Proponents of West Coast LNG projects could all build separate pipelines, along separate routes, says a natural gas consultant, but he suggests that a common route, with a split near the coast to Kitimat and Prince Rupert, would be easier to permit and to deal with First Nations concerns.
While that could happen, right now they're not discussing it, said Edward Kallio, director of gas consulting with Ziff Energy, a division of HSB Solomon Associates LLC.
“I’d like to see them discuss it, frankly, but all the projects aren’t going to happen,” he said. “There's only so much incremental Asian market that’s coming on and you've got all these Canadian projects chasing that market which, in our view, is about 20 bcf [billion cubic feet] a day between now and 2020.
“There is more than 15 bcf a day of Canadian projects plus 35 bcf per day of U.S. projects chasing the same market. You’ve also got Australian and east African projects trying to get that market.”
As of November 2013, three LNG projects had received National Energy Board approval to export gas off the coast of B.C., while a further five applications have been filed with the NEB. The treble of projects holding export approval includes the Douglas Channel Energy Project, Kitimat LNG and LNG Canada.
Kallio suggested new natural gas pipelines could use the Pacific Trail corridor. The 463-kilometre Pacific Trail Pipeline will provide a direct connection between the Spectra Energy Transmission pipeline system and the Kitimat LNG terminal.
“It’s already been set and would be the most logical. There is also one called Pacific Northern [Pacific Northern Gas Ltd. (PNG)], the existing one that already has a split and goes to Kitimat and Prince Rupert.”
PNG was acquired by AltaGas Ltd. on December 20, 2011.
Dirk Lever, the managing director of institutional equity research with AltaCorp Capital Inc., said he is a free-market person, so he would prefer that project proponents figure out transportation by themselves, and predicts this will ultimately happen owing to the costs involved.
“There are always lots of proposals, but eventually they band together; it is common sense,” he said.
What’s most logical to Lever is to expand the existing PNG line, since the easements are already there, the lines have been cut and it is being serviced.
“Adding a larger-diameter pipe next to it would make a ton of sense – from every angle,” he said. “My personal belief is that the environmental concern is always trumped up but in the end, it is really a non-issue. We humans measure everything in months and years, but nature effectively fills in over time.”
The biggest issue in B.C. is that the government has not dealt with native claims, said Lever.
According to the B.C. Ministry of Natural Gas Development, for government approval of pipelines to occur, during an environmental assessment, proponents are required to submit both First Nations and public consultation plans and reports for approval by the Environmental Assessment Office.
First Nations consultation plans and reports must demonstrate that potential impacts to Aboriginal interests (treaty, proven and asserted rights including title) have been recorded, understood and accommodated, where required. However, there is no legal requirement that proponents have the agreement of stakeholders, citizens and First Nations before a project can proceed, said a ministry spokesperson by e-mail.
It is not a given that all projects will proceed, said Kallio.
There is only so much demand and the projects that have a market are in the driver’s seat right now, he said, adding the likelihood that all projects will be built varies with each individual proposal.
Chevron Canada Limited's Kitimat LNG, for instance, is shovel-ready, said Kallio.
“They've done their deals with the First Nations but that project doesn't have any buyers yet, so it's literally a beauty contest. The buyers are looking at these projects and playing them off each other.”
Kallio said Shell Canada Limited’s LNG Canada project, owned 60% by Asian buyers (20% Mitsubishi, 20% Kogas and 20% PetroChina) has an advantage because it has buyers involved as equity owners. But it is just in the early stages of finalizing the route for TransCanada Corporation”s Coastal GasLink pipeline project and they still have to structure deals with about 25 First Nations bands, he said.
Kallio said he believes Shell is going to use much of the same right-of-way as Pacific Trail, which is another advantage, although they are going to extend quite a bit further east into the Montney supply basin. “That project looks not bad to me.”
There are two other pipelines north of that corridor that will come in to Prince Rupert. The first one is TransCanada's project that would supply the Pacific NorthWest project owned by Petronas.
This project looks “pretty strong,” but unlike Shell and Kitimat LNG, does not have an export licence, said Kallio. “They are starting from scratch with the First Nations so they have to pick a route and they have to structure a deal that will satisfy all of those bands. I've heard [there are] 25-28 bands through there. It’s a big number.”
Getting buy-in from First Nations will be a big hurdle, he said.
The consultant recommends involving First Nations up front and giving them an ownership position.
“They are a lot more sophisticated than they used to be and they are not going to be easily bought off, but they are generally supportive of natural gas development,” he said. “It’s a B.C. resource and it’s cleaner. That’s their perception.”
Meanwhile, Imperial Oil Limited and ExxonMobil Canada Ltd. filed an export application earlier this year and could wind up with a site at Grassy Point adjacent to where the B.C. government inked a land deal earlier this month with Nexen Energy ULC – a division of CNOOC Ltd. – for the Aurora LNG plant.
The government said it was continuing to negotiate with three other proponents who had submitted bids for the Nexen site following the province’s call for expressions of interest earlier this.
The Nexen project looks favourable because it has CNOOC as a buyer but it still needs a pipeline, said Kallio, adding both Nexen and Exxon have huge gas reserves in Western Canada that they could monetize.
“ExxonMobil is a big player in worldwide LNG; Nexen/CNOOC announced just [recently] that they are expanding their re-gas capacity in China so they’re a very serious importer of LNG and that would be a perfect fit for them, to be able to monetize their Horn River and Liard assets, but they haven’t chosen a pipe partner yet.”
Kallio doesn't rule out the Kitsault Energy project, but says proponent Krish Suthanthiran has much work to do. Suthanthiran has no funding, no backer and no partner whether on the buying side or the upstream side, and he hasn’t filed an application yet. “He'll be looking to try and get some deals done.”
Kallio said he is familiar with Pacific Trail’s route from having flown it via helicopter about 18 months ago and it looks good, following a highway and a drainage channel right into Kitimat with an existing split off the Pacific Northern pipeline into Prince Rupert.
There are some issues with the Skeena River, and the geography gets steeper and tighter towards the coast but project proponents can solve that through engineering and by sharing costs, he suggested.
“I don't think there’s anything that's insurmountable, when you look at the alternative, which is two or four different pipeline routes across the province,” said Kallio. “It's still early but they've got to get moving if they want to hit that window of 2018 to 2020 when they want to get their LNG flowing.”
AltaGas wants to be one of the first movers on the LNG front. Right now its PNG is the only gas pipeline that goes to the West Coast and the company is considering expanding it to about 750 million cubic feet (mmcf) from the current 115 mmcf at an estimated cost $1.5 billion.
“We’re not one of these Chevrons or Shells who are looking at two-bcf-type pipelines or anything like that but we do believe that we have our own little competitive niche to play in for LNG,” said Jess Nieukerk, AltaGas's director of finance and communications.
AltaGas and Idemitsu Kosan Co. Ltd., Japan’s third-largest refiner, are in a 50-50 joint venture to pursue exports of liquefied petroleum gas (LPG) and LNG from Canada to Asia (the Triton LNG project).
Obtaining gas is not expected to be a problem. In fact, one of the reasons the company looked for a market before anything else was because there is an oversupply of gas in Canada, said Nieukerk.
“The big thing was securing a place to send the gas,” he told the Daily Oil Bulletin.
Site selection is still ongoing and all options are being evaluated, he added.
In August, AltaGas announced that its wholly-owned subsidiary, PNG, had entered into Transportation Reservation Agreements with both Douglas Channel Gas Services Ltd. and AltaGas Idemitsu Joint Venture Limited Partnership for 520 mmcf per day of natural gas transportation capacity on the proposed PNG pipeline.
TransCanada believes future production from Western Canada will significantly exceed domestic demand and that other existing and currently proposed pipelines do not provide sufficient capacity to transport all of the natural gas expected to be required to satisfy export demands.
The company has agreed to supply new pipeline infrastructure for the proposed Pacific NorthWest LNG facility and LNG Canada.
TransCanada said it is on track to file its regulatory application for the Prince Rupert Gas Transmission pipeline in 2014, and begin construction in 2015. The in-service date is set for late-2018.
In North American pipeline development, there is often more than one proposal to connect natural gas supply to new markets, said Davis Sheremata, TransCanada's spokesperson.
“In such cases, over time, those projects that have supply, market, liquefaction and pipeline expertise and financial strength generally succeed. TransCanada is accustomed to competing to secure both customers and the required regulatory approvals for pipeline construction,” he said.
He declined to comment on the progress of negotiations, saying any discussions between TransCanada and shippers or partners are confidential.
Enbridge Inc. has said it is pursuing an industry solution to work with producers for the export of LNG from Western Canada and that there would be some consolidation of some of those projects.
