Shake, rattle and roll: BC’s LNG sector absorbs 2 project setbacks

With 18 proposals for exporting LNG from British Columbia having been announced, a big shakeout was seen as inevitable by experts and even the bullish provincial government, which has narrowed its hopes down to five.

Now that the government has outlined its plans for taxing the industry, cracks are appearing in the facade.

Leading the way, although it says the tax regime has nothing to do with its decision, is British energy giant BG Group, which has hit the pause button for its rather sketchy plan to export an initial 14 million metric tons a year, building to 21.6 million metric tons, through Prince Rupert LNG Exports.

Troubles also show signs of deepening within Pacific NorthWest LNG, owned and operated by Petronas, the Malaysian state-owned company, with Greg Kist resigning as project president.

Postponement is 2020s

“All we’re doing at this point in time is pausing on Prince Rupert. We’re not abandoning Prince Rupert,” BG’s interim executive chairman Andrew Gould told analysts. “We will continue to work on the project, but not at the same rhythm that perhaps we were working in 2014.”

BG Canada President Madeline Whitaker said the “pausing” decision had been taken before the British Columbia government published its tax legislation, adding that her company’s main concern was the outlook for LNG shipments from the United States, which Gould said have grown to 90 million metric tons a year from an earlier 60 million metric tons.

“So, as a result of this, coupled with weakness in gas pricing generally, there is a risk that the market will be very well supplied post 2020,” Gould said. “We’re pausing on Prince Rupert to see how the market evolves,” with a special focus on what happens in the United States.

Whitaker said BG had once hoped to make an investment decision in 2016, but she told the Wall Street Journal that “we now recognize it will likely be later, with commercial operations likely beginning early in the next decade” assuming a supply gap opens up around 2019.

BG is already a major global LNG player, with liquefaction plants in Australia, where its $20 billion Queensland LNG project is under construction, Egypt and Trinidad and Tobago.

Alex Munton, Wood Mackenzie’s North American LNG analyst, said his company believes that over the next 10 to 15 years, LNG shipments from the United States could reach 100 million metric tons.

BC remains confident

“I didn’t expect anything from (BG) until 2016 at the earliest, anyway,” he said, suggesting BG is just being financially prudent.

“We haven’t seen any slowdown of progress on only of the project development agreements we’ve been working on with any of these companies.

“We’re being told by those companies that we are competitive enough,” Coleman said.

“Markets always dictate these decisions. You can do all your fundamentals and get all your costs in and then find out the market price isn’t going to be there.”

Vancouver-based energy lawyer Warren Brazier said that unlike BG the three biggest players (Chevron, Petronas and Shell) have secured upstream gas assets in British Columbia and Alberta and are, thus, likely to be the first to go ahead.

Whitaker conceded BG remains undecided whether it will build a portfolio or producing assets, or access third-party gas.

Kist quits

Pacific NorthWest Chairman Wee Yiaw Hin, without disclosing the reasons behind Kist’s departure, credited Kist with leading the consortium through the early stages of planning to build an C$11 billion export terminal near Prince Rupert.

Spencer Sproule, the senior adviser of corporate affairs for the project, said negotiations to finance the terminal started in June and remain on track, allowing a final investment decision later this year.

- Gary Park

Little leaguers lead LNG

While uncertainty clouds the plans of their bigger peers, startups and upstarts could lead Canada’s LNG field out of the starting gates.

Woodfibre LNG Export and AltaGas are taking active roles while the global powerhouses continue to mull their futures in British Columbia.

The first LNG shipment from the 18 contenders in the province could start in the first quarter of 2017 when Woodfibre, a subsidiary of Singapore-based Pacific Oil & Gas Group, turns a former pulp mill at Squamish, just north of Vancouver, into an LNG terminal.

The plans involve exports of 2.1 million metric tons a year if the company decides by mid-2015 to go ahead with its C$1.6 billion venture.

Of that volume, almost 50 percent is tentatively due for delivery to China’s Guangzhou Gas Group for 25 years, while other potential buyers are being approached in Japan and South Korea.

Although Woodfibre will not disclose its sales price structure, it has conceded that Russia’s US$400 billion gas deal with China has changed the tone of negotiations, said company Vice President Byng Giraud, although he believes it will be easier for Woodfibre to find market outlets than the job facing backers of the large projects.

An environmental assessment application is due for filing shortly, with approval targeted for the second quarter of next year, he said.

The project comes with a built-in advantage of a deepwater port, a transmission and natural gas pipeline owned by partner FortisBC and an electricity transmission line connected to the BC Hydro grid, all of which served the Western Forest Product pulp mill that closed in 2006.

Because of the site’s history, the environmental approval process should be faster than the greenfield projects, on top of which the company has committed to run its liquefaction facility on electric power to reduce carbon emissions by 80 percent, Giraud said.

Consultant: ‘ocean economics’ concern

In May, Woodfibre signed a letter of intent with the British Columbia government requesting the province to “provide certainty about costs that are under the control of the province and that are applicable only to LNG investments.”

The company has yet to indicate whether the income tax regime and other conditions announced by British Columbia help or hinder its plans and meet its request.

Like all other resource projects in British Columbia, Woodfibre is also having to weave its way through a thicket of community opposition, with residents in the Squamish area concerned about the dangers posed by tankers operating in Howe Sound.

The city council rejected calls for a referendum, noting that the project could generate C$2 million a year, raising property tax collections by 10 percent a year.

In addition, Woodfibre is spending C$8 million to clean up contamination left by the pulp mill.

AltaGas leading two proposals

John Lowe, executive vice president of business development for AltaGas, said that at “first glance (the legislation) is going to be good enough for us to go ahead.”

The company is leading two export terminal proposals — the Douglas Channel LNG, designed to ship 700,000 metric tons a year, and Triton LNG (a joint venture with Japan’s Idemitsu), which has approval to export 3.26 million metric tons a year.

In addition, it owns a 21,000 gallons-per-day regional plant for sales in northeastern British Columbia.

AltaGas also owns the Pacific Northern gas pipeline which is the only existing line serving Kitimat and Prince Rupert.

If the company is able to complete negotiations to buy the barge-based Douglas Channel out of insolvency procedures, it could start LNG construction in 2015.

Finally, AltaGas is eying strategic alliances like one it signed in August with Painted Pony Petroleum covering 15 years and involving plans for a gas processing plant with capacity for 198 million cubic feet per day.

On another front, Ferus National Gas Fuels, privately held by The Energy & Minerals Group, has opened the first merchant LNG facility in Canada at Elmworth, 45 miles southwest of Grande Prairie in northwestern Alberta.

The plant will produce LNG fuel for engines used in drilling rigs, pressure pumping services, water heating for well fracturing and heavy-duty highway and off-road trucks.

Other uses for the LNG could extend to rail, mining and remote power generation.

Currently, the facility can produce 50,000 gallons per day and has the ability to achieve a five-fold expansion.

—Gary Park