates the largest deepwater facility in North America, has the advantage over Kitimat, the deepwater port 100 miles to the southeast, of requiring tanker pilots for only two hours to reach open water, compared with 16 hours for vessels navigating the Douglas Channel from Kitimat.
Sailing time from Prince Rupert to Asian markets is also estimated to be 1.5 days shorter than from Vancouver or Seattle.
Clark made her announcement as Canada’s National Energy Board issued its second LNG export permit and China’s largest oil company, Petro China, became the latest Asian partner in LNG-related gas production in British Columbia.
Clark, who wants three LNG export terminals operating on the British Columbia coast by 2020, said the new policy will require provincially owned utility BC Hydro to meet domestic electricity needs with home-generated power when water levels are “average.”
When those levels drop to “low,” the province will continue relying on imports, often from coal-burning producers.
The self-sufficiency goal was set a decade ago when a drought-fueled California energy crisis led to rolling blackouts and soaring costs.
But Clark’s government has decided it set the bar too high by requiring BC Hydro to lock into long-term purchase agreements with private power producers at a higher cost, meaning the province might be forced to export electricity during periods of over-supply for less money than it was paying.
LNG industry the objective Clark said her objective is to create an LNG industry to carve out an international marketing niche, while using renewable hydro-generated power to fuel the production and liquefaction of natural gas.
“The strategies we are setting out today will take a resource that exists in B.C.’s northeast, move it to the northwest and add value to it before export,” she said, noting the gas fetches a higher price in Asia than North America.
The B.C. government estimated that gas currently selling for C$3-C$4 a million British thermal units in North America could fetch more than C$12 in Asia.
But Canada is competing head on with even larger projects in Australia and Qatar that are chasing Asian markets.
“Climate change is a global issue,” Clark said. “By using natural gas to displace other fuels we can be part of a greener future.”
GHG targets an issue She made that comment in answer to critics who argue that allowing the use of B.C. natural gas to power even a portion of LNG plants will prevent the province from meeting its target of sharply lowering greenhouse gas emissions by 2020.
Environment Minister Terry Lake has already agreed that it will be a challenge to both develop gas resources and meet GHG goals and suggested it may be necessary to build a small gas-powered generator to supply LNG needs.
The Apache-operated Kitimat LNG project, with Encana and EOG Resources as partners, already has export permits and is expected to make a corporate decision this quarter to start construction, leading to LNG shipments by late 2015.
It may now be beaten out of the starting blocks by a BC LNG Export Co-operative — a joint venture of Houston-based LNG Partners and the Haisla First Nation — which received an export license from the National Energy Board on Feb. 3.
The project plans to start by shipping the equivalent of 125 million cubic feet per day of gas from a C$450 million facility and possibly double the volumes over time.
“This puts us in a position to get on with the project and keeps us in line with our expected timeline to produce first LNG in the first quarter of 2014,” said Tom Tatham, managing partner of LNG Partners.
Kitimat scheme larger That’s almost two years ahead of Kitimat’s schedule, although the Apache scheme is much larger, coming on stream by processing 700 million cubic feet per day, with regulatory approval to double up.
PetroChina has plunged into the field by agreeing to buy a 20 percent stake in Royal Dutch Shell’s shale gas properties in British Columbia for an undisclosed financial commitment, although Asian sources estimated the value at C$1 billion.
Shell Chief Executive Officer Peter Voser said the deal was linked to an ongoing partnership between the world’s largest LNG producing company and a Chinese firm that has access to one of the fastest growing LNG markets.
The transaction applies to Shell’s wholly owned Groundbirch properties, which currently produce 160 million cubic feet per day and has the potential to double that output.
Ziff Energy analyst Bill Gwozd said the investment in the Montney region strengthens the prospects for an LNG project that is currently being evaluated to support Shell’s purchase of industrial land at Kitimat for a liquefaction plant to process from 1.8 billion to 3.6 billion cubic feet per day. Other members of the Shell consortium are Korea Gas and Japan’s Mitsubishi.
The Montney play is one of the hottest shale prospects in North America, with projections of eventual production of 5 bcf per day.
In a report on the outlook for North American LNG development, CIBC World Markets analyst Andrew Potter said the “economics are reasonable” behind the planned operations in B.C., but he warned that construction costs and labor shortages could pose challenges.
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