B.C. has no Plan B for LNG

As one project after another is shelved, the provincial government is short on alternatives
Methanol production is an alternative use for B.C. natural gas, but it fails to make a significant blip on the provincial government’s LNG-dominated energy policy radar | chuyuss/Shutterstock

Northeastern B.C. sits on an ocean of natural gas. But so do Montana, North Dakota and New York State, so the U.S. doesn’t need Canadian gas.

That’s why the B.C. government put so much energy into opening up new markets for B.C. gas in Asia in its bid to to develop a liquefied natural gas (LNG) industry.

But one by one, LNG proposals have been falling like dominoes as companies have shelved or deferred projects.

Last month, Shell Canada announced it would not be making a final investment decision this year on its LNG Canada project, as it had promised to do.

Earlier this year, AltaGas Ltd. (TSX:ALA) shelved its Douglas Channel LNG project entirely. More recently, FortisBC announced it had lost a 20-year contract with Hawaii Electric, which means it will not go ahead with a second expansion to its Tilbury Island LNG plant.

So what is B.C.’s backup plan if an LNG industry is delayed or fizzles out entirely?

That is the question the Northeastern BC Resource Municipalities Coalition put to ministerial staff with B.C.’s Finance and Natural Gas ministries recently, following a series of setbacks for B.C.’s nascent LNG industry.

“The conversation was really what are we going to do, what’s Plan B?” said Kathleen Connolly, director of the Dawson Creek Chamber of Commerce, one of coalition’s members. “I think there’s a recognition we have stranded assets here. Our markets are diminishing, so what do we have to do to capitalize on that resource?”

There are other uses for natural gas – methanol production, for example. But so far, it doesn’t look like the provincial government is giving much thought to anything but LNG.

“There is no Plan B in place,” coalition member Bill Streeper, a businessman and mayor of Fort Nelson, told Business in Vancouver.

Fort Nelson’s economy was hammered nearly a decade ago when its local forest industry evaporated overnight with the closure of sawmills that put 600 mill workers and loggers out of work, and now it’s getting hit again, as the drilling taking place to prove out resources for an LNG industry has ground to a halt.

“All major service suppliers and oil field service companies have closed the doors and left town,” Streeper said. “Right now, industrial property in Fort Nelson has approximately a 60% vacancy rate. We have seen massive layoffs from these firms.”

Some industry experts say the long-term prospects for LNG are still sound, but predict that some projects now on the drawing board will go on the back burner until a global LNG glut eases.

“It will go ahead, but it will be stalled,” Haisla First Nation Chief Ellis Ross said of the LNG Canada project in Kitimat. “The market’s got to recover. There’s a flood of natural gas out there right now.”

But exporting natural gas to Asia in liquid form is not the only avenue for B.C. natural gas, and, in some respects, Plan B projects are already underway, even without an official government plan.

FortisBC is busy developing new markets for LNG in transportation as a fuel for ships and trucks, and oil and gas companies have been investing billions in non-LNG projects in northeastern B.C., because the natural gas liquids like condensate and propane coming out of the Montney Formation are so valuable.

AltaGas may have scrubbed its Douglas Channel LNG plant, but it is pushing ahead with plans to invest $400 million to $500 million in a new export terminal at Ridley Island in Prince Rupert that would export 1.2 million tonnes of propane annually to Asia. Propane is one of the natural gas liquids produced in the Montney.

Apart from burning it for heating, power production or transportation, the next biggest use for natural gas is methanol production. Natural gas is also used to produce hydrogen, which is used in hydrogen fuel cells and numerous other energy and industrial applications, and is also the preferred feedstock for producing fertilizers.

Methanol is used both as a fuel and a fuel additive. About 40% of all methanol production is used for that purpose. But it’s also a basic chemical building block for hundreds of consumer products, including paints, plastics, solvents, resins and car parts.

The current global demand for methanol – 70 million metric tonnes – is expected to grow to 100 million metric tonnes over the next three to five years, according to the Methanol Institute.

The biggest market is China, where gasoline contains 15% methanol. China also uses methanol as a feedstock for olefins, which are a basic constituent of plastics and fibres.

“It’s one of the fastest-growing markets for methanol,” said Methanol Institute CEO Gregory Dolan. “It’s big and growing.”

The world’s largest methanol producer happens to be Vancouver company Methanex Corp. (TSX:MX). Methanex used to operate a methanol plant in Kitimat, but shut it down, primarily due to high transportation costs.

The company recently spent $1.4 billion to dismantle two idled methanol plants in Chile and relocate them to Louisiana. In recent years, it has restarted idle plants in Medicine Hat and New Zealand. But the company has no plans to open another methanol plant in B.C. despite its abundance of natural gas and geographic proximity to China.

“We will continue to explore growth opportunities, including in B.C.; however, strategic opportunities in other locations take priority at this time,” said Methanex public affairs manager Louise McMahon.

Across the border, in Washington and Oregon, Northwest Innovations Works, the U.S. subsidiary of China’s Shanghai Bi Ke Clean Energy Technology Co., is planning to build a US$1.8 billion methanol plant at the Port of Kalama in Washington State, and another US$1.8 billion plant in Oregon. It’s expected some of the natural gas used in those plants would come from B.C. via an existing gas pipeline network.

One company that wants to build a methanol plant in B.C. is Blue Fuel Energy, which envisions constructing the facility near Chetwynd as the second phase of a two-part plan. The first phase is a proposed $2.5 billion gasoline refinery that would make low-carbon, zero-sulphur gasoline from natural gas rather than oil.

One way or another, whether it’s through using it to produce low-carbon gasoline or simply burning it directly in natural gas engines, Blue Fuel founder Jurgen Puetter believes the biggest Plan B opportunities for natural gas are in transportation.

FortisBC is already developing that market. The $400 million expansion underway at its Tilbury Island plant is in part to meet new supply demands for ships and large trucking fleets running on LNG.

While he has been getting some encouragement from some B.C. politicians for his refinery and methanol plant proposals, Puetter seems to be getting an even better reception in California, where there is a market for low-carbon gasoline.

He said he would rather build his plant in Chetwynd, however. Not only does that area have an abundance of natural gas, but B.C. also has the renewable energy that is critical to making a low-carbon fuel.But Puetter needs US$50 million to do all the final detailed engineering to bring the project to the final investment decision stage, and he doesn’t seem to be getting the uptake he was hoping for from investors and government in B.C.

“The way it looks right now, I wouldn’t be surprised if we end up – which seems to be the common Canadian story – in U.S. hands because nobody wants to step up to the table.” 

– with files from Johny Wakefield, Dawson Creek Mirror

nbennett@biv.com

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