Small-scale LNG makes in-roads in north

In Canada’s far north 3 communities want liquefied natural gas; Inuvik has been trucking in propane; wants LNG for electricity

Bill White

Researcher/writer for the Office of the Federal Coordinator

Three communities in Canada’s far north are going to great lengths — literally — to join the liquefied natural gas world.

In a way, natural gas has been tantalizing Inuvik, Whitehorse and Watson Lake for 40 years, ever since the great oil and gas discoveries in their northern neighborhood at Canada’s Mackenzie River Delta and Alaska’s Prudhoe Bay.

But although multiple pipeline projects have been proposed over the years to deliver methane to Canadian and U.S. markets, dropping off gas in the three northern communities and others along the way, none has been built.

Facing more years of pipeline uncertainty, utilities in the three towns — two in the Yukon Territory, and one in a remote corner of the Northwest Territories — now are planning to import gas from the other direction, the south. They intend to truck LNG from over a thousand miles away — from the Vancouver and Calgary areas — to feed their power plants, possibly as soon as this winter.

Inuvik, the farthest north of the three, already has a gas-fired power plant. But one of the two wells feeding it since 1999 has petered out and the other is gasping out its last gas. The plant has switched to diesel for the last two years to conserve the remaining trickle of gas for heating fuel. However, plant managers plan to get back on gas when they receive their first LNG truckload, expected in November 2013.

Whitehorse and Watson Lake power utilities also aim to save fuel costs and slash emissions by substituting methane for diesel in some generators.

Small-scale LNG use, such as that eyed by the three northern Canada communities, is an up-and-coming-trend in the gas world. While still dwarfed by the main business of LNG — making and shipping massive amounts across oceans to mega-utilities in gas-starved countries — serious investments are starting to get made in niche LNG projects as well.

HAWAI’IGAS expects to take delivery of its first 40-foot container of LNG by year-end, subject to regulatory approval. The utility wants LNG to back up its synthetic natural gas supply. The LNG will be trucked from a small U.S. plant to a West Coast port, then sail to Oahu aboard a container ship.

For a venture with similarities to those in northern Canada, the Alaska Legislature in 2013 approved a cash-and-loan package for an anticipated $430 million trucked LNG project. The supercooled gas would be trucked about 500 miles south from Prudhoe Bay to the Fairbanks area for use initially as a heating fuel, although the methane could fuel a local power plant and refinery as well.

The two northwestern Canada territories have similarities and differences with Alaska.

Like Alaska, both are massive in area, almost unimaginably remote, sometimes spectacularly cold and sparsely populated — much less populated than Alaska in part due to far less resource development and federal presence. In all three, providing energy to a small, scattered population can be incredibly expensive and inefficient.

The Yukon is somewhat bigger than California but the entire population could be housed in all but the smallest Los Angeles suburb (provided folks could be persuaded to live there) — about 34,000 people for the entire Yukon, with more than two-thirds, 23,300, in the capital of Whitehorse.

Northwest Territories is bigger in area and population. Its 452,000 square miles make it about three-quarters the size of Alaska. About 41,000 people live there, not quite half in the capital of Yellowknife. Inuvik is the third largest town, with 3,500 residents.

Like Alaska, most people live clustered in communities strung along a basic road system that penetrates part of the two territories. But many communities subsist off this network.

Like in Alaska, the Yukon’s core population is tied together on an electrical grid that parallels the main roads, but many towns lie beyond the grid. Neither the Alaska nor the Yukon grid is plugged into the respective national electrical grids. The Northwest Territories has two small local grids, but most of its power plants are disconnected from one another.

A variety of catalysts is sparking the rise of small-scale LNG projects such as those the three northern Canada utilities are pursuing. Technology improvements that lower costs. Reduced emissions that address social and political pressures. And a biggie, especially in North America: Burning natural gas rather than oil-based fuels can save money.

Dashed dreams in Inuvik

About 30 miles straight north lies the Parsons Lake field, 1.8 trillion cubic feet of natural gas, a ConocoPhillips and ExxonMobil prospect.

Parsons Lake is the southernmost of three fields that would anchor the long hoped for Mackenzie Valley pipeline, a multibillion-dollar project that has eluded development since gas discoveries in the 1970s.

Just over a decade ago, the project was looking boffo. Fears ran rampant of North American methane shortages. Gas prices soared. The Alaska gas pipeline project to the Lower 48 was revived. LNG import terminals sprouted along the Gulf of Mexico coast. And developers blew dust off plans for the Mackenzie Valley project.

The pipeline would start right there in Inuvik, a Native word meaning “place of man.” The line would extend 743 miles to Alberta, carrying perhaps 1 billion cubic feet a day to North American markets.

It was not to be. New drilling techniques started tapping ample supplies of Lower 48 shale gas resources. Gas shortage over. Prices plunged. The Mackenzie Valley pipeline plans got stacked back on the shelf.

This left Inuvik residents and businesses in an unexpected fix. They had a decade-old gas addiction and were counting on the Mackenzie fields to stay hooked up and happy.

Here’s how that happened: In 1999, anticipating the Mackenzie gas fields and pipeline would get developed soon, Inuvik went all in on natural gas. Two wells were tapped at a small deposit called Ikhil about 18 miles outside town. Everyone figured the deposit had a 15-, maybe 20-year life. Plenty of time. A 6-inch pipeline got laid. People switched their furnaces from heating oil to methane. The power utility embraced gas over diesel, although it retained some diesel generation.

Inuvik had blissfully cheap energy ... until 2011. That’s when the town realized the wells were tapped out. The town has been in an energy crisis since.

Coals to Newcastle

The trickle of gas still flowing from the Ikhil deposit outside town serves as an emergency backup — consider it Plan B. Plan C is to put on warmer coats.

Locally they call the propane “synthetic gas” because they dilute its high Btu content with air so that furnaces and appliances don’t need to be recalibrated.

Wells at the Ikhil deposit 18 miles from Inuvik have supplied the Arctic town with natural gas since 1999. But one well has watered in and the other is almost tapped out, causing an energy crisis for Inuvik.

Not surprisingly, some locals grouse about the doubling of their heating bills last winter, although officials note that the bills are still lower than during the heating-oil era.

A variety of ideas are on the table for what happens next. An idea with some backing this fall involves tapping new gas deposits nearby and making a clean diesel fuel from the methane produced, a process known as “gas to liquids.” The diesel could be distributed from Inuvik to other villages, too, rather than barging in fuel from long distances as currently occurs. A key challenge for the idea: It would take tens of millions in up-front spending to get going.

To save Ikhil’s dwindling methane flow for the local gas utility, the power utility, the government owned Northwest Territories Power Corp., in January 2012 switched over to its diesel generators in Inuvik.

That was a temporary fix. Absent a dependable gas supply, the longer-term plan was to install another diesel generator and spend $10 million to switch two gas engines to diesel, Mike Ocko, the Thermal Division director, said in the utility’s 2012 annual report.

“We have no choice,” he said.

It turns out there is another choice.

LNG figures to be 15 percent cheaper than diesel even though it will be trucked in about 16,500 gallons at a time from suburban Vancouver over 2,000 miles away, said Andrew Stewart of NT Energy, a sister company of Northwest Territories Power Corp., the Inuvik power company.

The utility officially embraced the LNG option, and abandoned the all-diesel approach, in spring 2013. A few months earlier, a NT Energy study concluded: “LNG is the only option analysed that can provide the base electricity requirements for Inuvik and is the only heating option that would not require significant capital expenditures by each individual building owner. LNG would provide fuel for both electricity and heating at a cost lower than the base case.”

But, as often is the case in such studies, there was a caveat. “The storage requirements needed to meet heating demand are significant and require further analysis for site selection, security of supply and cost.”

Electricity won’t have a storage problem because the utility will rely on just-in-time LNG deliveries, plus its diesel generators, Stewart said. The delivered LNG tank is the de facto storage vessel. He estimated one delivery a week and a 50-50 gas-diesel fuel mix by year-end 2013. Eventually the fuel flow will be 70 to 80 percent gas, he figured. Inuvik has ample diesel storage, he said, about a year’s worth.

Lack of costly storage tanks is one reason the local heating utility hasn’t snuggled up to LNG for warming homes and offices. The NT Energy study reckoned $25 million for construction plus $200,000 a year for operation and maintenance of LNG storage to serve both power and heating utilities.

So for now, it’ll be gas for electrical generation. If Inuvik works out for the power utility, “the logical next phase is to take it to any road-connected diesel community,” Stewart said.

Parts 2 and 3 of this story will appear in the Nov. 10 and Nov. 17 issues of Petroleum News. Editor’s note: This is a reprint from the Office of the Federal Coordinator, Alaska Natural Gas Transportation Projects, online at www.arcticgas.gov/small-scale-lng-makes-roads-canada-far-north.