News

LNG Canada pushing forward despite FID delay

BC Shipping News, April 28, 2017

http://bcshippingnews.com/magazine/feature-article/lng-canada-pushing-forward-despite-fid-delay

Two years has passed since last we checked in with Captain Mark Turner, Senior Marine Advisor, LNG Canada, to learn about the proposed multi-billion dollar state-of-the-art LNG export facility at the old Methanex site in Kitimat. At that time, LNG Canada had just completed its TERMPOL submission; had its Environmental Assessment Certificate accepted by the B.C. Environmental Office; and was working its way through a plethora of regulatory requirements, communications initiatives and logistics studies. Today, in an exclusive interview with Turner, we find the team at LNG Canada hasn’t slowed down one bit and, despite the decision to delay the Financial Investment Decision, the project is still very much alive and making impressive progress to ensure success.

The project is still very much alive and making impressive progress to ensure success.

Recap

LNG Canada is a joint venture partnership comprising Shell Canada Ltd. (50 per cent ownership), PetroChina Company (20 per cent), Korea Gas Corporation (15 per cent), and Mitsubishi Corporation (15 per cent). The project includes the design, construction and operation of a natural gas liquefaction plant, utilities, storage facilities, including port construction with marine off-loading facilities, and shipping. The facility will initially consist of two identical liquefaction trains, each with the capacity to produce 6.5 million tonnes of LNG annually, with an option to expand in the future with two additional trains, resulting in an ultimate capacity of 26 million tonnes per annum LNG.

Located in Kitimat, adjacent to the Rio Tinto smelter, the site has a deep, protected harbour located at the head of Douglas Channel, providing an ice-free shipping route to the Pacific Ocean throughout the year.

LNG carriers, with capacity between 130,000 to 170,000 cubic metres, will transit via Hecate Strait, through Principe Channel, the Otter Channel, Lewis Passage, Wright Sound and into Douglas Channel. In addition to an enhanced bridge team and lookout personnel on board, two coastal pilots and an escort tug will accompany the carriers between Triple Island and the terminal. The entire route from Triple Island to Kitimat is 160 nautical miles with transit time and speeds varying to accommodate other commercial traffic, whales or activities like fishing and recreational boating.

Status

In July 2016, the joint venture partners announced a delay of their Final Investment Decision, originally scheduled for late last year. Despite some downsizing of staff, Turner reported that the team of about 100 have been moving full-steam ahead to ensure the project is in the best place possible for a Final Investment Decision.

“The global energy market and the affordability of the project in that context prevented our joint venture participants from taking an FID at that time,” Turner said. “However, they are committed to taking an FID when these conditions improve, and the project has demonstrated it remains cost competitive against other investment opportunities. During this period of delay, LNG Canada has been spending time and resources to examine ways to protect the value already invested in the project, as well as to bring costs down, while keeping performance targets for greenhouse gas emissions and environmental performance at world-class levels.”

Indeed, Turner and his team have received key regulatory approvals, including:

A voluntary TERMPOL review process with a comprehensive safety-sensitive risk assessment from Triple Island to Kitimat;
An Environmental Assessment Certificate;
An Oil and Gas Commission facility permit;
A National Energy Board 40-year export licence;
Satisfaction of all regulations under the Navigation Protection Act;
Fisheries-related permits and more.

Turner spoke highly of government and marine industry professionals who have worked with them to fulfill many of the requirements. “Transport Canada, Canadian Coast Guard, the Pacific Pilotage Authority, BC Coast Pilots Ltd., and Canadian Hydrographic Services, just to name a few, have all been very responsive,” he said. “From collaborating on risk mitigation and navigation aids, to accompanying us during simulation exercises and even assisting with presentations to the community, they’ve been fantastic.”

In terms of site preparation, Turner reported that a number of contracts have been awarded and additional RFPs are either in progress or about to be issued. To give an example, a few of the contracts awarded so far have gone to the likes of Leavitt Machinery (for equipment and servicing), Ledcor-Haisla Ltd. (for early construction consultancy, creek diversion and site preparation), and Boskalis Canada Dredging & Marine Services (for marine dredging). Currently, a Request for Proposal has been issued for a Main Plant Engineering, Procurement, and Construction (EPC) contractor; and RFPs for demolition of the Methanol terminal and construction of a marine habitat offset will begin this summer and early next year respectively.

“Identifying a single EPC contractor will reduce risk and bring more certainty to the project,” said Turner. “The cost to engineer, procure and construct the LNG Canada project makes up a significant part of the FID. Hiring a single prime contractor — responsible for the Front End Engineering Design (FEED), planning of construction execution, and managing the various subcontractors and employees required for site construction and building of the facility — reduces the project risk for our joint venture participants, brings more certainty to the costs, and delivers the best outcome from a schedule basis and lowest capital expenditure.”

Noting the complexity of the project, Turner estimated it would take some time for the contractors participating in the RFP process to work through their plans and numbers before submitting proposals, and further time for LNG Canada to review them and identify a preferred contractor. A date hasn’t been established for the award.

First Nations and community engagement

While both the regulatory and site preparation activities are ongoing, the LNG Canada team continues to engage with First Nations and the Kitimat and surrounding communities. “We continue to make social investments that focus on activities and initiatives that are useful, desirable and beneficial to the community, align with our core values, and benefit our own employees who will be living in the community during construction and operations,” said Turner, adding that a Community Advisory Group provides great local knowledge that helps LNG Canada to make informed decisions about projects.

“From the outset, we have contributed to a wide range of programs, services and community initiatives. Our social investment and workforce development contributions total more than CAD$2.3 million so far — investments ranging from supporting Kitimat and Terrace Community Foundations to purchasing new equipment for the hospital. Our most recent contribution to the District of Kitimat’s Emergency Notification System is a perfect example of a social investment that is a benefit to the community and our workforce, and aligns with our values.”

Working with many First Nations, including the Haisla, whose traditional territorial lands will be the location of the project, as well as the Gitga’at, Kitselas, Metlakatla and Lax Kw’alaams, Turner described how LNG Canada was committed to the process of building relationships based on open and honest communications. “Working collaboratively with First Nations, the local community, non-governmental organizations and local, provincial and national levels of government has helped LNG Canada advance towards its goal of becoming the project of choice in northern B.C.,” said Turner, noting that an LNG Benefits Agreement was recently signed between the province and Gitga’at First Nation, adding to agreements already signed by Metlakatla, Lax Kw’alaams, and Kitselas. Additional agreements are being worked on with the Kitsumkalum and Gitxaala First Nations as well.

“We respect First Nations’ relationship to the land and sea, including their traditional rights and title,” Turner continued, “and, in addition to developing areas of mutual benefit, we have demonstrated how energy development in First Nations’ traditional territories can achieve success.” To that point, Turner confirmed LNG Canada’s commitment to local employment and contracting, where possible, and described their investment in supporting local training programs and initiatives focused on youth and skilled labour.

In terms of designs and execution to date, Turner said that LNG Canada has made every effort to use energy efficiently, water wisely, and limit the impact of activities on the natural environment. “We believe we have demonstrated that global energy firms can bring their considerable technological knowledge and innovative thinking to develop resources sustainably,” he said, adding that “our greenhouse gas targets during operations are among the lowest of any LNG facility in the world.”

The big picture

When asked about an estimated timeline for the FID, Turner said the decision depended on the global markets, but that the joint venture partners still believe the LNG Canada project is the best vehicle to get B.C. and Canada’s resources to Asian markets. “This industry won’t have any negative impact on rails or the environment, and its safety record is beyond reproach,” he said. “While some are calling it the fuel of tomorrow, I would go as far to say that it’s already the fuel of today.”

“The gas industry in Canada, and globally, is in the midst of a downturn, but we’re taking a long-term view,” he said. “Scenario planning suggests that global LNG demand, which is currently at about 265 million tonnes per year, will double by 2030, assuming there is sufficient additional investment in supply. Decisions on investment are made based on a 40-year horizon. That outlook for LNG supports Shell’s view on the critical role gas will play in the transition to a low-carbon future.”

While many expected a strong increase in new LNG supplies would outpace demand during 2016, instead, the outlook showed demand growth kept pace with supply as Asia and the Middle East absorbed the increase in supply from Australia.

Once an FID is made, it will take about five years to build the plant, “meaning we are well placed to take advantage of a plausible scenario that shows a supply gap emerging in the early 2020s,” Turner said.

Whether any, or which, of the other 18 proposed projects still showing on the Government of B.C. website will reach a successful FID, Turner couldn’t speculate. But what he did say was that “the number of projects demonstrates how important B.C. is for the export of gas to other markets.”

The vice versa is also true — the industry is important to local communities, B.C. and Canada in order to keep pace with the rest of the world and be able to comply with greenhouse gas emission issues and climate change. “Natural gas is recognized as affordable and the cleanest burning fossil fuel,” Turner said. “For countries that depend on coal for the majority of their energy needs, using LNG has the potential to greatly reduce their GHG emissions and significantly improve air quality. LNG plays an important role in meeting energy demands while addressing the world’s climate change challenge.”