Environment & Science | Northwest Coast Energy News

Energy media turns its eyes on Kitimat, LNG and Enbridge

The prospect of Kitimat becoming a major port for export of Liquified Natural Gas was bound eventually to spark interest in the media covering the energy sector.

This week, photos of Kitimat mayor Joanne Monaghan turned up on as the lead on stories in Alberta Oil magazine and The Financial Post.

In Alberta Oil’s Export visions stoke deep divisons in a coastal town, the longest of the two articles, feature writer Jeff Lewis, puts the history of Kitimat into some perspective for the Alberta oil patch.

Alcan came to northern British Columbia in the early 1950s with plans to build the world’s biggest aluminum smelter….

Even by today’s standards of engineering, the $500-million “Kitimat Project” was ambitious…. They bored into a mountain to create the Kemano hydro plant. They blasted enough rock to dam and reverse the Nechako River. They strung high-wire transmission towers across a rugged valley. And they built Kitimat – complete with schools, pre-fabricated houses floated in on barges, roads and even a toastmasters club – from scratch.

It is to this history that Mayor Joanne Monaghan refers when she dismisses fears about development in the region ruining a natural wilderness. “Kitimat is geared to be an industrial town,” she says over lunch at the local Chalet Restaurant. “That’s what it was built as.” Distinct neighborhoods and services were laid out for a population many thought would crest 50,000, with heavy industry built at a remove from the commercial and residential areas of town.

The vision never quite materialized… Monaghan… insists job prospects in the town are poised for recovery. The unemployment rate was 9.5 per cent in 2006. “I think it can only get better from here,” the mayor says. “I really feel like we’re a sleeping giant, and the giant is waking up.”

It is also true that the town remains partially stuck, very much groping in what is perhaps the darkest hour before the mayor’s dawn. Local divisions aren’t limited to the physical split between the town’s industrial park and its residential streets. While the Apache-sponsored gas terminal has progressed to the point where site preparation is underway, Enbridge’s Northern Gateway faces tremendous opposition – from the Haisla, but also from pockets of local residents. The multibillion-dollar pipeline has underscored deep-seated tensions in the region to such an extent that the local council refuses to talk about it. Some, including Monaghan, favor a referendum on the project. “It’s a contentious issue,” she says.

The Financial Post’s energy reporter Claudia Cattaneo focuses more on the issues on her beat in LNG Trying to Dock Catteneo notes that the March earthquake in Japan which crippled the country’s nuclear energy raised interest in exports of liquified natural gas from Alberta through the port of Kitimat.

Her article also reflects the hints of skepticism that have arisen about natural gas exports in the past couple of weeks. She points out that part of the price advantage that Alberta gas may have in Asia is not the “molecules” the term so beloved of the experts in the energy industry but “arbitrage” the difference between the Asian price of natural gas which is a percentage of the price of oil (which is going up) and the North American price, which is based on supply and demand, North American gas supply is up due to exploitation of the shale gas reserves and so the price of natural gas has dropped. (Kitimat residents of course haven’t noticed the drop in the price of natural gas due to the high transportation “bill” charged by the local monopoly Pacific Northern Gas). The companies that want to build a port at Kitimat are basing part of their profit picture on that price difference.

Cattaneo quotes Chris Theal who works for a Calgary hedge fund who says that the Asian demand for natural gas will continue to increase in the coming years, but export could be strangled by limited capacity on the BC coast even if all the projected Kitimat projects go ahead and there is an expansion of the port of Prince Rupert to handle natural gas from pipeline or rail tanker. Theal says (ideas that also recently came out at the NEB hearings in Kitimat) that alternative export ports could exist in the United States at ports like Coos Bay and Clataskanie, Oregon and Astoria,Washington.

Enbridge to improve risk assessment on proposed Northern Gateway pipeline

Vancouver Sun

Enbridge to improve risk assessment on proposed Northern Gateway pipeline

Enbridge acknowledged Thursday it needs to improve its risk assessment of potential accidents along the route of a controversial proposed pipeline that would deliver crude oil to the west coast of British Columbia.

A company spokesman made the comments in response to a new analysis to be submitted Friday to a government review panel that raises questions about potential impacts of the Northern Gateway project.

“There are major sources of uncertainty that are not adequately acknowledged and/or incorporated into the analysis,” said the review, prepared by Stella Swanson, a Calgarybased aquatic biologist.

The review analyzed the company’s public submissions to the government panel that is assessing the environmental impacts of the $5.5-billion Northern Gateway project.

B.C. first nation challenges oil and gas tenures sale: Globe and Mail

Globe and Mail

B.C. first nation challenges oil and gas tenures sale

The sale of oil and gas tenures in northeast British Columbia by the provincial government for $260-million is being challenged in court by a native band.

The Dene Tha, a first nation that straddles the B.C.-Alberta-Northwest Territories boundaries, has filed a petition with the Supreme Court of B.C. The band alleges that the B.C. Ministry of Energy and Mines failed to adequately consult with the first nation, or to undertake studies on the environmental impact of gas drilling, before selling the leases in the Cordova Basin, near Fort Nelson. Shale-gas deposits in the Cordova Basin are thought to be extensive.

Encana, PetroChina shale gas deal collapses

A $5.4 billion deal between Canadian exploration giant Encana, one of the partners in the KM LNG project, and PetroChina collapsed Tuesday, sending shocks through both the financial markets and the energy exploration and production sector.

International analysts are already saying that China may be pulling back in its strategy to get a foothold in key resource areas and perhaps the Canadian energy sector was too optimistic. Perhaps.

If the analysts are correct, that means that some of the grand plans to export natural gas, at least to China, may still go ahead, but won’t immediately turn British Columbia back into the fabled Golden Mountain that brought the labourers from China more than a century ago to build the railways. Nor does this mean a major threat, at this point, to plans to export gas through Kitimat as there are plenty of buyers in Japan, Taiwan, South Korea and Malaysia looking at northeast BC shale gas.

The Wall Street Journal Heard on the Street blog says

E&P executives across North America should also be nervous. While some speculate Canadian-resource nationalism has spread from potash to energy, there is little evidence of this, given other similar deals haven’t been blocked. The alternative explanation is that foreign buyers of North American gas assets may actually care about such quaint notions as return on investment.

That isn’t good news for an E&P sector that consistently lives beyond its means.

London’s Financial Times says

Although China has gained a reputation for buying up resources around the world at any cost, a string of recent failed deals suggests the country’s resources companies are starting to drive harder bargains and are becoming more selective. In April, China’s Minmetals withdrew a $6.5bn offer for Equinox, an Australian-Canadian copper miner, rather than raise its bid after a higher offer emerged from Barrick Gold.

Chinese oil companies have also recently walked away from, or missed out on, prized oil and gas assets in Brazil …

The failure of the Encana-PetroChina deal is a surprise to the industry because Chinese companies have recently been investing aggressively in shale gas assets to gain the expertise needed to develop China’s own reserves.

Reuters reported from Edmonton that it was Encana who walked away from the deal:

Encana, Canada’s No. 1 natural gas producer, said the two companies could not find common ground, despite a year of negotiations, and walked away from a deal that would have seen PetroChina take a one-half stake in Encana’s massive Cutbank Ridge field in northern British Columbia.

“We just reached the point where we determined we just couldn’t go forward” said Alan Boras, a spokesman for Encana.

The deal would have been the largest in a string of investments by Asian companies in North America’s prolific shale gas discoveries, while Encana investors were counting on the cash to shore up a balance sheet battered by more than two years of weak natural gas prices…

The CBC report had analysts disagreeing on Encana’s role:

John Stephenson, portfolio manager with First Asset Investment Management in Toronto, called the scuttled deal “a complete and utter failure.”

“I think they just couldn’t agree on anything and I think they were premature maybe in announcing this before they had an operating agreement in place,” he said….

But Lanny Pendill, an energy analyst with Edward Jones in St. Louis, commended Encana for its discipline….Its willingness to walk away from a deal after a year of work shows “if push comes to shove, they’re going to make the decision that’s in the best interest of Encana and Encana shareholders.

The Globe and Mail says Encana has plenty of assets in shale gas, especially the Horn River developments which were often mentioned as the main source for shale based natural gas that could be shipped through Kitimat:

With the PetroChina joint venture out of the picture, Encana still has lots of potential. For starters, back in April, the company said it was looking to start discussions on joint venture proposals for its Horn River and Greater Sierra assets. On the heels of Tuesday’s announcement, Encana said that the prospects for these projects are looking up, and raised its 2011 expected proceeds from them to between $1-billion and $2-billion, up from $500-million and $1-billion

Encana news release (on Encana site)

Encana news release 0621-petrochina-jv-negoiations-end.pdf

Here’s how the Enbridge hearings will proceed

Staff of the Northern Gateway Joint Review panel explain the hearing process to residents of Kitimat at Riverlodge Recreation Centre, June 16, 2011. (Robin Rowland/Northwest Coast Energy News)

It will take more than year for the Enbridge Northern Gateway Joint Review Panel to complete hearings and taking evidence before it even begins to consider a decision whether or not to approve the controversial pipeline proposal.

Even then, the worries of the residents of northwest of British Columbia will be only one factor in the panel’s decision.

The Joint Review panel information town hall reached Kitimat on the afternoon of Thursday, June 16. One of the information sheets handed out at the town hall explained the Joint Review Panel this way:

In deciding if the Project is in the public interest, the Panel will consider whether Canadians would be better or worse off if the Project was approved. The public interest includes all Canadians and refers to a balance of economic, environmental and social considerations that change as society’s values and preferences evolve over time.

(Emphasis in original)

Here is a summary of how the process will work:

This summer, those who wish to formally participate in the hearing process must register with the panel.

For those who wish full intervenor status, the deadline to apply is July 14, 2011.

For those who wish to make oral statements in the community round of hearings, the deadline to apply is October 6, 2011.

Those formal intervenors who wish to request information from Northern Gateway have two deadlines. August 25, 2011 is the deadline for the first round, after which Northern Gateway must respond by October 6. The intervenors then can ask Northern Gateway a second set of questions, with a deadline of November 3, 2011. Northern Gateway must respond by November 24, 2011.

The deadline for intervenors to file written evidence with the panel is December 22, 2011.

Community hearings

On January 10, 2012, the Joint Panel will begin the “community hearings” phase where anyone who met the registration deadline, either as an intervenor or a community participant, can make a presentation to the panel.

These community hearings will be held across northern BC and Alberta, along the route of the pipeline and down the coast, with, sources say, a significant session slated for Kitimat.

The community hearings are expected to take several weeks.

Those who made oral comments to the panel then have until March 13, 2012 to file follow up letters.

Final hearings

The community hearings are then followed by another round of filing by the intervenors and government participants.

On June 16, 2012 the Joint Review Panel will then open the more formal “final hearings” at a location to be determined.

Around the same time, the Joint Review Panel must prepare an environmental assessment report that will be submitted to the Minister of the Environment.

Again, according to the handout material, there is a caveat in the panel’s mandate

The significance of any negative environmental and socio-economic effect is only determined after considering the actions that are proposed to prevent or reduce the effects. (Emphasis in the original)

In other words, as those who have attended Enbridge’s briefing sessions know, the company has outlined a whole series of safety measures, for example, adding navigation aides to Douglas Channel and parts of the coast.

If the environmental movement wishes to challenge the voluminous reports, likely costing millions of dollars that Enbridge has already filed as part of its application to the Joint Review Panel, the environmental concerns will have to be backed up with solid and expensive expert evidence.

Once the Minister of the Environment has the environmental assessment, the government then responds:

The government response will set out whether the Government of Canada agrees or disagrees with the conclusions and recommendations made the Panel by the panel regarding the potential environmental and socio-economic affects of the Project. The Governor-in-Council [ the federal cabinet] must approve the government response. This approved response will be made available to the public.

The decision

After it hears the government response on the environment, the panel makes its decision, whether or not the project can proceed.

The Panel will issue its Reason for Decision which will include a decision whether or not the Project is in the Canadian public interest.

If the Panel decides the Project can proceed, its Reasons for Decision will include conditions that Northern Gateway must meet before, during and after the construction of the Project.

If the Panel decides that the Project should proceed, the Panel will send its decision to the Governor in Council who can either accept or reject the decision but cannot modify it.

The Governor in Council means the federal cabinet, so the final decision will rest with Prime Minister Stephen Harper.

Is energy player Nexen Kitimat’s next “gentleman caller?”

Another big energy company is looking for a way to get its shale gas from northeastern British Columbia to the lucrative markets of East Asia.

At Monday’s Canadian Petroleum Producer’s investor conference in Calgary, Nexen announced it was looking for a joint venture partner to export the shale gas through a west coast port to Asia.

LNG World News reported:

Nexen wants to find a partner with expertise in producing and selling liquefied natural gas, said Marvin Romanow, chief executive officer. The Calgary-based company last month opened the books on its shale-gas resources for review by interested parties.
“We looked for folks with good contacts in LNG,” Romanow said

Canadian Press reported:

Nexen Inc. (TSX:NXY) is on the hunt for a partner to help develop its vast holdings in the Horn River Basin. LNG expertise would be attractive in a partner, but Nexen is open to a variety of marketing strategies for its gas, chief executive Marvin Romanow said.
“I think you want to think about treating your market access as a portfolio, not as a single killer strategy.”

So it is likely that Nexen and its prospective partners, whether from Asia or North America, will be next in line of “gentleman callers” making their way to Kitimat to check out Douglas Channel.

To use a theatrical and old movie analogy for a moment, Kitimat, with its isolated location and the devastating closure by West Fraser of the Eurocan plant, up until this spring, the town was seeking big money corporate saviours in the same way as Tennessee Williams’ stricken, lonely Laura pined for a “gentleman caller” in The Glass Menagerie.

Now with the world wide gold rush in shale gas production aimed at the Asian market, Kitimat seems to be taking on a new movie role, the nice, plain, intelligent next-door girl that all the boys ignored until she suddenly comes in to an unexpected inheritance. Now all the boys are calling on her and so are fancy guys from out of town.

Nexen is a Calgary-based energy company, first known as Canadian Occidental Petroleum. It began with operations in the Alberta oil patch and later in the Gulf of Mexico.

In 1991, the company made a major oil discovery in Yemen and that financed later expansion into the Alberta oil sands, deep water drilling the Gulf of Mexico and exploration in northeastern British Columbia shale oil.

At the Calgary conference, Nexen said it wasn’t currently drilling any new wells in Yemen and was slowing maintenance of wells while it waits renewal of its contract with the government. Given the current unrest in Yemen, it may be a while before a new government is formed that can sign a new 50/50 contract with Nexen.

On shale gas, Nexen says on its website:

While we weren’t looking at shale gas five years ago, today we have captured significant resource potential-enough to double our current proved reserves-in the heart of one of North America’s best shale gas plays. We are improving productivity and driving down costs as we improve equipment utilization, drill longer wells and initiate more fracs per well.
Shale gas can be brought on quickly, fuels our short-term growth and complements the larger projects in our portfolio.

Webcasts from the CAPP conference

PDF of Nexen’s Powerpoint presentation. (On the Nexen investor page, lower right)

Latest entrant in LNG scramble wants NEB, BC to consolidate approvals: Reports

LNG World News

Progress Energy wants consolidated process for LNG projects in Canada

Progress Energy Resources Corp, which signed a C$1.07 billion ($1.09 billion) shale gas alliance with Malaysia’s state oil company, is pushing for a consolidated regulatory process for pipelines and liquefied gas export plants, its chief said on Monday.

A big driver for Progress’s deal with Petronas is a plan to build an multibillion-dollar LNG plant on the West Coast to take all of the shale gas production from the partner’s lands in the North Montney region of British Columbia….

Progress Chief Executive Michael Culbert said federal and provincial authorities should consider combining regulatory proceedings for multiple plants and pipelines, with so many proposals now in the works.

The current pipeline capacity to British Columbia’s Kitimat region is about 100 million cubic feet a day, far below what will be required to support an export industry, he told reporters after a speech to the Canadian Association of Petroleum Producers investment symposium.

Canadian Press

LNG terminals planned for West Coast have enough gas to go around: executives

Northeastern British Columbia’s shale fields contain more than enough natural gas to feed a myriad of West Coast export terminals in the works, energy executives said at an industry conference Monday.

But some say collaboration may be necessary to ensure the gas makes its way across the Pacific in the most cost-effective way possible.

Penn West president Murray Nunns …said he sees the various LNG proposals joining forces at some point.

“The scale of the initial projects at a (billion cubic feet) or two probably isn’t suitable relative to the size of the resource in Western Canada,” he told reporters.

“I think in the end, it may only end up as one or two facilities but I think they’ll be substantially larger than what’s been considered.”

Canadian oil boom may bring many more tankers to Northwest waters: Seattle Times

Seattle Times

Canadian oil boom may bring many more tankers to Northwest waters

[F]ights over Canada’s oil sands could have an impact much closer to home. One company is hoping to boost oil-sands shipments to Asia through Northwest waters — plans that would quadruple tanker traffic through Vancouver, B.C., and dramatically increase the amount of oil traveling through the Strait of Juan de Fuca.

Some of the tankers the company hopes to accommodate could carry four times more crude than the Exxon Valdez, the supertanker that spilled 11 million gallons of crude into Prince William Sound….

“That’s definitely a lot more crude carriers,” said Chip Booth, a manager with the Washington state Department of Ecology’s spills program. “It certainly represents a bit of a higher risk.”

But it’s far too soon to say how much more.

Oil Sands Project in Canada Will Go On if Pipeline Is Blocked: New York Times

New York Times
(Registration required)

Oil Sands Project in Canada Will Go On if Pipeline Is Blocked

One way or another — by rail or ship or a network of pipelines — Canada will export oil from its vast northern oil sands projects to the United States and other markets.

The oil sands have reserves of 171.3 billion barrels, according to estimates by the provincial government of Alberta.

So the regulatory battle over the proposed Keystone XL pipeline, which would link the oil sands to the Gulf Coast of the United States, may be little more than a symbolic clash of ideology, industry experts say. Even if the Obama administration rejects the Keystone plan, the pace of oil sands development in northern Alberta is unlikely to slow

Joint Review hearings on Enbridge Northern Gateway set for Kitimat in mid-January: sources

The full Joint Review Panel hearings on the Enbridge Northern Gateway pipeline are tentatively set to open in Kitimat in mid-January, 2012.

Knowledgable energy industry insider sources confirmed the likely dates and that the bulk of the hearings will take place in Kitimat to Northwest Coast Energy News Friday after a number of the participants in this week’s National Energy Board hearings on the KM LNG pipeline made inquiries locally about booking meeting rooms and hotel accommodation for several weeks in a stretch, beginning in early January, 2012.

The Joint Review website says: “The Panel will start meeting with participants on 10 January 2012 at locations to be determined.” During last winter’s National Energy Board pre-briefing on this week’s LNG hearings, NEB staff said the location to be determined was always chosen to provide the best opportunity for those involved to speak before the board. While there were fears in Kitimat that the LNG hearings would be held Alberta, those fears proved to be unfounded.

The Joint Review panel is now traveling across BC offering information sessions to the public.
Updated schedule here. It is highly likely that hearings, like the information sessions, will be held in as many locales as possible, but those will likely be mostly about local issues, with the bulk of the concerns before the Joint Review Panel hearings in Kitimat.

A NEB source cautioned that dates are always tentative due to other hearings, staff commitments (some of the KM LNG NEB staff are also assigned to the Northern Gateway hearings) and, as sometimes happens, the lawyers agreeing on postponements.

According to the official website:

The Joint Review Panel for the Enbridge Northern Gateway Project is an independent body, mandated by the Minister of the Environment and the National Energy Board. The Panel will assess the environmental effects of the proposed project and review the application under both the Canadian Environmental Assessment Act and the National Energy Board Act.

The Joint Review panel has much wider powers to hear issues than the NEB did this week in the KM LNG hearings, where the only issue on the table was the partnership’s application for a natural gas export licence.