economy | Northwest Coast Energy News

AltaGas signs distribution deal with BC Hydro

Energy

Just two days after its friendly take over of Pacific Northern Gas, AltaGas has signed a electricity purchase agreement with BC Hydro.

The deal covers the McLymont Creek and Volcano Creek run-of-river hydroelectric projects. Both are in the traditional territory of the Tahltan First Nation.

Along with a third project, know as Forest Kerr, the three projects will total approximately 277 megawatts and are known as “the Northwest Projects.” The three will be the anchor tenants for the Northwest Transmission Line, which will upgrade the hydro infrastruture of northern western British Columbia.

David Cornhill, Chairman and Chief Executive Officer of AltaGas said in a news release

“With a combined capacity of approximately 82 MW the McLymont Creek and Volcano Creek projects, in addition to our 195 MW Forrest Kerr project, represent a $1 billion investment in British Columbia,”. “These three projects align with our strategy of adding low-risk, long-life assets as we continue to build long-term contracted assets that will generate power and deliver strong shareholder value for generations to come.”

The news release also says:

The Northwest Projects will be constructed solely within Tahltan Nation traditional territory. AltaGas and the Tahltan Nation have signed IBAs for all three projects and have established a strong working relationship that will provide the people of the Tahltan Nation with employment, business opportunities, and economic participation. Once completed, the projects will provide enough electricity for approximately 95,000 homes in British Columbia and will offset more than 780,000 tonnes of greenhouse gas equivalents annually.

Cornnhill said the hyro projects will generate more than 400 direct jobs during construction. He added there will be a lot of indirect economic benefits resulting from increased business activities in the area. “Not only will our Northwest Projects help support government job creation strategies but they will also provide much needed power to BC Hydro, which will allow them to meet the growing demand for power in the northwest.”

In a second news release, AltaGas said it will issue 4.27 million common shares to a syndicate of underwriters, co-led by TD Securities Inc. and RBC Capital Markets, at $29.30 per share, bringing the company approximately $125 million to be used to repay debt and for general corporate purposes.

AltaGas takes over Pacific Northern Gas

Energy

Pacific Northern Gas, the main supplier of natural gas to much of northern British Columbia, has agreed to be taken over by the much bigger Calgary-based AltaGas Ltd. in a deal worth $230 million or $36.75 a share.

The deal gives AltaGas a stake in the natural gas export race, since Pacific Northern’s pipelines link Alberta and British Columbia gas fields to Kitimat, where there are at least three projects underway to export liquified natural gas to Asian markets.

Pacific Northern Gas distribution network. (PNG)

In a news release, Pacific Northern Gas said that company executives began considering the future after PNG sold their interest in Pacific Trails Pipeline last February to the partners in the Kitimat LNG project.

Roy Dyce, president and CEO of PNG said in the news release:

This transaction is in the
best interests of our shareholders, customers, employees and other
stakeholders. Among the reasons we recommend the proposed transaction to
our shareholders are the size of the premium, the immediate liquidity
and the certainly of value the cash consideration offers, and the fact
that we believe AltaGas’ offer fairly values the $20 million contingent
payment that PNG will receive if the Kitimat liquefied natural gas
project proceeds.

Pacific Northern already had a small partnership with AltaGas to build a gas pipeline from a Montney gas plant to
British Columbia.

In its news release, AltaGas said “We are pleased to welcome all PNG employees to our team. AltaGas has a
long history of operating natural gas utilities across Canada and we
will continue to deliver safe and reliable service to our customers.”

AltaGas says the transaction will result in a 50 per cent increase in AltaGas’ holdings of regulated natural gas to consumers and businesses, now worth over $500 million and increase customers from 75,000 to more than 110,000.

The company is looking to increased natural gas exploration taking place in areas northeastern BC in the Montney and Horn River gas fields. AltaGas also expects to profit from “increased industrial activity in northern BC are expected to result in rate base and customer growth as areas such as Dawson Creek and Fort St. John.”

The new company would align the PNG system with AltaGas assets such as the Bear Mountain Wind Park and the Younger facility, BC’s only natural gas liquids extraction plant.

AltaGas adds. “Growing North American natural gas supply and continued attractive natural gas prices in Asian markets continue to support growth of an LNG industry in western Canada. PNG’s Western system is well positioned to capitalize on the growing demand for additional pipeline capacity along the Summit Lake to Kitimat/Prince Rupert corridor.”

AltaGas assets include small utilities, a gas business, and power. AltaGas describes itself this way:

AltaGas is an energy infrastructure business with a focus on natural
gas, power and regulated utilities. With the physical and economic links
along the energy value chain together with its efficient, reliable and
profitable assets, market knowledge and financial discipline, AltaGas
has provided strong, stable and predictable returns to its investors.
AltaGas focuses on maximizing the profitability of its assets, providing
services that are complementary to its existing businesses, and
growing through the acquisition and development of energy
infrastructure.

Consumers in northern British Columbia will be wondering, despite any long term spinoffs from liquified natural gas projects, what the deal will mean for their natural gas bills. Despite the statement by Dyce, “We look forward to joining with AltaGas in continuing our mutual history of delivering safe, reliable service to our customers” and Cornhill’s similar statement, “AltaGas has a long history of operating natural gas utilities across Canada and we will continue to deliver safe and reliable service to our customers,” it is highly likely that consumers in BC will be skeptical of the deal because up until now, while the price of natural gas has been falling, Pacific Northern Gas continued to charge very high (some would say extortionate) transportation and other fees to consumers.

RTA to divest “non core” aluminum assets

Aluminum

Rio Tinto Alcan has announced that it is “streamling” its aluminum assets after a “strategic review.”

The company says: “The move will allow Rio Tinto Alcan to concentrate on its strategy to
grow the value of its high quality, tier one assets and improve the
product group’s financial performance.”

Six assets in Australia and New Zealand will be spun off into a new company for sale, while a second group of seven assets in France, Germany, the United States and the United Kingdom will continue to be managed by RTA while the company considers divestment options.

An RTA news release Sunday says

Rio Tinto’s interests in six Australian and New Zealand assets will transfer into a new business unit, to be called Pacific Aluminium, and be managed and reported separately from the Rio Tinto Alcan product group prior to divestment.
These are:

–

Australia: Gove bauxite mine and alumina refinery, Boyne Smelters and the associated Gladstone Power Station, the Tomago smelter and the Bell Bay smelter
–

New Zealand: New Zealand Aluminium Smelters

A second group of seven non-core assets will continue to be managed by Rio Tinto Alcan while it further investigates divestment options.

These assets include:

–

France and Germany: Three Specialty Alumina plants and the Gardanne refinery
–

United States: Sebree smelter

United Kingdom: Lynemouth smelter and associated power station, for which potential options include closure

The news release quotes Rio Tinto chief executive Tom Albanese as saying: “The assets identified for divestment are sound businesses that are well-managed with productive workforces. But they are no longer aligned with our strategy and we believe they have a bright future under new ownership. The strength of our balance sheet means that we can choose the most opportune method and timing to divest these assets, which may not occur until the economic climate improves. In the meantime, we will continue to run these operations safely and efficiently.

“This move is a further significant step towards achieving our performance targets in the Aluminium product group. We have already made good progress, with plans in place to generate sustainable performance improvement, and we are investing at a number of our core assets.”

Rio Tinto Alcan chief executive Jacynthe Cote said “We are already well on our way to building a truly outstanding aluminum business. Streamlining the product group allows Rio Tinto Alcan to concentrate its efforts even more on driving performance improvements and investing in growth to increase shareholder value.”

Rio Tinto says it has consultations with affected stakeholders and the workforces involved.

Kinder Morgan buys US natural gas pipeline company in $21 billion dollar deal

Kinder Morgan, the giant oil pipeline company, which has proposed building a second bitumen pipeline from Alberta to Kitimat, Sunday announced it was buying El Paso Corp, America’s largest natural gas pipeline operator.

The Associated Press says the deal is worth $20.7 billion, Bloomberg says it is worth $21.1 billion.

Kinder Morgan already operates a pipeline from Alberta through British Columbia to the port of Vancouver and there are plans to expand that pipeline.

Kinder Morgan’s move comes after Enbridge also said it was interested in moving into the natural gas pipeline business. Both companies are moving to take advantage of the natural gas found in shale deposits and the growing demand for natural gas in both North America and Asia.

Bloomberg says:

The takeover is the largest ever proposed of a pipeline company, surpassing the 2007 leveraged buyout of Kinder Morgan itself by a group including Richard Kinder and Goldman Sachs Group Inc. The combined company would have 67,000 miles (107,000 kilometers) of gas lines and eclipse Enterprise Products Partners LP as the biggest U.S. pipeline operator.

“This once in a lifetime transaction is a win-win opportunity for both companies,” Kinder, who will be chairman and chief executive officer of the combined company, said in the statement. He said the deal, once closed, would create immediate shareholder value because of its cash flow.

The Associated Press says

Kinder Morgan will more than double the size of its pipeline network by purchasing El Paso. The new pipeline system would stretch 80,000 miles — long enough to wind around the globe three times. Kinder Morgan’s pipelines in the Rocky Mountains, the Midwest and Texas will be woven together with El Paso’s expansive network that spreads east from the Gulf Coast to New England, and to the west through New Mexico, Arizona, Nevada and California.

“We believe that natural gas is going to play an increasingly integral role in North America,” said Richard Kinder, Kinder Morgan Inc.’s chief executive, said on Sunday when the deal was announced.

Robert McFadden, a Houston-based natural gas pipeline consultant, said the expanded network will make it easier to move natural gas from new fields that have mushroomed across the U.S. in the past few years.

The take over deal came on the same weekend that the “Occupy” movement was demonstrating around the world against the greed of financial institutions.

Reuters reports that:

The investment banks advising on Kinder Morgan Inc’s $21 billion purchase of El Paso Corp are set to rake in a total of $100 million to $145 million in M&A fees, according to Freeman & Co on Sunday.

Evercore Partners and Barclays Capital , which are advising Kinder Morgan on the deal, would earn $45 million to $65 million in fees, Freeman estimates show.

Morgan Stanley and Goldman Sachs , which are on El Paso’s side, would split another $55 million to $80 million in fees, depending on the role they played, the estimates show.

NEB approves KM LNG export licence

Energy

The National Energy Board has approved KM LNG’s (also known as Kitimat LNG) application for an natural gas export licence.

A NEB news release says:

The National Energy Board (NEB or the Board) today approved an application by KM LNG Operating General Partnership (KM LNG) for a licence to export liquefied natural gas (LNG) from Kitimat, British Columbia to markets in the Asia Pacific region.

The export licence authorizes KM LNG to export 200 million tonnes of LNG (equivalent to approximately 265 million 10³m³ or 9,360 Bcf of natural gas) over a 20 year period. The maximum annual quantity allowed for export will be 10 million tonnes of LNG (equivalent to approximately 13 million 10³m³ or 468 Bcf of natural gas).

The supply of gas will be sourced from producers located in the Western Canada Sedimentary Basin. Once the natural gas has reached Kitimat by way of the Pacific Trail Pipeline, the gas would then be liquefied at a terminal to be built in Bish Cove, near the Port of Kitimat.

The construction and operation of the pipeline and the terminal will require provincial regulatory decisions.

This is the first application for an LNG export licence that the Board has considered since the de-regulation of the natural gas market in 1985.

In approving the application, the Board satisfied itself that the quantity of gas to be exported does not exceed the amount required to meet foreseeable Canadian demand. The exported LNG will not only open new markets for Canadian gas production, but the Board believes that ongoing development of shale gas resources will ultimately further increase the availability of natural gas for Canadians.

Prior to approving the licence, the Board considered environmental and related socio-economic effects of KM LNG’s application. These effects included matters related to marine shipping, and the proposed LNG terminal and Pacific Trail Pipeline.

The Board also acknowledges the potential economic benefits associated with KM LNG’s project. These benefits include employment opportunities due to the development of the LNG terminal and the Pacific Trail pipeline.

Kitimat mayor Joanne Monaghan said, “I am glad they got it, because now the project can move forward.”

KM LNG is owned by Apache Canada Ltd. (40 per cent), EOG Resources Canada Inc. (20 per cent) and Encana Corp. (20 pre cent). The Front End Engineering for the LNG terminal at Bish Cove is now underway. The companies say a final investment decision will be made in early 2012.

A news release from Apache said:

“The Kitimat LNG project represents a remarkable opportunity to open up Asia-Pacific markets to Canadian natural gas and we’re leading the way in being able to deliver a long-term, stable and secure supply to the region,” said Janine McArdle, Kitimat LNG President. “This export licence approval is another major milestone for Kitimat LNG as we move forward and market our LNG supply. LNG customers can have even more confidence in a new source of supply.”

“Today marks a historic day for Canada’s natural gas industry and this is fantastic news for our project and the communities where we operate. Kitimat LNG will bring revenues and jobs and the associated benefits to Canada,” said Tim Wall, Apache Canada President. “The Kitimat LNG partners are very pleased with the NEB’s approval of our export licence and we’d like to thank them for their support and confidence in the project.”

Text of NEB Decision on KM LNG(pdf)

Not enough bitumen production to support both Northern Gateway and Keystone XL consultant says

Energy

Bloomberg news reports that a Calgary based energy research company believes Enbridge’s Oil Sands Project Is Years Early

Enbridge Inc., Canada’s largest pipeline operator, wouldn’t need to build the Northern Gateway project to export Alberta’s oil-sands crude for almost a decade if TransCanada Corp.’s Keystone XL is approved this year, according to IHS CERA, an energy research company.

The 732-mile (1,177-kilometer) Northern Gateway pipeline would pump 525,000 barrels a day from near Edmonton, Alberta, to the port of Kitimat, British Columbia, where crude would be loaded on tankers bound for Asia. The line, scheduled to start in 2017, would reduce Canadian dependence on U.S. markets and compete with the Keystone XL, designed to pipe 700,000 barrels a day to refineries in Texas along the Gulf of Mexico by 2013.

Jackie Forrest, a director of global oil at IHS CERA, said there won’t be enough oil sands production to support Northern Gateway’s launch even if, as she expects, Keystone XL approval helps the output double in 10 years to 3 million barrels a day.

The Bloomberg article goes on to quote one analyst who believes the Northern Gateway fight will get a lower profile than the Keystone XL.

Northern Gateway faces opposition from environmentalists and Indian groups because it passes through the Great Bear Rainforest and raises the risk of supertanker oil spills in the Douglas Channel. However, the Canada-only route may make the project less prominent than Keystone XL, which has drawn protests from celebrities such as Daryl Hannah and Margot Kidder, who played Lois Lane in several Superman movies.

“Northern Gateway would be an all-Canadian fight and thus perhaps could be less sensational and muscular, think Canadian Football League vs. U.S. NFL, but nonetheless might get very contentious,” Judith Dwarkin, chief energy economist for ITG Investment Research, wrote in an e-mail from Calgary.

Approval of the Keystone XL may not be the slam dunk that some in the Calgary oil patch believe. As Konrad Yababuski reports in The Globe and Mail in Keystone XL: More about the politics than the petroleum

Proponents of the TransCanada Corp. project, which would double the amount of Alberta crude flowing south, now fear that President Barack Obama will give in to pressure from the base of the Democratic Party to nix the pipeline.

With Mr. Obama’s approval rating sliding to a record low – leading more than half of Americans to think for the first time that he will be a one-term President – the White House needs to bring every stray Democrat it can find back into the fold before the 2012 election.

The progressive wing of the Democratic Party has been feeling particularly unloved by this White House. Killing the Keystone XL project would be a powerful way for the administration to show its renewed affection.

Which means of course if President Barack Obama does kill Keystone XL to keep his base happy, there will be more than enough bitumen sands for the Northern Gateway pipeline.

Editor’s note: Disclosure. I have always liked the CFL game, with three downs and the bigger field over the NFL, so the analogy is probably apt in describing the contentious Northern Gateway debate, a more wide open and interesting struggle.

Natural Resources minister Joe Oliver continues to push Northern Gateway

Energy Links

Conservative Natural Resources Minister Joe Oliver is continuing to promote the Enbridge Northern Gateway pipeline. In a speech to the Canadian Club in Toronto, Oliver promoted both the Keystone XL pipeline from the Alberta oil sands to Texas and the Northern Gateway pipeline through Kitimat.

The Globe and Mail reports in New pipelines crucial to expand energy exports: Minister

Canada needs projects like Enbridge Inc. Northern Gateway pipeline to provide crucial access to growing markets for the country’s energy exports, says Natural Resources Minister Joe Oliver.

In remarks prepared for a speech Friday in Toronto, the Minister said the federal government would respect the regulatory review now being conducted on the Gateway project. But he made it clear Ottawa supports the construction of oil pipelines to the west coast, despite opposition from environmental groups and First Nations…..

Projects such as the proposed Northern Gateway Pipeline would connect Alberta’s oil sand to the port at Kitimat on the coast of British Columbia, where tankers could transport oil to Asian customers.”

While he said the government respects the regulatory process, he added: “It is a key strategic objective to diversify our customer base” beyond the U.S., which now accounts for 97 per cent of Canada’s oil exports.

The Associated Press also covered Oliver’s speech, as published in the Washington Post:

Canada’s natural resource minister says the country needs Enbridge’s proposed Northern Gateway pipeline to the Pacific coast to be built so that it can diversify its energy exports to China.

Natural Resource Minister Joe Oliver noted in a speech Friday that the U.S. is basically Canada’s only energy customer. Oliver says it is a key strategic objective to diversify the customer base.

But Aboriginal and environmental opposition to the Pacific pipeline is fierce. The opponents fear it will leak. The local member of Parliament, Nathan Cullen, has said accidents are inevitable in the rough waters around Kitimat, British Columbia, where the pipeline will end. And no one has forgotten the Exxon Valdez oil spill of 1989, some 800 miles (1,300 kilometers) north of Kitimat….

Sinopec, a Chinese state-controlled oil company, has a stake in a $5.5 billion plan drawn up by the Alberta-based Enbridge to build the Northern Gateway Pipeline from Alberta to the Pacific coast province of British Columbia.

Natural Resources Canada news release: Minister Oliver Touts Canada’s Energy Resources and Economic Strengths

Kitimat takes halibut fight to BC municipal convention

Environment Fishery

District of Kitimat councillor Randy Halyk, seen here at the local Jack Layton memorial on August 27, 2011, will be defending Kitimat’s resolution on halibut quotas at the Union of BC Municipalities convention. (Robin Rowland/Northwest Coast Energy News)

Kitimat is taking the fight over halibut allocation to the Union of British Columbia Municipalities convention to be held in Vancouver September 26 to September 30.

The resolution is one of two that the union will consider on the halibut controversry, the other comes from the Capital District on Vancouver Island,

Members of the District of Kitimat council will be at the convention to sponsor and defend the resolution.

The Kitimat resolution calls on the union to endorse:

Whereas the current federal allocation of the sustainable Pacific halibut resource is insufficient to provide reasonable catch and possession limits for the recreational and commercial sport fishery;

And whereas an increase in daily catch and possession limits would be of great benefit in attracting sports fishing tourists to coastal communities.

Therefore be it resolved that the UBCM support an increase in the allocation of the sustainable Pacific halibut resource to the sport fishing and requests that the federal Ministry of Fisheries and Oceans increase the catch limits to two per day and four in possession.

The Kitimat resolution was endorsed by the North Central Local Government Association

The overall province wide resolutions committee gave no recommendation on the Kitimat resolution saying it wasn’t clear what impact the resolution would have on the sports fishing industry. The committee added a note to the agenda that in 2010 members of the UBCM did endorse a resolution that requested the provincial and federal governments support both the commercial fishing industry and the sports fishing industry equitably as they are both critical economic generators for residents within the province.

The resolutions committee notes that British Columbia did express “support for the sustainability of both commercial and recreational fisheries in tidal waters.” The province apparently “highlighted a number of its activities related to ensuring fisheries sustainability and maximizing the economic and social benefits.”

The somewhat stronger resolution from the Capital Region did not receive an endorsement from the Association of Vancouver and Coast Communities and a “no recommendation” from the province wide resolution committee. That resolution says, in part that the allocation between the recreational and commercial sectors in the Canadian halibut fishery during years of low abundance will destroy the economic viability of coastal communities and deny Canadian citizens access to the common property resource of halibut.

It calls for a “more fair and equitable approach that would allow the recreational and commercial fishing industries to survive during years of low annual quotas,” it calls for the federal government to purchase or lease halibut quota from the commercial sector (rather than having the recreational sector purchase individually as the current Department of Fisheries and Oceans “pilot project” calls for) so that the recreational sector has a “permanent base limit,” that the season be guaranteed from February 1 to December 1 each year and that the limit be one halibut per day, two in possession. (The Department of Fisheries and Oceans stopped the recreational halibut season as of midnight Sept. 15 while allowing the commercial season to continue).

Want a job? Come to Kitimat, Christy Clark aide tells Vancouver Island

Economy Link

Robert Matas of the Globe and Mail reports in Crosscheck: Looking for a job in B.C.? that Chilliwack MLA, John Les, parliamentary secretary to BC Premier Christy Clark told an audience in Nanaimo:

Everybody is looking for work around home, but [they] may not be aware that there are jobs available in Kitimat or in Terrace or Fort St. John. That’s not for everybody, but if you’re a young person looking for a job, maybe horizons need to be expanded a bit…

Matas adds in his article:

…up North, the cities are on the cusp of an economic boom, sparked by projects worth $11-billion. The developments are expected to create thousands of new jobs within the next five years.

The list of projects includes a new export terminal near Kitimat for natural gas; modernization of the Rio Tinto Alcan Kitimat smelter; construction of a new 344-kilometre Hydro transmission line that will open up prospects for several more mining properties; a 195-megawatt run-of-river hydroelectric project on Tahltan First Nation lands; and development of a copper and gold property.

The jobs could transform Terrace, a forest-dependent city that has been in a slump since its mills closed down. The mining town of Kitimat has been more stable than Terrace but will also feel the glow from the multibillion-dollar investments in the region…

Editor’s note: One has to wonder why the business media keeps referring to Kitimat as a mining town, since the only mine in the area, the Golden Crown copper and gold venture was abandoned in 1909, more than 100 years ago and Rio Tinto Alcan’s raw material comes from far, far away. (Unless, of course, Matas is referring to some previously unknown revival of the Golden Crown venture is his unnamed copper and gold property)

Japan seeking LNG from US: Reports

Energy Links

Japan wants to buy more liquified natural gas from the United States, according to reports in the business and energy media.

Bloomberg reported Japan to Boost LNG Imports From U.S. as Nuclear Power Declines

Japan, the world’s largest importer of liquefied natural gas, plans to seek more U.S. cargoes to ensure adequate power supplies after its use of nuclear reactors fell to an all-time low.

Japan’s senior vice minister of trade and industry, Seishu Makino, asked U.S. Energy Secretary Steven Chu at a meeting yesterday in San Francisco to increase LNG exports, Akinobu Yoshikawa, deputy manager for the Petroleum and Natural Gas Division, told reporters today in Tokyo.

Reuters reported Japan to start buying LNG from U.S. by 2015-Nikkei

Japan plans to start importing liquefied natural gas (LNG) from the United States as early as 2015 to secure a steady supply amid growing demand for the fuel, Nikkei business daily reported…

Japanese power and gas utilities would initially import 2-3 million tons of LNG a year, the daily said. Gas extracted from shale rock formations will be liquefied in Texas and Louisiana. The LNG will then be shipped to Japan via the Panama Canal, Nikkei said.

Liquified natural gas from fields in Alberta and British Columbia sold to Japan is a major reason for LNG developments at the port of Kitimat. Testimony at last June’s NEB hearings on the KM LNG export licence application warned of increasing competition from the US for Canadian LNG.