Don’t expect a Final Investment Decision on LNG until (or if) Brexit is resolved

Analysis

Monday’s decision by LNG Canada to postpone the all-important Final Investment Decision for the Kitimat liguified natural gas project came as a momentary shock—but no real surprise. After the Brexit vote, you could see the hold button blinking from across the Atlantic.

Andy Calitz CEO of LNG Canada and a long time, experienced, executive with the lead partner, Royal Dutch Shell blamed the current market conditions for natural gas in both a news release and an investors’ conference call. However, the turmoil in the world economy brought about by Britain’s (largely unexpected) vote to leave the European Union made the postponement inevitable.

Immediately after the vote on June 23, when the now not so United Kingdom voted by 52 per cent to 48 per cent, to leave the European Union, financial analysts predicted that given the uncertainty, companies based in the United Kingdom would immediately begin to adjust their long term planning.

The stock market has stabilized and reached new highs, at least for now, but the British pound remains weak.

Most important, according to reports in the business press around the world, many long term projects by companies not only in the UK but everywhere are being re-examined, postponed or cancelled. All due to the long term uncertainty in world markets.

Even without Brexit, the situation with long term planning for the natural gas market is complicated, as LNG Canada’s External Affairs Director Susannah Pierce explained in this interview on CKNW ‘s Jon McComb show.  ( It is an informative interview. Autoplays on opening the page)

“ Postpone investment decisions”

Royal Dutch Shell is one of the world’s largest corporations. It is based in the United Kingdom although its corporate headquarters are in the Netherlands (also a member of the European Union).

From June 24 to July 11 was just enough time for the bean counters and forecasters in London, Vancouver, Calgary, Tokyo and Beijing to crunch the numbers and decide that the prudent move would be to put the LNG Canada project on hold.

Rio Tinto is also a dual national company, listed on both the London and Australian stock exchanges and with its headquarters in London. (More about Rio Tinto later.)

Although both Shell and Rio Tinto are giant transnationals with operations worldwide, the turmoil in the United Kingdom, in the corridors and cubicles of the home offices, is having a psychological and personal, as well as professional, impact, meaning more of the work in those towers of London will be focused on Brexit.

brexitkitimat

The decision doesn’t mean that the LNG Canada Final Investment Decision will be on hold forever. Of all the world’s energy companies, Shell is one of the oldest and it has a solid reputation for better long term planning than some of its competitors.

In the news release, Calitz noted

I can’t say enough about how valuable this support has been and how important it will be as we look at a range of options to move the project forward towards a positive FID by the Joint Venture participants.

The news release goes on to say

However, in the context of global industry challenges, including capital constraints, the LNG Canada Joint Venture participants have determined they need more time prior to taking a final investment decision. decision.

How much time? Well, as Theresa May became the Prime Minister of Great Britain, the New York Times noted, like other media, that investment decisions are on hold:

Ms. May does not plan to depart the union quickly because it could put Britain’s negotiators under pressure, and at a disadvantage…

And the longer Britain drifts, the greater the uncertainty for businesses that could postpone investment decisions until things are clearer, potentially pushing the nation into a recession.

As Don Pittis, business columnist for CBC.ca wrote in the immediate aftermath:

The extrication of Britain from Europe will likely be more in the character of the Greek financial collapse, a seemingly endless process where each event and each piece of news has the power to set off a new round of financial fears.
And like the Greek crisis, each piece of bad news will compound fears in markets that were nervous for other reasons.

So once (and when) Theresa May invokes Article 50 that opens a two year window for Britain to leave the European Union, starting negotiations for Brexit.   Then it gets complicated, if Scotland votes to leave the United Kingdom or if Northern Ireland also demands a dual referendum in both the Republic and the North on a united Ireland (as permitted under the Good Friday Peace Agreement).

Although May says she will continue to the UK`s next fixed date election, what if May calls a snap general election, with an uncertain outcome, perhaps another minority government, with seats split among several parties, including those who advocate remaining in the EU?

The price of oil is still low compared to a few years ago. That price is expected to remain low with all that the Saudis are pumping to retain market share, the Iranians want to recover from sanctions, and according to Pittis in another column, that means everyone else is pumping as well

The main thrust for Canadian producers is to build more pipelines so they can expand capacity and push ever more of their relatively expensive oil into the world supply chain. If that’s the strategy for high-cost producers, how could anyone think the world’s lower-cost producers wouldn’t be doing the same thing?

There is the glut of natural gas currently in Asian markets and no one knows what Brexit will mean.  Unless there’s a drastic change in the marketplace, energy project investment will remain on hold for years to come. (So forget any dreams of a refinery anywhere on the coast. )

Rio Tinto

Brexit is also going to be a problem for London based Rio Tinto—and for the current negotiations with the Unifor local in Kitimat. Rio Tinto’s bottom line is weak because the price of iron ore, its main source of income, has been dropping. After completing the $4.8 billion Kitimat Modernization Project, Rio Tinto is spending huge amounts of money on its Oyu Tolgoi copper and gold and other minerals mine in Mongolia, a project that many analysts believe could provide up to 60 per cent of Rio Tinto profits as commodity markets recover.

Add to that US presidential election. Donald Trump has threatened to halt imports of both steel and aluminum into the United States if he actually gets to sit in the White House.

On June 29, outgoing President Barack Obama also looked at aluminum at the recent “Three Amigos” summit in Ottawa, noting in the news conference.

Given the flood of steel and aluminum on the global markets, however, it points to the fact that free trade also has to be fair trade.

That means if Hilary Clinton becomes president, she will also be looking at the state of aluminum imports to the United States market.

World conditions are a warning for the Unifor negotiating team in Kitimat. One reason for last year’s prolonged municipal strike was that Unifor spent a good deal of time planning for negotiations with the District but failed to adjust its contract demands when the price of oil unexpectedly collapsed, which meant the District had less money and a lot less flexibility.

In its negotiations with Rio Tinto, Unifor cannot make the same mistake again. There were a handful of unexpected layoffs down at Smeltersite on June 30; there could be more layoffs in the future. Mandatory overtime is a major sticking point—but that overtime demand is coming from the bean counters in Montreal and London, calculating that the overtime costs are, in the long term, less expensive than a lot of new hires.
Media reports show that Rio Tinto is in tough negotiations with its employees around the world. With LNG on hold, disgruntled employees can’t just turn off Haisla Boulevard to the old Methanex site before reaching Rio Tinto’s property line. That means Unifor should be tough but very realistic in its talks with Rio Tinto, knowing that the powers that be that hold the strings in London are more worried about what Brexit will do to the company bottom line than any temporary shutdown of the smelter by a strike.

What does this mean for Kitimat?

A We Want LNG Canada lawn sign in Kitimat. (Robin Rowland/Northwest Coast Energy News)
A We Want LNG Canada lawn sign in Kitimat. (Robin Rowland/Northwest Coast Energy News)

So the boom and bust cycle once again moves to bust.

Ellis Ross, chief councillor of the Haisla First Nation, speaking to CBC Radio said Ross said

the Haisla nation has been working to get its people jobs in the construction of the facility and related infrastructure, as well as full-time jobs once the plant opens…This was our first chance as Haisla to be a part of the economy, to be part of the wealth distribution in our area. To witness the wealth generation in our territory for the last six years but to not be a part of it, and now to continue to not be a part of it, is really distressing to us, because we had built up our entire future around this.

Mayor Phil Germuth in the same interview said

There’s no doubt that there’s going to be a little bit of hurt for a while, but we still fully believe that Kitimat is by far the absolute best location anywhere on the West Coast [for] a major LNG export facility… We are absolutely confident that it will come.

There’s time in this bust for everyone in town to recover from the hangover of the past few years of the fight over Northern Gateway and the heady hopes of the LNG rush. Demand for natural gas is not going to go away, especially as climate change raises the pressure to eliminate coal, so it is likely that LNG Canada will be revived.

It’s time to seriously consider how to diversify the Valley’s economy, making it less dependent on the commodity cycle. It’s time to stop chasing industrial pipe dreams that promise a few jobs that never appear.

Like it or not, the valley is tied to globalization and decisions made half way around the world impact the Kitimat Valley.

Who knows what will happen in 2020 or 2025 when the next equivalent of a Brexit shocks the world economy?

Suppose, as some here would wish, that all the opposition to tankers and pipelines suddenly disappeared overnight. Does that mean that the projects would then go ahead?

The corporate planners would decide based on their projections for the world economy and the viability of the project for their profit picture. Enbridge was never really able to secure customers for its bitumen. Chevron had no customers for Kitimat LNG. LNG Canada is a partnership, and the partner customers in Asia decided that at this time, the investment is too risky, even if LNG Canada’s longer term prospects are good.

Promoting tourism should now be the priority for Council, for Economic Development, for the Haisla Nation Council, for the local business.

Beyond tourism, it’s time for some innovative thinking to come up with other ideas that would free Kitimat from the commodity cycle. At the moment there are no ideas on the horizon, but unless everyone starts looking for new ideas, practical ideas,  the commodity cycle will rule.

LNG Canada postpones Final Investment Decision

LNG Canada has postponed the Final Investment Decision on the Kitimat project citing the “impact of global industry challenges.”  The latest estimates said that the project would cost $40 billion.

The news release says that despite strong community support and regulatory approval,  what LNG Canada called “the context of global industry challenges, including capital constraints” led to the decision. In other words, the continued low price of oil is constraining projects across the energy industry.

LNG Canada’s Joint Venture Participants Delay Timing of Final
Investment Decision

Impact of global industry challenges, despite strong project fundamentals

Vancouver, British Columbia — Today, LNG Canada announces that its joint venture participants –  Shell, PetroChina, Mitsubishi Corporation and Kogas – have decided to delay a final investment decision on LNG Canada that was planned for end 2016.

LNG Canada remains a promising opportunity – it has strong stakeholder and First Nations’ support, has achieved critical regulatory approvals, has important commercial and engineering contracts in place to design and build the project, and through its pipeline partner Coastal Gas Link, has received necessary environmental approvals and First Nations support along the pipeline right-of-way.

“Our project has benefitted from the overwhelming support of the BC Government, First Nations – in particular the Haisla, and the Kitimat community. We could not have advanced the project thus far without it. I can’t say enough about how valuable this support has been and how important it will be as we look at
a range of options to move the project forward towards a positive FID by the Joint Venture participants,” said Andy Calitz, CEO LNG Canada.

Through their efforts to build a strong LNG sector for Canada, and a critical, cleaner energy alternative for the world, the governments of British Columbia and Canada have developed sound fiscal and regulatory frameworks for success.

LNG-Canada-Media-Release0716However, in the context of global industry challenges, including capital constraints, the LNG Canada Joint Venture participants have determined they need more time prior to taking a final investment decision. At this time, we cannot confirm when this decision will be made.

In the coming weeks, LNG Canada will continue key site preparation activities and work with its joint venture participants, partners, stakeholders and First Nations to define a revised path forward to FID.

LNG Canada Joint Venture Participants are Shell (50%), PetroChina (20%), Mitsubishi Corporation (15%)
and Kogas (15%).

Haisla Nation chief councillor Ellis Ross issued a statement that said:

Haisla Nation Council very firmly believes in the future of liquefied natural gas for the Kitimat Valley and Haisla territory. It is an industry which has the capacity to grow jobs, provide new training opportunities and provide a sustained quality of life for Haisla members. It’s worth remembering that LNG Canada is a relatively new project to the area, and decisions on major projects such as these can take a long time to reach.

Today’s decision was the second time the FID was postponed. Andy Caloz LNG Canada’s CEO was quoted by Bloomberg News as saying that the project hasn’t been canceled. It has all the necessary approvals from regulators in Canada and doesn’t require any more work in the country.

“The whole global LNG industry is in turmoil,” Calitz told a conference call, Bloomberg reported, adding that Western Canada still has advantages including its proximity to customers in Asia. “I’m confident that the Japanese market remains available to LNG Canada.”

LNG Canada Kitimat project receives BC facility permit

LNG Canada logoThe Shell-led LNG Canada project in Kitimat has received a facility permit from the B.C. Oil and Gas Commission (OGC), the company said Tuesday.

A news release from LNG Canada says the permit is  one of the key permits required for the construction and operation of the proposed LNG Canada project.

LNG Canada is the first LNG project in British Columbia to receive this permit, which focuses on public and environmental safety, and specifies the requirements the project must comply with when designing, constructing and operating the proposed LNG export facility in Kitimat.

The news release warns “that while today’s announcement is an important step forward for LNG Canada, the project must ensure it is economically viable and meets several other significant milestones including finalizing engineering and cost estimates, supply of labour, and achieving other critical regulatory approvals before making a final investment decision.”

That means that Shell and its partners are still keeping a close eye on factors such as the continuing collapse of the price of oil on world markets,  the volatile natural gas market in Asia and the slowdown in the economy in China.

The news release goes on to  say:

“We have made excellent progress in the past two years, achieving a number of critical milestones,” said Andy Calitz, CEO of LNG Canada. “Receiving our LNG Facility Permit could not have been achieved without the important input we received from the Haisla Nation and the local community of Kitimat. We continue to progress our project and appreciate the ongoing support from First Nations, the local community and other stakeholders.”

“The OGC identified several conditions that must be met by LNG Canada to design, construct and operate the project,” says Calitz. “We have reviewed these conditions and are confident that we will meet these conditions as they are aligned with LNG Canada’s core safety values and commitment to protect the environment, the community and our workers.”

LNG Canada continues to develop a number of important plans to address public safety and minimize the effects on the environment and local community. For example, LNG Canada is working closely with local emergency response organizations, as well as leading safety experts, in the development of an emergency response framework for the proposed project.

“Safety is our first priority. Safety as it relates to people and the environment is embedded into the design and planning of our proposed facility, and will carry into the construction and operation phases of our project should the project go ahead,” said Andy Calitz.

Social and economic benefits from the LNG Canada project include local employment and procurement opportunities, federal, provincial and municipal government revenue and community investments. Since 2012, LNG Canada has distributed more than $1 million to community initiatives, such as emergency services, trades scholarships and community services. LNG Canada has also contributed more than $1.5 million in programs to build awareness and help provide training for trades careers in all industries, and particularly the emerging LNG industry.

LNG Canada is a joint venture company comprised of Shell Canada Energy (50%), an affiliate of Royal Dutch Shell plc, and affiliates of PetroChina (20%), Korea Gas Corporation (15%) and Mitsubishi Corporation (15%). The joint venture is proposing to build an LNG export facility in Kitimat that initially consists of two LNG processing units referred to as “trains,” each with the capacity to produce 6.5 million tonnes per annum of LNG annually, with an option to expand the project in the future to four trains.

 

Haisla chief counsellor Ellis Ross on the dilemma of climate change and development

Haisla Nation Chief Counsellor spoke at Mt. Elizabeth Theatre on June 9, 2015, introducing David Suzuki who was on a speaking tour. This is a lightly edited report on his remarks that outline some of the dilemmas facing the Haisla and the Kitimat valley in an age that needs development but faces climate change.

Good evening.

Among chiefs, I am elected, not hereditary, you are born into that position, I wasn’t born into it.

I am basically a regular commoner just like you guys with a high school education and one year of college and a lot of experience outside my community that I bring back.

These topics about climate change locally, provincially, nationally and worldwide, they’re complicated topics.

Haisla Chief Counsellor Ellis Ross speaks at Mt. Elizabeth Theatre,  June 9, 2015 (Robin Rowland/Northwest Coast Energy News)
Haisla Chief Counsellor Ellis Ross speaks at Mt. Elizabeth Theatre, June 9, 2015 (Robin Rowland/Northwest Coast Energy News)

There’s no one true fix for all of it. The problem is that the Haisla have been thrust into the middle of it and we have to answer it, which is very unfair.

So when we’re talking about what really is a Haisla value, a west coast, a British Columbia value. I must tell you I value the Haisla people, my people, that land, the territory, I think about the Haisla people because I don’t think anyone has given the Haisla people a priority in the last 40 to 50 years.

All the decisions that were made about Haisla territory, that affected out people, were made without us.

The result was that we ended up with 80 per cent unemployment, historically over the last 40 years we have ended up with cancer and we can’t get rid of it.

Poverty, people couldn’t get enough money to fix their bathrooms when the floor was rotting out.

The saying is that you can always tell when the reserve starts is when the pavement ends is true. Unless there’s a political agenda to actually pave the road to the village. The environmental questions that have been raised over the past ten years are not new to the Haisla.

In the 70s it was the Haisla alone who tried to battle emissions when nobody even knew what emissions meant. They tried to stop the effluent dumping into the river that killed off the river they tried to stop the diking of the river so parts of the land could be protected, parks.

When the Haisla knew that the oolichan that was estimated to be hundreds of thousands of tons, were dying off quickly in the span of five years. Nobody listened.
Now the DFO and Canada is realizing that the demise of the oolichan is a signal that something is wrong with the ecosystem.

I would love that someone would come around to the idea of thanking the Haisla people for all the work that they did and went and unheard even in meetings like this today.

And we’re not even talking about salmon.
In all this time, I’ve read all the documents, all the speeches and listened to all the promises of a better tomorrow for all the people but nobody delivered it.

Countless academic papers have been written about Indian poverty.

Nothing was done.

Non-profit organizations used the Haisla to further their cause and left town when they had achieved what they had achieved.

At the same time all the decisions continued to be made without us. And everybody benefited except us.

What happened in the end and the corporations made their billions and made enough money to pay off the mortgage and move down south, the Haisla were left with the mess to clean up. Today we’re still battling to get some of these sites cleaned up and we’re still not getting help.

I don’t blame anyone for this. Whether you’re am environmental organization, a government or a corporation or a non-profit organization, I don’t blame you for this because you have a mandate, you have a special interest. That’s what you’re trying to achieve.

I have a mandate. I do have an organization now that is fully equipped to look at every single permit that comes from the provincial government and the federal government and try to mitigate it given our capacity and our lack of funding.

But some of that benefit has to flow to the Haisla people. It’s our territory.

When you think about what has happened to us, the Haisla, we think about residential schools and I’ve been reading the debate on whether or not it’s genocide or not and I think people are missing the point.

Residential schools were only 10 per cent of a larger program to get rid of the Indian.

The ninety per cent was what was stolen from us as well. The land was taken away and we were put on a chunk of land across the Channel, that was described by the Indian Agent as worthless, it’s not even good for agriculture so give it to the Indians. We had to get permission from the federal government to leave that reserve. We had to get a piece of paper that said he’s allowed to leave the reserve and go pick berries.

We also have had no help other than some academic programs and some sort of study to deal with our suicides. I’m not just talking Haisla here. I really thought that one suicide every five years was really a bad thing. But finding out that my neighbors down the road from here to Prince George are dealing with ten suicides in the first quarter of this year.

It breaks my heart.

Who is responsible for that? If it’s not the government, if it’s not the non-profits, if it’s not corporations, who is it?

I stepped up and said I’ll take full responsibility for this but that means I have a hard message to deliver and I will deliver it on behalf of the Haisla people.

When it comes to climate change, we are living at a very unfortunate time, because finally we’re accepted at the provincial table, at the federal table, the corporate table.

We’re being included but unfortunately, we have to look at climate change as well. It’s a very tough position to be in when you’ve got a Grade 12 education from 1984 and one year of college education in 1985.

It’s a very tough topic, I can tell you. I’ve been to China, I’ve been to Korea and no matter what you say about the emissions there, Canada and BC have no problems with emissions here until you visit China.

They’re not going to get off crude oil, they’re not going to get off diesel fuel, they’re not going to give up coal because a billion people there want the same standard of living that you have in Canada. And I’m talking about India as well. They want the same standard. They want good houses; they want to own a car. They are not going to stop their thirst for energy.

I don’t have the answers.

I still believe that natural gas is a lot cleaner than coal and even if you put a small dent in it, it’s not enough to get these guys off nuclear power.

And the solar power you’re talking about, they do it for show but that’s not going to meet the energy needs of China. We’re not even talking about India; we’re not even talking about Korea.

You say can you help get China off dirty fuel, but all their pollution keeps getting dumped on South Korea.

I represent 1700 people, how am I going to do that?

We’re being asked to do a near impossible task while I’m trying to dig my people out of poverty. At the same time, when we get this opportunity we’re giving our members very mixed messages, including our young people which is heart breaking for me.

Because we’re telling them get an education, don’t be a burden on society, get a job, but by the way there are no jobs here, there’s no way to get into existing industries so you better go to the oil fields of Alberta to get a job. A lot of our people head over there or to Vancouver.

I’ve been following this debate on climate change for quite a while now, for over six years. I’ve been listening to everybody, I’ve been listening to corporations, being listening to governments, been listening to non-profits, but on behalf of the Haisla Nation Council, I’m here to tell you, that when it comes to the future of the Haisla I have very little patience with this. I don’t want to see another essay about what to do about Indian suicides.

I believe that our people are being sick and tired of being left out and left behind, while everyone else is moving on with their lives. I do want to what’s best for the region I do want to do what’s best for the province and Canada and the world. But I will not do it at the expense of the Haisla people. We’ve been at the dirty end of the tick for the last 40 years. It’s going to stop. Thank you very much and enjoy your evening.

Petronas and partners announce conditional Final Investment Decision for Lelu Island subject to environmental assessment

In a news release this afternoon, Pacific Northwest LNG announced that the company has given a positive, but conditional, Final Investment Decision, to build an LNG facility on the environmentally sensitive Lelu Island at Port Edward. BC.

pacificnorthwestlogo100Pacific NorthWest LNG (PNW LNG) announced today that the required technical and commercial components of the project have been satisfied. Consequently, PNW LNG has resolved to move forward with a positive Final Investment Decision, subject to two conditions.

The Final Investment Decision will be confirmed by the partners of PNW LNG once two outstanding foundational conditions have been resolved. The first condition is approval of the Project Development Agreement by the Legislative Assembly of British Columbia, and the second is a positive regulatory decision on Pacific NorthWest LNG’s environmental assessment by the Government of Canada.

“In parallel with work to support the Final Investment Decision, Pacific NorthWest LNG will continue constructive engagement with area First Nations, local communities, stakeholders and regulators,” said Michael Culbert, President of Pacific NorthWest LNG. “The integrated project is poised to create thousands of construction and operational careers in the midst of the current energy sector slowdown.”

ProgressenergyProgress Energy Canada and the North Montney Joint Venture partners will continue to invest in its North Montney natural gas resources. The investment to date has proved and probable natural gas reserves of over 20 trillion cubic feet (tcf) with $2 billion-plus invested annually, representing approximately 4,000 sustainable jobs in northeast British Columbia.

“A Final Investment Decision is a crucial step to ensure that the project stays on track to service contracted LNG customers,” Culbert continued. “Pacific NorthWest LNG is poised to make a substantial investment that will benefit Canada for generations to come.”

Lelu Island, the flat area in the left of the image, across from the harbour at Port Edward is the potential site of the Petronas  Pacific Northwest LNG project.  (Robin Rowland/Northwest Coast Energy News)
Lelu Island, the flat area in the left of the image, across from the harbour at Port Edward is the potential site of the Petronas Pacific Northwest LNG project. (Robin Rowland/Northwest Coast Energy News)

Although Pacific Northwest LNG is first off the mark with a positive, if conditional, Final Investment Decision, putting a shovel in the ground is not guaranteed. Of all the proposed liquified natural gas projects for northwestern BC, the location on Lelu Island, right at the mouth of the Skeena River, is probably the most environmentally sensitive. Even if the Canadian Environmental Assessment Agency does give its approval, probably with a long list of conditions, it is highly likely the decision will be challenged in court by First Nations and environmental groups.

The environmental process was put on hold in early June after the agency asked Pacific Northwest to provide more information about building the terminal. The island sits near Flora Bank, where young salmon shelter in eel grass after coming down the Skeena, taking time to grow before venturing out into the Pacific. Flora Bank has been called the “nursery” for one of the world’s most important salmon runs.

The fact that Pacific Northwest LNG has to supply more studies means that any final environmental assessment decision will come after October’s federal election.

After initial proposals to dredge the area where met with loud and sustained opposition, Pacific Northwest proposed a suspension bridge and trestle which means the LNG tankers would tie up well off the island in Chatham Sound.

Lelu Island is on the traditional territory of the Lax Kw’alaams First Nation. Members of the First Nation recently voted overwhelmingly against accepting a billion dollars over the life of the project from Pacific Northwest.

Pacific NorthWest LNG filed a report, prepared by engineering and environmental company Stantec Inc., that said there would little or no environmental impact impact from building the $11.4-billion LNG terminal. Stantec’s report, however, is unlikely to reassure many people in the northwest because of Stantec’s close to ties to the energy industry.  Stantec did major studies for the controversial Enbridge Northern Gateway project, studies that were challenged by other environmental studies opposing that pipeline project.

Petronas_LogoPetronas holds  62-per-cent of Pacific NorthWest LNG.

Partners are China’s Sinopec, which holds 10 per cent, Indian Oil Corp. Ltd. which holds 10 per cent, Japan Petroleum Exploration, 10 per cent, China Huadian Corp., 5 per cent and Petroleum Brunei, 3 per cent.

As well some First Nations and environmental groups in the northwest of British Columbia, in the northeast, Blueberry River First Nations who live in the North Montey natural gas region have said they are worried about increased drilling in their traditional territory are concerned about increased drilling by Progress Energy for natural gas within their traditional territory.

The Blueberry River group says it plans request judicial review of the B.C. Natural Gas Development Ministry’s decision to sign the 23-year royalty agreement for the region.

 

LNG carrier anchored in Homer, Alaska, with engine trouble: USCG

US Coast Guard leogoThe United States Coast  Guard says it is monitoring repairs aboard the liquid natural gas carrier Excel in Homer, Alaska, Friday, May 1.

According to a news release from Coast Guard Sector Anchorage,  USCG issued an order for the vessel to remain anchored in Kachemak Bay near Homer after the 908-foot, Belgium-flagged vessel experienced a loss of propulsion due to a failed engineering gasket while inbound to Cook Inlet Monday.

The Excel was bound for the existing LNG facility, the Kenai LNG Plant, located in Nikiski on the Kenai Peninsula, in Alaska. The state of Alaska is planning to expand the LNG facilities there, and that site is a potential rival for British Columbia’s LNG export plans.

The Coast Guard release says:

The Excel was examined by Coast Guard inspectors from Marine Safety Detachment Homer, Tuesday, who conducted a Port State Control annual exam and verified the engineering gasket was replaced.

While preparing to get underway Wednesday, the vessel experienced an automated engineering casualty and canceled its voyage until a Bureau Veritas (BV) classification surveyor could arrive and verify the engineering casualty was fully resolved. After arriving aboard the vessel, the class surveyor directed the vessel’s crew to test the automated engineering system and deduced that the casualty was a product of a faulty engine order telegraph; a device used on ships for the pilot on the bridge to order engineers in the engine room to power the vessel at a certain desired speed. Coast Guard Sector Anchorage issued another order for the vessel to remain in Kachemak Bay.

Friday, the vessel was allowed to continue sailing to her destination at the ConocoPhilips LNG plant in Nikiski after additional safety measures were implemented. As part of the safety measures, the tug Stellar Wind escorted the vessel from Kachemack Bay to Nikiski and a second tug, the Glacier Wind, stood by in Nikiski to assist with docking operations.

The Excel completed her voyage and safely moored at the ConocoPhilips pier in Nikiski at approximately noon Friday where it remains until permanent repairs are verified by the class surveyor and Coast Guard inspectors.

“Ensuring safe navigation in Western Alaska, particularly in Cook Inlet, is one of my highest priorities,” said Capt. Paul Mehler III. “Our crews worked closely with the Southwest Alaska Pilots Association, the class surveyor and towing vessel industry to coordinate a safe and secure transit of the Excel from Kachemak Bay to Nikiski. The weather was also in our favor with clear skies, light winds, and steady ebb tide during the transit in Cook Inlet.”

Kenai LNG
The Kenai Alaska LNG plant (ConocoPhillips)

 

The LNG export plant at Nikiski was built in 1969 by Phillips Petroleum and Marathon Oil. Phillips later merged with Conoco and subsequently purchased Marathon’s 30 per cent share. The Nikiski plant sent  LNG shipments to Japan  from 1969 to 2010 under long-term contracts with Tokyo Gas and Tokyo Electric, when the contracts expired.

In 2011 ConocoPhillips announced that it would be ceasing LNG exports from Kenai and preserving the plant for potential future use.

With the LNG rush, market conditions changed and the the plant resumed making LNG in early 2012 and exported four cargoes to Asian customers over the course of that year.

In March 2013, the export licence expired and the LNG plant was put on standby.  As interest in LNG grew, and at the urging of the state of Alaska,  in December 2013 ConocoPhillips Alaska applied to resume LNG exports and the U.S. Department of Energy  approved the resumption in April, 2014.  ConocoPhillips says it  received authorization to export a total of 40 BCF of liquefied natural gas over a two-year period from 2014 through 2016.

The Alaska LNG project is  “a proposed $45 to $65 billion liquefied natural gas export project – it would be the largest single investment in Alaska history. The project has the potential to create between 9,000 and 15,000 jobs during the design and construction phases; plus approximately 1,000 jobs for continued operations. In addition to generating billions of dollars in revenue for Alaska, the project will provide access to natural gas for Alaskans.” The project’s participants are the Alaska Gasline Development Corporation (AGDC) and affiliates of TransCanada, BP, ConocoPhillips, and ExxonMobil.

Related
First of six LNG shipments delivered at Nikiski
Alaska Journal of Commerce, May 2014

Alaska LNG fact sheet. (PDF)

Kenai LNG fact sheet (PDF)

Another LNG shake up: Shell reported to be in talks to acquire BG Group

Shell logoNumerous media sources are saying that Royal Dutch Shell is in talks to acquire the BG Group.

Shell is developing the LNG Canada project in Kitimat,  while BG had been developing an LNG proposal for Prince Rupert.  BG announced last fall it was delaying further development of the Prince Rupert project due to uncertainty in the liquified natural gas market.

An initial report came from Bloomberg, which said:

Buying BG would be Shell’s largest acquisition since the $60.3-billion (U.S.) merger of its Dutch and U.K. parent companies in 2005, according to data compiled by Bloomberg. It would unite the U.K.’s first- and third-largest natural gas producers….BG posted a record $5-billion loss in the fourth quarter, mainly due to writing down the value of its Australian assets as commodity prices fell.

BBC News quotes the Wall Street Journal as matching the report.

A Shell spokesman told the BBC: “We’re not making any comment.”
No-one from BG Group was immediately available to confirm or deny the WSJ’s report.

Last fall, when BG put the Prince Rupert project on hold, with a financial investment decision postponed until 2019, the Financial Post, quoted BG executive chairman Andrew Gould as saying, “We’re not abandoning Prince Rupert, we’re pausing on Prince Rupert to see how the market evolves particularly in function of total supply that will come out of the U.S.”

At the time, analysts noted that unlike Shell, Chevron and Petronas, BG had no gas extraction assets in Canada. BG is a privatized spinoff of the once nationalized British Gas company in the UK.

 

 

 

 

 

 

Apache sells Kitimat LNG stake to Australia’s Woodside Petroleum

Apache CorporationApache Corporation today announced it has agreed to sell its interest in two LNG projects, Wheatstone LNG and Kitimat LNG, along with accompanying upstream oil and gas reserves, to  Australila’s Woodside Petroleum Limited for a purchase price of $2.75 billion.

The news release says:

Apache will also be reimbursed for its net expenditure in the Wheatstone and Kitimat LNG projects between June 30, 2014, and closing which is estimated to be approximately $1 billion.

Under the terms of the agreement, Apache will sell its equity ownership in its Australian subsidiary, Apache Julimar Pty Ltd, which owns a 13-percent interest in the Wheatstone LNG project and a 65-percent interest in the WA-49-L block which includes the Julimar/Brunello offshore gas fields and the Balnaves oil development. The transaction, which has an effective date of June 30, 2014, will also include Apache’s 50-percent interest in the Kitimat LNG project and related upstream acreage in the Horn River and Liard natural gas basins in British Columbia, Canada.

Woodside PetroleumBased on current estimates, Apache’s net proceeds upon closing are expected to be approximately $3.7 billion. Receipt of proceeds from this transaction will trigger an estimated $650 million cash tax liability, approximately $600 million of which is associated with the income tax due on Apache’s Overall Foreign Loss account balance. Upon incurring this income tax liability, Apache estimates that it will have the flexibility to repatriate cash generated from foreign operations and/or future international strategic transactions with minimal U.S. cash tax impact.

“Today’s announcement marks the successful completion of one of our primary strategic goals of exiting the Wheatstone and Kitimat LNG projects. Apache recognizes the contribution of our employees who have worked so diligently on these projects since their inception, and we sincerely thank them for their tremendous effort. I would also like to thank Woodside’s CEO and Managing Director, Peter Coleman, and his entire staff for their hard work and professionalism in bringing this transaction to a successful conclusion. I am proud of Apache’s legacy in advancing the Wheatstone and Kitimat LNG projects, and I am confident that Woodside’s participation will have a positive impact in seeing these world-class LNG facilities through to first production. We look forward to the redeployment of the proceeds from this sale, which may be used to reduce debt, repurchase shares and to pursue other opportunities that enhance our asset base and drive profitable production growth,” said G. Steven Farris, chairman, chief executive officer and president.

Upon completion of the transaction, Apache will continue to hold upstream acreage offshore Western Australia in the Carnarvon, Exmouth, and Canning basins along with related hydrocarbon reserves and production. Apache will also retain its 49-percent ownership interest in Yara Holdings Nitrates Pty Ltd and 10-percent interest in the related ammonium nitrate plant.

The transaction is expected to close in the first quarter of 2015 and is subject to necessary government and regulatory approvals and customary post-closing adjustments. The sale of the Kitimat LNG project is subject to certain operator consents.

BC orders Prince Rupert air shed study with wider scope than the Kitimat report

The province of British Columbia has posted a request for bids for an extensive air shed study for Prince Rupert, a study that has much wider scope that the controversial Kitimat air shed study. The maximum cost for the study is set at $500,000.

The BC Bid site is asking for 

a study of potential impacts to the environment and human health of air emissions from a range of existing and proposed industrial facilities in the Prince Rupert airshed, further referred to as Prince Rupert Airshed Study (PRAS) in North West British Columbia.

The “effects assessment” should include the “prediction of effects of existing and proposed air emissions of nitrogen dioxide, sulphur dioxide and fine particulate matter (at PM2.5, called dangerous by Wikipedia ) from “an existing BC Hydro gas fired turbine, a proposed oil refinery, and seven proposed LNG export terminals (Pacific Northwest LNG, Prince Rupert LNG, Aurora LNG, Woodside LNG, West Coast Canada LNG, Orca LNG, and Watson Island LNG).”

In addition to “stationary sources” of nitrogen dioxide, sulphur dioxide and particulate matter, “the impact assessment will also include rail and marine transportation sources of these contaminants in the study area.”

Area of the proposed Prince Rupert air shed study. (Environment BC)
Area of the proposed Prince Rupert air shed study. (Environment BC)

The request for proposal goes on to say:

The identified sources will be used for air dispersion modelling to determine how the contaminants in various aggregations (scenarios) will interact with the environment, including surface water, soils, vegetation and humans. Interactions of interest will include:

– water impact mechanisms related to acidification and eutrophication;
– soil impact mechanisms related to acidification and eutrophication; and
– vegetation and human health impact mechanisms related to direct exposure.

Water and soil impact predictions will be based on modelled estimates of critical loads for both media, given existing and predicted conditions in the airshed. Vegetation and human health impact predictions will be based on known thresholds of effects, given modelled existing and predicted conditions (contaminant concentrations) in the airshed.

Although the documents say that the Prince Rupert study will be based on the same parameters at the Kitimat air shed study, the Kitimat study only looked at sulphur dioxide and nitrogen dioxide, and did not include particulate matter.

Environmental groups also criticized the Kitimat air shed study for not including green house gases. The proposed Prince Rupert study also does not include green house gases.

A draft report is due by March 15, for review by the province and affected First Nations and subject to peer review. The District of Kitimat was not asked for comment on the study  on that air shed study, even though scholars as far away as Finland were asked to review it. It appears that Prince Rupert itself is also excluded from a chance to review the study. The final report is due on May 15.

The province has issued a permit to Rio Tinto Alcan to increase sulphur dioxide emissions from the Kitimat Modernization Project. The Environmental Appeal Board  will hold hearings in January 2015.  Elisabeth Stannus and Emily Toews, from Kitimat,  have appealed against  decision to allow RTA to increase sulphur dioxide emissions.

 

Aussie energy company eyeing Apache stake in Kitimat: media reports

The Australian Business Review is reporting that Woodside Petroleum, a cash rich Australian energy company, has its eye on Apache’s 50 per cent stake in the Kitimat LNG project. As part of any deal, Woodside would probably also have to buy Apache’s stake in the Australian Wheatstone LNG project, which is also up for sale.

The months-long process by Apache to find a new home for its West Australian domestic gas business and its stake in the under-construction Wheatstone LNG project — as well as its stake in the Kitimat LNG project in Canada — has drawn plenty of interest from parties in that neck of the woods.

The cashed-up, project-hungry Woodside Petroleum has been interested from the outset in the Kitimat stake, but is also said to be prepared to make an offer on Wheatstone if Apache is determined to sell the assets together


WoodsideEarlier,  another Australian newspaper, The Age reported that Woodside’s petroleum and LNG operations had “revenue of $US5.3 billion for the first nine months of 2014. Compared with the corresponding period in 2013, revenue was 28.7 per cent higher for the 2014 period.”Part of the money came from selling natural gas assets in the United States.

According to The Age:

Woodside’s LNG production rose to a record 5.1 million tonnes for the first nine months of Woodside’s fiscal 2014. The record production represents a rise of 17.6 per cent on the same period for 2013. Behind the result was the operational performance of the Pluto LNG facility (Woodside’s interest is 90 per cent). Pluto lifted LNG production by 24.3 per cent on the corresponding period in 2013, to 3.1 million tonnes. Pluto also produced 2.2 million barrels of condensate for the first nine months of 2014. Oil production rose by a mammoth 33.3 per cent on the same period in 2013, to 8.8 million barrels.

On November 6, according to the Sydney Morning Herald, Woodside’s CEO Peter Coleman warned that the Asian customers for LNG who are holding out for cheaper prices could face a  “supply crunch” and “By holding out for a cheaper price, customers are potentially exacerbating project FID [final investment decision] delays and may unwittingly help bring on a supply crunch.”

He called on suppliers and customers to work together to  ensure supply projects went ahead.

The Woodside website describes the company as  “Australia’s largest independent dedicated oil and gas company and one of the world’s leading producers of liquefied natural gas.​​​​​​”

It goes on to say

As we aspire to become a global leader in upstream oil and gas, we are guided by the Woodside Compass. The Compass links Woodside’s core values – respect, integrity, working sustainably, working together, discipline and excellence – with our vision, mission and strategic direction.

Woodside has an extensive portfolio of facilities which we operate on behalf of some of the world’s major oil and gas companies.
We have been operating the landmark Australian project, the North West Shelf, since 1984 and it remains one of the world’s premier liquefied natural gas (LNG) facilities.

With the successful start-up of the Pluto LNG Plant in 2012, Woodside now operates six of the seven LNG processing trains in Australia.