Edmonton Journal. May 15:
Shell, Asian energy giants to build largest LNG plant in B.C. – Partnership will bring massive plant to Kitimat
Four global energy firms led by Shell Canada say they are going to develop a 12 million-tonnes-a-year liquefied natural gas plant at Kitimat, the largest by far of four LNG proposals for the B.C. Coast.
The announcement Tuesday catapults Shell and its partners into the leading LNG developer in Canada in terms of size. By comparison, competitor Kitimat LNG, which already has an export permit, plans a plant with a capacity of five million tonnes a year.
Although Shell has not released any project costs, a recent news article in a Japanese publication pegged the investment by the partners at more than $12 billion US.
That would make it one of the largest, if not the largest, capital investments ever in a single project in B.C., said Jock Finlayson, executive vice-president of the Business Council of British Columbia.
“This underscores both the magnitude of the opportunity we have in this rapidly developing sector as well as the sheer scale of the individual projects that are contemplated,” said Finlayson. “It’s a big one. It’s a huge one.
“We are dealing here with a world-scale, multinational business that is active all over the world. The fact that they are paying significant attention to B.C., I think, is quite exciting.”
Shell’s partners are Mitsubishi Corp. of Japan, the Korean Gas Corp. (KOGAS) and PetroChina Co. Shell holds a 40 per cent interest in the project, named LNG Canada, while the three Asian partners each hold a 20 per cent interest.
“The LNG Canada project brings together the four companies’ extensive development experience, technical depth, financial strength and access to markets to be the leading LNG developer in Canada,” the four companies stated Tuesday in a joint news release.
In a telephone interview from Calgary, Shell Canada spokesman David Williams said the project would bring significant benefits to B.C.
“A project like LNG Canada can create thousands of jobs for British Columbians and offer billions of dollars to the province over decades,” he said.
Shell’s partners all expressed confidence in the news release about making such an investment in B.C.
KOGAS vice-president Young Sik Kwon, said KOGAS “looks forward to conducting business in B.C. with respect to all local residents and their traditions.”
Mitsubishi vice-president Junichi Iseda said the Japanese company looks forward to “creating economic growth and new, important trade links between our two nations.”
PetroChina vice-president Bo Qiliang said the project “will contribute to a further strengthening of relationships between China and Canada and will help China use clean-burning natural gas to fuel its economic growth.”
The LNG Canada project would include the design, construction and operation of a gas liquefaction plant and facilities for the storage and export of LNG. The design is to include an option to expand in the future. Before making a decision to move into the development stage, the partners said in the news release that they will first conduct engineering, environmental, and stakeholder consultations.
Start-up is anticipated for the end of the decade, pending regulatory approval and investment decisions.
A race is underway among gas producers to be the first to develop an LNG plant on the west coast of North America to feed the burgeoning Asian market.
Price is the main driver: gas is selling at wellhead prices in B.C. of $1.60 US a thousand cubic feet while in Asia, customers are paying from $14 US to $16 US (per million British thermal units) a thousand cubic feet. But Canada’s stable political and economic climate and the fact that companies can own their reserves are also driving investment this way.
Shell’s LNG proposal is the fourth under consideration for Kitimat but it is by far the largest — more than twice the $4.5 billion investment planned by Kitimat LNG, the Apache, Encana, EOG partnership.
The other players:
A joint venture of Apache Resources, Encana Corp and EOG Resources, KLNG is furthest along the development track. The have already been issued a 20-year export licence to ship five million tonnes of LNG a year from Canada to export markets in Asia.
“We’re leading the way in being able to deliver a long-term, stable and secure supply to the region,” Janine McArdle, Kitimat LNG President, said earlier this year.
The partners plan a $4.5 billion-plus liquefied natural gas terminal at Kitimat capable of producing five million tonnes of LNG a year with the potential to expand to 10 million tonnes a year. KLNG has already completed what is known as a front end engineering design (FEED), which gives certainty around project costs, The company has approximately 40 people working on access roads and on-site grading at its site at Bish Cove on Douglas Channel near Kitimat. The partners are currently negotiating long-term contracts with potential customers in A, which they expect to be signed this year. A final investment decision is expected before the end of 2012.
Paul Wykes, spokesman for Apache Canada, said although there is no firm timeline on completion, first exports are anticipated for late 2015 to early 2016.
“But those timelines can be refined as we get through the FEED studies.”
Through a separate joint venture, the partners also plan to construct a $1 billion, 466-kilometre underground pipeline, the Pacific Trail pipeline, to connect Kitimat with Spectra Energy’s transmission system at Summit Lake in northeastern B.C. providing the proposed LNG plant with access to the province’s growing natural gas reserves. The pipeline received a B.C. environmental assessment certificate in 2008, when it was originally planned to ship LNG from an import station at Kitimat to the Spectra system for distribution throughout North America.
On April 10, the B.C. Environmental Assessment Office approved an expansion of that pipeline from 36 inches diameter to 42 inches, ostensibly to permit gas to be pumped under lower pressure.
Malaysian energy giant Petronas announced earlier this year that it wants to spend $5 billion securing natural gas supplies in Western Canada. Petronas already has an agreement with Calgary-based gas company Progress Energy to acquire a 50 per cent interest in 60,000 hectares of Progress gas properties in B.C. for $1.07 billion. Further, Petronas and Progress are planning a liquefied natural gas facility and export terminal, likely at Kitimat.
Under the agreement, Petronas would own 80 per cent and Progress 20 per cent of the proposed terminal. It is at the feasibility study phase. The partners plan a two-train facility with a total capacity of 7.4 million tonnes a year. (A train is the term used to describe the liquefaction and purification facilities at an LNG plant.)
That size of plant would require a gas supply of 560 million cubic feet a day. To finance it, the partners need proven reserves of nine trillion cubic feet, enough gas to supply the plant for 20 years.
The smallest LNG proposal, BC LNG is a 50/50 joint venture between the Haisla First Nation of Kitimat, and LNG Partners LLC of Houston, Texas. They plan an LNG plant with an initial capacity of 700,000 tonnes a year for export, however, they have been issued a 20-year export licence from the National Energy Board to ship 1.8 million tonnes a year of LNG. The gas for BC LNG would come on the existing Pacific Northern Gas pipeline and possibly on the proposed Pacific Trail pipeline. The plant capacity could be increased to 1.8 million tonnes as additional pipeline capacity is built.
BC LNG managing director Tom Tatham has said a final investment decision is expected in April with the proposed plant operational in early 2014.
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