KM LNG | Northwest Coast Energy News

Alaska governor meets with three energy CEOs to push North Slope LNG exports to Asia

Alaska Governor Governor Sean Parnell met with the chief executive officers from BP, ConocoPhillips and Exxon Mobil on January 5, 2012, to discuss alignment between the three companies on commercializing the North Slope’s vast natural gas reserves.

A news release from the governor’s office says Parnell asked “the three companies – the major lease holders for natural gas reserves on the North Slope – to work together on developing a liquefied natural gas (LNG) project that focuses on exporting Alaska North Slope gas to Asia’s growing markets.”

The release says that governor is targeting LNG exports to Asia to serve the growing demand for natural gas. That would make an Alaska LNG export terminal a rival to the three projects at Kitimat and another proposed project in Oregon.

Parnell and the CEOs – Bob Dudley of BP, Jim Mulva of ConocoPhillips and Rex Tillerson of Exxon Mobil – met for two hours. During the meeting, the governor’s release says, the CEOs briefed the governor on the extensive work they’ve been doing in response to his request. After meeting with the governor, the three CEOs briefed members of the Alaska state legislature.

Alaska governor meets with Energy CEOs — Governor Sean Parnell met in Anchorage Jan. 5, 2012, with the chief executive officers from BP, ConocoPhillips and Exxon Mobil to discuss alignment between the three companies on commercializing the North Slope’s natural gas reserves.(Alaska governor's office)

“I appreciate the willingness of the chief executives to come to Alaska to discuss the important topic of commercializing North Slope gas,” Parnell said. “For a gas project to advance, all three companies need to be aligned behind it. This meeting is an important step, but much work remains.”

The Associated Press reports that Parnell wants the companies to unite under the framework of the Alaska Gasline Inducement Act, which gave TransCanada Corp. an exclusive state license to build a pipeline and up to $500 million in state incentives.

AP says TransCanada has been working with Exxon Mobil to advance the project but has yet to announce any agreements with potential shippers.

TransCanada has focused most of its attention on a pipeline that would deliver gas to North American markets through Alberta to Canada and the Lower 48 states. TransCanada has also proposed a smaller pipeline that would allow for liquefied natural gas exports through a terminal at the oil export port of Valdez. A rival project, a joint effort of BP and ConocoPhillips that also would have gone through Canada, folded last year.

The Alaska Journal of Commerce reports BP and ConocoPhillips believe a major liquefied natural gas project is the best option for marketing North Slope gas, quoting the chief executive officers of the two companies Robert Dudley of BP and James Mulva of ConocoPhillips.

“Given the outlook with shale gas in the Lower 48, it looks like LNG has the best potential. We’re not saying the pipeline (to Canada) is impossible,” but a pipeline to southern Alaska to an LNG plant appears to have the best prospects, BP CEO Dudley told reporters following the meetings with Parnell and legislators.
ConocoPhillips’ Mulva agreed with Dudley. “We believe LNG is the best alternative for North Slope gas, far better than any alternatives,” Mulva said.

Shell’s LNG terminal plans “substantially larger” than rivals: Globe and Mail

The Globe and Mail reports Shell eyes LNG terminal in B.C. that would overshadow Kitimat

A group of major international energy partners led by Royal Dutch Shell PLC is contemplating an LNG export terminal for the British Columbia coast that is substantially larger than a rival’s project that could soon begin construction.

Shell, which has teamed with Korea Gas Corp., China National Petroleum Co. and Mitsubishi Corp., is looking to load 1.8 billion cubic feet a day of natural gas onto tankers bound for Asian markets, officials with Spectra Energy Corp. ) revealed Tuesday.

The Globe and Mail says Spectra spokesman Peter Murchland said Shell project would generate 1.8 billion cubic feet of natural gas a day, That compares to the 1.4-billion cubic feet a day proposed by Kitimat LNG,

Non disclosure demands from new energy industries raise tensions at Kitimat Council

Members of the District of Kitimat council vote on Nov. 7, 2011, in favour of releasing three internal consultants reports that had been commissioned to ease the council’s dysfunction and improve relationships among members. (Robin Rowland/Northwest Coast Energy News)

Apparent demands for confidentiality from the companies that plan to locate in Kitimat, or may locate in Kitimat, have thrown gasoline on the flames of long existing tensions that exist on District of Kitimat council.

Those tensions, which have not been that apparent in recent meetings, but have been reported in the past three years, flared up Monday, Nov. 7, 2011, when Councillor Randy Halyk, a candidate for mayor in the municipal election two weeks from now, introduced a motion to publicly release three consultants reports on internal dysfunction and personality conflicts in the council.

Halyk then accused the current mayor, Joanne Monaghan of withholding information from the rest of
council “on numerous occasions.”

As Monaghan sat by stoically, Halyk listed his grievances against the current mayor: “Meeting with industry people or government on the sly, signing
letters of intent without council’s blessing or even their knowledge,
discussing in camera topics with non governmental groups, yet not
communicating with council on important matters…A mayor, as part of council, should promote teamwork and yet… it has not happened in the last three years.”

Retiring councillor Gerd Gottschling joined Haylk, accusing Monaghan of not following the usual collegial practices among municipal councils, keeping council members out of the decision making process. “I believe this is a team effort, we are a team and you are our leader, and when we have to make decisions, we need information to make those decisions.”

Monaghan replied by simply saying that she had had conversations with various industry representatives visiting Kitimat and that often those people visiting Kitimat had requested confidentiality. She emphasized that she had never signed a letter of intent without disclosing information to District Council.

Between 2009 and 2010, the council hired three different consulting firms to help facilitate the operations of the council, help members to overcome their differences. Previous attempts to release all or part of the reports failed in the past.

Much of the debate went over old grievances, including a time a BC cabinet minister had requested a meeting with Monaghan where council members were excluded. A couple of councillors pointed out that the three consultants reports could have been released at any time between 2009 and 2011 and that two weeks prior to an election was not perhaps the best time.

Halyk said that the council had “run by the seat of its pants for the previous three years,” pointing out that the council had to scramble to deal with the closure of the Eurocan paper plant and didn’t deal with it very well and said that was one reason he was standing for mayor.

Council then voted to release redacted copies of the reports, with one member, Mario Feldhoff, voting against, the rest, including Mayor Monaghan, voted in favour.

It was not the first time that demands for confidentiality have been raised in Kitimat. During the June National Energy Board hearings on the Kitimat LNG project, counsel for the KM LNG partners, Gordon Nettleton, requested that the project be exempt from certain NEB disclosure requirements to satisfy the stricter confidentiality demands from Asian natural gas customers, a request that the NEB granted in its decision.

So, in effect, when the Asian LNG rush began last spring after the Japanese earthquake, Monaghan, whose practices and personality did sometimes cause tensions with the rest of the council, was getting demands from potential industries that could locate in Kitimat, to follow Asian, not North American customs for non disclosure of information prior to the announcement of any final deal. Members of council were excluded when standard practice meant they should have been in the loop.

Two of the many reasons for are:

One is that Asian companies generally have to disclose less information to the public than North American companies, unless they are publicly listed in the United States and thus subject to Securities and Exchange Commission regulations.
The second is the long time custom of not disclosing a potential deal in case if fails and the parties loose face.

The longer term problem, beyond the personality conflicts on the District of Kitimat Council, which may or may not be solved by the upcoming election, is whose transparency practices Kitimat should follow, North American or East Asian, the seller (Kitimat and its port) or the buyer (China and Japan)?

For legal reasons, it may be that Kitimat will have to follow Canadian transparency rules in future dealings.

At very least, if there is any money left in the consulting budget, the new council should probably hire yet another consultant, one who can advise the members on business practices in China, Japan and the rest of East Asia, a subject they didn’t need to know much about a year ago, but is now vital to Kitimat’s future.

Cheap power comes at a price: Vancouver Sun op ed

Energy Politics

Marvin Shaffer, an adjunct professor at Simon Fraser University and a public policy consultant, writes an op ed commentary in the Vancouver Sun Cheap power comes at a price

A striking feature of the government’s jobs strategy is the number of very electric-intensive projects it entails. The strategy calls for the development of new mines and liquefied natural gas (LNG) facilities, all of which will require very large amounts of electricity.

The first phase of the proposed LNG plant at Kitimat in itself will reportedly consume some 1.5 million megawatt hours of electricity per year, or roughly one-third of the entire output of the proposed Site C dam project.

Media commentators have questioned whether BC Hydro will be able to supply these large new requirements for electricity.

Shell’s go slow approach to Kitimat LNG project means little action before 2015

Energy Environment

When Royal Dutch Shell Canada purchased the Methanex/ Cenovus Energy plant and marine terminal in Kitimat Wednesday, company spokesman Paul Doolan told the media that Shell “is now exploring the potential for an LNG export terminal on the site,” but refused to give any time line for the project.

Now sources have confirmed to Northwest Coast Energy News that at this time it looks as if there will be no major developments in the Shell project until 2015.

Employees of Cenovus were told after the sale announcement that the plant’s condensate operations would be “business as usual” until sometime in 2015.

(After the sale, Cenovus told the media it doesn’t expect changes in
the regular shipments of condensate to change “for the foreseeable
future.” )

As anyone who has gone through a takeover or similar management transition knows, a company’s new management may have ideas that they haven’t discussed with the old regime.

The 2015 date is logical, however, since 2015 is the projected launch date for the first project, KM LNG partners’ Kitimat LNG project.

There are already two projects in the “pipeline” so to speak, the Kitimat LNG and BC LNG projects. As discussions during the June National Energy Board hearings that led to the approval of the KM LNG export licence last week showed, the two companies must come to an agreement on some of the pipeline capacity coming into Kitimat, sharing “the molecules,” that favourite phrase of natural gas analysts.

Shell will also have to go through the National Energy Board process for granting an export licence.

With energy companies rushing to exploit the shale gas resources in northeastern BC and in Alberta. and growing demand for the natural gas in Asia, transportation of the natural gas is a big question, since it appears Shell and its partners will have to build new pipelines since the existing pipelines into the Kitimat region will be at full capacity.

Where will that new pipeline be built? How will that new pipeline be built? That question is already being widely debated in Kitimat. Ever since Enbridge has announced that it too is interested in joining the natural gas export boom, the question has been: could a natural gas pipeline replace the proposed Northern Gateway bitumen pipeline or does Enbridge intend to build two pipelines? If it is the latter, Enbridge, and possibly Shell, can expect years of hearings, protests and delays because while people in northwestern BC are generally accepting of natural gas projects, there is fierce and still growing opposition to the bitumen pipeline.

Shell confirms purchase of Methanex site, marine terminal, in Kitimat for LNG project

Energy

The former Methanex site is seen the red square in this map of the Kitimat service centre prepared by Enbridge as part of its Northern Gateway pipeline proposal and filed with the Joint Review panel. The yellow line is the proposed Enbridge bitumen pipeline. The dark red line is the proposed pipeline that would feed the Kitimat LNG and likely the BC LNG projects, where the red pipeline route has white, that is the Pacific Trails Pipeline. See How Kitimat harbour will look if both Northern Gateway and KM LNG go ahead.

Updated Oct. 20, 2011, 0955

Kitimat mayor Joanne Monaghan has confirmed that Royal Dutch Shell has purchased the former Methanex site in town, “as a first step toward a proposed Liquified Natural Gas facility in Kitimat.”

Monaghan said she met with Shell executives on Wednesday afternoon, when the long rumoured purchase of the Methanex site was confirmed.

Thursday morning, Shell spokesman Stephen Doolan said that the company and its partners
also acquired the Kitimat Marine Terminal. Shell’s partners include Korea Gas Corp, Mitsubishi Corp and China National Petroleum Corp, Doolan said.

Both sites were owned by Cenovus Energy which purchased them in 2010 from Methanex for a reported $40 million.

Monaghan also said that the Shell officials said the company will not be making an announcement of the details of their plans for another few weeks.

If the Shell project goes ahead, it will be the third liquified natural gas project in Kitimat.
The others are KM LNG partners’ (Apache, Encana and EOG) Kitimat LNG plant at Bish Cove and the smaller project from BC LNG.

The Methanex plant on the Kitimat river permanently ceased methanol production November 1, 2005. Methanex currently uses the Cenovus terminal in Kitimat to import
methanol to supply customers in western Canada. Cenovus uses the terminal and site to process condensate, used to dilute bitumen, that arrives by ocean tanker and then is shipped by rail to Alberta.

The future of condensate operation has been in doubt since the announcement of the Enbridge Northern Gateway project, since it was expected that the Cenovus condensate operation would have been absorbed into the Enbridge operation.

If the Methanex/Cenovus site is converted to a full LNG facility, current operations will have to be decommissioned first, Monaghan said.

Multiple sources in Kitimat have been saying for the past month that Shell had purchased the Methanex site, but official conformation only came from the mayor late Wednesday.

Analysis: The NEB and LNG, The environment if necessary, but not necessarily the environment

Analysis

If there are any doubts about the confusing nature of National Energy Board hearings, at least for the public, as opposed to energy lawyers, that can be found in the decision relating to the application for the KM LNG limited partnership to export natural gas. The NEB granted a licence that will allow the partners, Apache, Encana and EOG to export natural gas to Asia for the next 20 years.

One of the questions at the hearings, with many people in the northwest also worried about the upcoming Joint Review Panel hearings on the proposed Enbridge Northern Gateway pipeline, was what about the environmental effects of the natural gas pipeline?

It all depends on the legal terms “necessary connection.”

During the briefings in Kitimat months before the actual June hearings, NEB officials said that the environmental implications of the natural gas project would not be part of the consideration because the board’s mandate in this case was whether or not to grant the export licence. The NEB officials said that since the Kitimat LNG project was almost entirely within the province of British Columbia, the environment was the responsibility of the province, not the board nor the federal government.

At the LNG hearings, lawyers for the energy companies made similar arguments, as the NEB decision relates, saying that KM LNG’s lawyers maintained that there was no “necessary connection” between the pipeline and the environment and so “noted that the Board is no longer required to conduct environmental assessment for gas export licence applications because those applications, unlike certain facilities applications do not trigger an environmental assessment under the CEA [Canadian Environmental Assessment ] Act and the only environmental side effects, if any, the board could consider would be those not already studied by the province.”

(The January hearings on the Enbridge pipeline are different because that in terms of the NEB mandate is a “facility” hearing, not a simple licence hearing and therefore portions of the federal Environmental Assessment Act come into play.)

In the decision, the board members rejected those arguments:

First, the board said that even if the application does not trigger a CEA Act assessment, “that does not preclude the Board from considering potential environmental effects and directly related social effects of gas exports when assessing the application.”

The NEB went on to to note that the board has found a “necessary connection” in previous gas export applications, therefore: “The Board will consider environmental and related social effects of a proposed export if those effects are necessarily connected to the exportation….”

So the board found that it did have the jurisdiction to examine the environmental effects of marine shipping activities, the natural gas terminal and the Pacific Trails Pipeline that would lead to the terminal at Kitimat.

On the pipeline and the terminal, the board then says: “that no evidence was placed on the record to suggest that there are any environmental effects directly connected to this proposed export that has not already been addressed by the appropriate regulatory agencies.”

As for the effects of marine activities the NEB says the Transport Canada TERMPOL process (which is also looking at the bitumen tankers that will be on the coast if the Enbridge project goes ahead) was sufficient.

The Board is of the view that potential environmental effects and directly related social effects have been considered ….or will be considered through TERMPOL….Based on the foregoing, the Board is of the view that work conducted under the relevant federal and provincial legislation and process is not warranted and the Board has been able to to adequately consider the environmental and related social effects in making a decision on the export licence.

In other words, the National Energy Board ruled that it can maintain its jurisdiction over the environment, if necessary, but not necessarily do anything about it, if someone else is apparently already doing the job.

As was frequently pointed out in the June hearings, the NEB mandate is what is called “Market-Based Procedure” when it comes to natural gas. That policy came into effect in 1987, and was founded “on the premise that the marketplace will generally operate in such a way that Canadian requirements for natural gas will be met a fair market prices.”

The year 1987, of course, was at the height of the political and economic love affair with the marketplace. Now in October 2011, the “Occupy” demonstrations in almost every major city on this planet and many small towns, show that this love affair has gone sour.

While the Enbridge Northern Gateway Joint Review has a wider mandate, the problem remains.

No image of planet Earth shows national boundaries. Nor does an image of planet Earth show the bureaucratic fault lines between the National Energy Board, Transport Canada, the Environmental Assessment Agency, not mention the provincial agencies.

The mandate for the NEB is more than 25 years out of date. National Energy Board hearings are limited by narrow rules of procedure which the energy company lawyers try again and again to use to their advantage.

These problems aren’t going to go away as the natural gas rush accelerates.

No one is looking at the “big picture.” Who knows what will fall through the cracks? No one ever cares about the unexpected consequences until there is 20/20 hindsight.

The problem, of course, is that there is no recourse for this problem. Stephen Harper’s government is cutting staff at Environment Canada, defunding environmental advocacy and watch dog groups (even those supported by industry) and like all conservatives somehow think that more deregulation will somehow bring back the jobs that the deregulated financial sector destroyed.

The NEB notes that the 1985 Western Accord that set up the current rules for the board is also called the “Halloween Agreement.”

Scarey.

National Energy Board decision on KM LNG

Kitimat LNG, Rod and Gun to consult on “legacy” fish and wildlife program at Bish Cove: NEB

Bish Cove, site of the KM LNG (Kitimat LNG) natural gas terminal, photographed on a stormy Sunday, Sept. 18, 2011. (Robin Rowland/Northwest Coast Energy News)

KM LNG (also known as Kitimat LNG) will consult with the Kitimat Rod and Gun club about creating a “legacy” fish and wildlife program at Bish Cove, according to the National Energy Board decision that granted an export licence for liquified natural gas to the partnership.

As part of its consideration of the social, economic and environmental aspects of the project, the NEB noted:

The Kitimat Rod and Gun Association requested that KM LNG and its partners establish a fish and wildlife “legacy” program for the area. In response, KM LNG committed to working with the Kitimat Rod and Gun Association to explore a partnership and stated it and its partners are committed to investing in the communities where KM LNG operates. KM LNG noted it already supported some community initiatives and would set aside funds to support others, after a positive investment decision.

KM LNG has hired the energy services company KBR to do a front end engineering and evaluation study of the project which is expected to be completed in December. The partners will then make the decision whether or not to go ahead with the project.

Mike Langegger of the Kitimat Rod and Gun, who made the presentation to the hearings in June, says the club has had some preliminary talks with the KM LNG public relations staff but so far there have been no formal talks about the legacy program.

In its presentation to the NEB, Kitimat Rod and Gun said it would ask KM LNG for a legacy fund that would be $7.25 million over the twenty-year period of the export licence. The money would be used to preserving fish, wildlife and habitat in the area around the natural gas terminal

Langegger says while it is uncertain if KM LNG will agree to the complete proposal, no matter what the outcome he wants all stake holders to be involved, with they are “consumers” (hunters and anglers) or “non-consumers” (naturalists) so that the habitat is maintained.

NEB decision on KM LNG application(PDF)

Kitimat Rod and Gun submission to NEB (PDF)

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)

Kitimat LNG on the agenda at Houston conference

Energy

The Kitimat LNG projects have been added to a conference on LNG exports in Houston, Texas on December 1.

Zeus Events, the commercial organizer of the conference tweeted this morning “Kitimat #LNG Export project added to N. American LNG Exports conference.”

The conference agenda describes the presentation this way:

Kitimat LNG Export Project Update
Kitimat LNG Project, Speaker TBA

Apache is developing the most advanced LNG export project in North America at Kitimat, British Columbia. Construction is expected to begin in early 2012, with operations to start in 2015. The representative has been asked to describe the project and provide an update, discussing what it will mean for British Columbia gas producers.

The conference website describes it as:

Proposals to liquefy and export North American gas as LNG have grown more numerous and controversial since our 2010 conference. At last count, ten liquefaction and export projects have been proposed on both coasts of North America. Analysts warn, however, that the United States is preparing to export its clean, abundant natural gas to countries like China, where it will be used for transportation fuel, while the U.S. will continue to import high-cost crude for its transportation.

This year’s conference will expand on our 2010 meeting to address political issues such as FERC’s willingness to approve export plant construction permits as well as examine new proposals. Costs, political hurdles and regulatory issues will be discussed.

The Oregon projects, seen by analysts at the June National Energy Board hearings as Kitimat’s chief rival are also on the agenda at the conference.