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Vol. 22, No. 16 Week of April 16, 2017
Providing coverage of Alaska and northern Canada's oil and gas industry

Big promises now big problems

Collapse of British Columbia’s LNG dreams threaten Premier Clark’s government

Gary Park

For Petroleum News

Early polling results point to a tight contest in the British Columbia election on May 9, with the socialist New Democratic Party about three percentage points ahead of Premier Christy Clark’s governing Liberal Party.

Just as disturbing for Clark are signs that the Green Party and Conservative Party are both in strong double figures, raising the prospect that a coalition might be needed to form a government.

There is no clear reason why the Liberals are floundering, but one of the most frequently quoted explanations is that voters have grown tired of Clark’s continued over-selling of the job- and revenue-creating possibilities for LNG exports.

No matter what promises she holds out, nothing comes close to her boasting in the 2013 election campaign that British Columbia would have four major LNG projects up and running by 2020, generating 100,000 construction and permanent jobs, and would start delivering cash by the truckload to build C$100 billion Prosperity Fund by 2035.

Mainly smaller projects

Instead, while the major international players have scrapped, shelved or slowed work on the 20 projects once proposed for British Columbia, the province is left to pin its hopes on a handful of small ventures which keep edging towards corporate sanctioning.

The one surviving mega-hope rests with the Pacific NorthWest consortium led by Malaysia’s Petronas, which says only that a review of its economics is “ongoing,” while declining to provide a timeline on a possible final investment decision.

The latest assessment by Petronas is ominous rather than optimistic, with Petronas Chief Executive Officer Datuk Wan Zulkiflee Wan Ariffin offering only a repetition of his constant refrain.

“We’re doing a total review of the project and taking into account all the cost optimization options,” he said in a fuzzy indication that outright sale of the assets could be on his list.

The final investment decision has been delayed for years as LNG markets have crumbled and environmental opposition has strengthened.

Wan Zulkiflee said Petronas remains determined to monetize its “huge (natural gas) resources,” while the company still rates its push to a Canadian LNG project as worthwhile.

But, on a cautionary note, he said that only 6 million metric tons per annum of LNG capacity received a final investment approval in 2016, while another 60 million metric tons per year was deferred.

Charif Souki, chief executive officer of Houston-based Tellurian, said about 270 million metric tons per year of LNG was traded globally in 2016 and could grow to 365 million metric tons by 2018 - an increase that could easily be consumed by the buildout of LNG in the United States and Australia.

Sierra Club report

Even allowing for its obvious bias, the Sierra Club issued a report in late March that demonstrates how the British Columbia government’s LNG aspirations got ahead of reality when it approved the construction of the Site C hydro-power dam in northwestern B.C.

The C$9 billion gamble (already C$2.4 billion ahead of a 2010 estimate) is designed to generate 1,100 megawatts, much of which was intended to be subsidized power for LNG operations.

Site C will “only be needed if LNG plants are built, which seems increasingly unlikely due to current and projected market conditions,” Sierra said.

“In other words, residential B.C. hydro bills will have to cover personal use plus make up the difference between the huge cost of building Site C and the bargain basement price that LNG and fracking companies will pay for their power.”

TransCanada seeking approval

The one shred of hope for Pacific NorthWest is word from TransCanada that it is seeking regulatory approval to start construction of the North Montney Mainline pipeline to deliver natural gas from northeastern B.C. to an export terminal and liquefaction plant near Prince Rupert.

TransCanada said in a statement that government approval will allow it to start work on the pipeline before Petronas decides whether to proceed with Pacific NorthWest.

But, even if Petronas backs down, TransCanada said the C$1.4 billion pipeline will still be able to feed gas into existing transmission networks for western markets when it start deliveries in April 2019.

Benefits agreement

For those who believe that small hope is better than no hope, there has also been a shred of encouragement when the Kitselas First Nation on B.C.’s north coast signed a benefits agreement worth C$13 million and a 3,000-acre land grant in exchange for backing the Pacific NorthWest and the Shell-led LNG Canada proposal.

The deal makes the Kitselas the third First Nation to sign an LNG benefits accord, which Aboriginal Relations Minister John Rustad said are cornerstones in “helping us to build LNG potential. We have the support we need (from First Nations) to proceed with projects.”

Meanwhile, other small-size LNG operators continue their plodding advance towards final sanctioning, with the Huu-ay-aht First Nation on Vancouver Island signing a deal with Steelhead LNG which the community’s Chief Robert Dennis said is the First Nation’s “official entry into the international business world” by participating through an undisclosed equity stake in the development of an LNG terminal.

Steelhead also has National Energy Board licenses to export 24 million metric tons of LNG a year, although the company is still exploring ways to ship its gas feedstock from the B.C. or U.S. mainland to Vancouver Island.

Steelhead CEO Nigel Kuzemko said a final investment decision will not be made until 2019 or 2020.

The NEB has also granted a 40-year export license to Woodfibre LNG for its planned processing and export facility near Squamish on Howe Sound north of Vancouver. The permit involves about 2.1 million metric tons a year.

Woodfibre has yet to roll out a final timetable covering corporate sanctioning, construction and a startup date.

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