Kitimat welcomes new BC NDP government LNG policy

UPDATED with District of Kitimat news release

The District of Kitimat is very pleased with the decision that the BC government issued today removing some of the barriers associated with the establishment of an LNG industry in BC. This will promote access for natural gas from BC to be exported as LNG to international markets. This would be a significant boost for the North West, the province, and Canada as a whole.
This is a positive step forward for the LNG industry in BC, and the District of Kitimat is looking forward to working with the BC Government, LNG Canada, First Nations groups, other stakeholders as well as the Federal Government to move toward a positive final investment decision in 2018.

Michael Dewar
Director of Economic Development

 

News release from BC Premier John Horgan on his government’s LNG policy

For Immediate Release

March 22, 2018

Office of the Premier

NEWS RELEASE
New framework for natural gas development puts focus on economic and climate targets

VICTORIA – As part of a new approach to natural gas development, the British Columbia government is overhauling the policy framework for future projects, while ensuring those projects adhere to B.C.’s climate targets, Premier John Horgan announced today.

“Our new approach welcomes investment that puts our province’s people and future first, and rejects the old ways of resource development at any cost,” Premier Horgan said. “Our obligation is to the people who call British Columbia home, and our job is to get the best deal for them and the generations that follow.”

Under the new approach, all projects should:

* Guarantee a fair return for B.C.’s natural resources.

* Guarantee jobs and training opportunities for British Columbians.

* Respect and make partners of First Nations.

* Protect B.C.’s air, land and water, including living up to the Province’s climate commitments.

These four conditions form the basis for government’s discussions with LNG Canada, which is moving toward a final investment decision on a project that, if approved, would be the largest private-sector investment in B.C. history. This project would see the construction of a natural gas pipeline from northeast B.C. to Kitimat, where a new terminal will process and ship LNG to Asian markets. It is expected to create up to 10,000 construction and up to 950 full time jobs in northern B.C.

“No premier or government can dismiss this kind of critical economic opportunity for the people of British Columbia,” Premier Horgan said. “But neither will we turn our back on our commitment to climate targets, or our path to reconciliation with Indigenous peoples.”

At the centre of the discussions with LNG Canada is a revised fiscal framework that is designed to put natural gas development on a level playing field with other industrial sectors, accessing the same fiscal policies and working within the same overall B.C. framework to achieve greenhouse gas (GHG) reductions.

The new framework, to which LNG Canada will be subject, provides:

* Relief from provincial sales tax (PST), in line with the policy for manufacturing sectors, subject to repayment in the form of an equivalent operational payment.

* New GHG emission standards under the Clean Growth Incentive Program, announced in Budget 2018.

* General industrial electricity rates consistent with other industrial users in B.C.

* Elimination of the LNG income tax that had required LNG-specific tax rates.

“The LNG Canada proposal has the potential to earn tens of billions of dollars and create thousands of jobs for British Columbians over the life of the project,” Premier Horgan said. “It’s a private-sector investment that could benefit our province for decades to come, but not at any price – we need to make sure the values British Columbians believe in come first.”

The Premier said his government will also expect the LNG Canada project to fit within the goals of the Province’s climate-change plan and, specifically, its legislated GHG reduction targets.

“We committed, during the election campaign, to reduce our greenhouse gas emissions by 40% below 2007 levels by 2030, and by 80% by 2050. That remains our goal,” Premier Horgan said.

“We cannot achieve the necessary reductions in greenhouse gas emissions and do our part in protecting the global environment without a significant shift to a low carbon economy. The work for all of us – in government, business, labour and beyond – is only just beginning. And all resource development proposals must be considered within the context of our global commitment to protecting our air, land and water.”

With B.C.’s new fiscal framework provided to LNG Canada this week, it is anticipated the company will make a final investment decision sometime before the end of this year.

 

BACKGROUNDER 1
Climate action in British Columbia

On April 1, 2018, the carbon tax will increase by $5 a tonne annually, until 2022.

Increasing the carbon tax meets the requirements set out by the federal government’s pan-Canadian climate framework. Rebates will go to a majority of British Columbians.

However, increasing the carbon tax alone will not enable B.C. to meet its long-term greenhouse gas-reduction goals of 40% below 2007 levels by 2030, and 80% by 2050. Significant new climate-action initiatives will be required in order for B.C. to meet these 2050 legislated targets, while encouraging strong economic growth. To ensure an interim target, new legislated targets for 2030 will be introduced later this year. Specific targets for each of the industrial, transportation and building sectors will also be established.

Meeting climate targets will not be easy and will require a concerted effort across all sectors to make the transition to a low-carbon economy. The addition of emissions from LNG will increase this challenge but government is committed to taking the steps necessary to achieve B.C.’s climate goals.

Specific Measures:

* A portion of the carbon tax revenue, paid by large industry, will fund a rebate program to incent the use of the greenest technology available in the industrial sector, including the natural gas sector, to reduce emissions and encourage jobs and economic growth. Some of the revenue will also go into a technology fund, to help spur new, clean technologies in all sectors, to make sure they fit within B.C.’s climate plan.

* The Climate Solutions Clean Growth Advisory Council (CSCG), established in October 2017, is supporting government’s goal of reducing carbon pollution, preparing for the impacts of climate change and growing a sustainable economy. The CSCG is comprised of community leaders from across British Columbia, including representatives from First Nations, local government, industry, environmental organizations, academia and labour.

* The CSCG is providing advice on actions and policies to achieve significant greenhouse gas reductions, while taking advantage of opportunities for sustainable economic development and job creation.

* Immediate priorities for the CSCG include achieving emissions reductions in the transportation sector, developing pathways to clean economic growth, as well as policies to support the competitiveness of B.C.’s emissions-intensive and trade-exposed industries.

* Government is working to develop a framework for fugitive emissions that match the federal government’s target of a 45% reduction by 2025.

* Government is examining every opportunity to reduce emissions from slash burning by providing alternative economic usage for slash where available.

* Government has initiated a scientific review of hydraulic fracturing aimed at ensuring that industry in B.C. operates according to the highest-possible standards.

More information on the Climate Solutions and Clean Growth Advisory

 

BACKGROUNDER 2
British Columbia establishes new framework for natural gas development

Natural gas has a key role to play to provide clean, reliable, affordable and less-carbon-intensive options to global energy markets.

British Columbia has a vast supply of low carbon-intensive natural gas resources in places like the Montney Basin, and has been developing them to support economic growth and job creation at home for decades. B.C. natural gas is an important transition fuel that can help B.C. move to a lower-carbon economy.

While B.C. has been exporting natural gas to U.S. markets for decades, it has an opportunity to export the same fuel to other jurisdictions. To that end, government will introduce a fiscal framework that will provide fair returns to both British Columbians and investors, as well as a climate strategy that will allow B.C. to meet its legislated climate targets.

To ensure British Columbia does it better than anybody else in the world, the provincial government has four key conditions to ensure British Columbians benefit from any proposed LNG development. They are:

* Guarantee a fair return for B.C.’s natural resources.

* Guarantee jobs and training opportunities for British Columbians.

* Respect and make partners of First Nations.

* Protect B.C.’s air, land and water, including living up to the Province’s climate commitments.

Emerging LNG Proposals

Despite the cancellation of Pacific Northwest LNG, Aurora and Woodside project proposals, several other LNG proponents have expressed renewed interest in developing projects in BC.

LNG Canada

LNG Canada’s proposed Kitimat project, should it proceed, represents a very significant economic opportunity for British Columbia – a project that involves one of the largest private sector developments in B.C. history.

Shell and its joint-venture partners have worked constructively to satisfy the provincial government’s conditions for LNG, and British Columbia expects LNG Canada will continue to do so moving forward.

LNG Canada is also working to achieve global leadership in low-emissions technology and operations.

Kitimat LNG

Chevron and its partners have expressed continued interest in developing its project in northern B.C. and is focusing on the use of new low-emissions liquefaction technology.

These come as the Province is completing a climate-action strategy in place that meets the Province’s greenhouse gas-reduction targets – to reduce B.C.’s greenhouse gas emissions by 40% below 2007 levels by 2030, and by 80% by 2050.

New Framework

The B.C. government has developed a new framework aimed at ensuring British Columbians receive a good return for their natural gas resource and proponents receive a reasonable return on investment.

As part of this work, British Columbia and LNG Canada jointly conducted a financial analysis of the LNG Canada project. This analysis corroborated evidence and information from internationally recognized LNG analysts that B.C. has a competitiveness issue and formed the basis of a mutual understanding upon which the Province is prepared to commit measures that will increase the competiveness of British Columbia’s LNG industry.

These measures provide a framework for other industries in British Columbia in similar circumstances – they are not exclusive to the LNG industry or LNG Canada.

As it pertains to LNG Canada, the measures detailed below will only be implemented if the proponents are able to conclusively decide on or before Nov. 30, 2018, to proceed with the construction of the LNG facility and associated investments. These measures below would apply to the entire LNG sector.

1. New Operating Performance Payments

Under current legislation, proponents constructing significant manufacturing facilities would receive a PST exemption on input costs, whereas those proposing to construct LNG facilities would not.

Under the new framework, The B.C. government will exempt LNG Canada from the provincial sales tax (PST), on the construction of their initial proposed facility. This will be conditional on LNG Canada entering into a separate agreement with the province whereby LNG Canada will pay annual operating performance payments over 20 years, a total amount equivalent to what LNG Canada would have otherwise paid in PST during the initial facility construction period.

This framework will be available to all proponents constructing significant manufacturing facilities in the province.Clean Growth Incentive Program

2. The provincial government recognizes that energy-intensive trade-exposed industries, including the natural gas sector, face unfair competition when competing globally with jurisdictions that do not impose carbon taxes. Proponents who make a final investment decision to proceed will be subject to the new Clean Growth Incentive Program, announced by the provincial government in Budget 2018. A benchmark for world-leading clean LNG production will be established as part of this program, replacing existing requirements under the current Greenhouse Gas Industrial Reporting and Control Act.

3. Industrial Electricity Rates

Proponents who make a positive final investment decision will receive the general industrial electricity rate charged by BC Hydro. This is the same rate paid by other industrial users in British Columbia.

4. Removal of LNG Income Tax

The existing LNG income tax is not the most efficient and effective tool for generating returns to British Columbia. It is cumbersome to administer and has led to uncertainties. Government intends to introduce legislation to repeal this tax and instead government will utilize a number other tax and royalty measures under its new fiscal framework, to ensure that British Columbia gets a fair return for its natural gas resource.

New Approach to LNG

As part of establishing a new fiscal framework, the provincial government will take steps to improve the transparency and consistency with which it assesses industrial development opportunities. To that end, government intends to introduce legislation to repeal the Project Development Agreement Act, passed by the previous government, to tie the hands of future governments with respect to the rules governing LNG projects. These measures effectively indemnified proponents against changes. Government will also review and potentially cancel or repeal other LNG measures established by the previous government.

 

▶ READ MOREEconomy, Energy, Mines and Petroleum Resources, Environment and Climate Change Strategy, Government Operations, Office of the Premier

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.

 

LNG Canada unveils community commitments

The Shell-led LNG Canada project unveiled its commitments to Kitimat at a ceremony at the community  information centre at the old Methanex site on October 7, 2014.

LNG Canada has forged the commitments in a sheet of aluminum that is bolted to the wall of the community information centre. Kitimat Mayor Joanne Monaghan unveiled the aluminum sheet, assisted by Kitimat Fire Chief Trent Bossence. Afterward, Susannah Pierce, Director, External Affairs, LNG Canada, signed the sheet, followed by Mayor Mongahan, Chief Bossence, other LNG  Canada officials and members of the community.

LNG Canada ceremony
Guests at the unveiling of LNG Canada’s commitment to the Kitimat community watch a video prior to the unveiling ceremony. (Robin Rowland/Northwest Coast Energy News)

 

LNG Canada’s Community Commitments

LNG Canada is proud to outline its commitments to the community, created through a collaborative effort with local residents. In April, June and September 2014, LNG Canada met with the Kitimat community to develop and refine the commitments our company will meet to ensure we are a valued member of the community throughout the lifetime of our project. We are grateful to the many individuals who took part and shared their wisdom and experience.

Our Commitments to the Community

1) LNG Canada respects the importance residents place on companies being trusted members of their community. We aspire to gain this trust by proactively engaging with the community in an honest, open and timely manner; by listening and being responsive and accessible; and by operating in a safe, ethical and trustworthy way.

2) LNG Canada understands that the ongoing well being of the community and the environment are of paramount importance. LNG Canada will consider the health and safety of local residents, employees, and contractors in every decision it makes.

3) LNG Canada recognizes that the environment and natural surroundings are vital to the community. We will be dedicated to working independently and with the community to identify and carry out ways to reduce and mitigate the impact of our facility footprint on the natural surroundings – in the Kitimat Valley, the Kitimat watershed and the Kitimat airshed.

4) LNG Canada is aware of the importance to the community of maintaining and improving access to outdoor recreational opportunities. We will work with the local community to facilitate the creation of new projects that protect or enhance the natural environment and that provide access to the outdoors and the water.

5) LNG Canada recognizes it will be one company among other industrial companies operating in the community. We will work with other local industry leaders to manage and mitigate cumulative social and environmental impacts, and create opportunities to enhance local benefits associated with industrial growth.

6) LNG Canada acknowledges that the commitments we make are for the long term. We will work with the community to develop an environmental, social and health monitoring and mitigation program that meets regulatory requirements and we will share information on the program with the public for the life of our project.

7) LNG Canada understands the need for the community to benefit from our project and values the contributions all members of the community make to the region. We will work with the community to ensure that social and economic benefits from our project are realized and shared locally.

8) LNG Canada acknowledges the importance the community places on our company being an excellent corporate citizen and neighbour that contributes to the community. In addition to providing training, jobs and economic benefits, we will make social investments important to the community to positively impact community needs and priorities.

LNG Canada unveiling
Kitimat mayor Joanne Monaghan,
Susannah Pierce, Director, External Affairs, LNG Canada and Fire Chief Trent Bossence after the ceremony unveiling the community commitment. (Robin Rowland/Northwest Coast Energy News)

Kitimat Modernization costs jump to $4.8 billion; dock deal dependent on LNG Canada FID

The cost of the Kitimat Modernization Project has jumped to $4.8 billion US, Sam Walsh CEO of  Rio Tinto, the parent company of Rio Tinto Alcan said Thursday as the company released its results for the first six months of 2014.

Rio Tinto Alcan logoIn its report. Rio Tinto said.

In February 2014, the Group announced that a review of major capital projects had identified a project  overrun in relation to the Kitimat Modernisation Project. The overrun evaluation is now complete and has identified the requirement for additional capital of $1.5 billion to complete the project. This was approved by the Board in August 2014, taking the total approved capital cost of the project to $4.8 billion. First production from the Kitimat Modernisation Project is expected during the first half of 2015.

The weakening Canadian dollar appears to have improved the overall bottom line for the RT aluminum division, with underlying earnings of $373 million 74 per cent higher than in the first half of 2013:

The main drivers were growing momentum from the cost reduction initiatives, a weaker Australian and Canadian dollar and a further rise in market and product premiums, with 61 per cent of the Group’s primary metal sales sold as value added product generating a superior price. This was achieved despite a nine per cent decline in LME prices over the period which lowered earnings by $265 million.

LNG deal

The report also contains details of the deal between Rio Tinto Alcan and LNG Canada for the old Eurocan dock, indicating that LNG Canada will not likely commit to a deal until the Final Investment Decision is made:

On 12 February 2014, Rio Tinto entered into an option agreement with LNG Canada, a joint venture comprising Shell Canada Energy, Phoenix Energy Holdings Limited (an affiliate of Petro-China Investment (Hong Kong) Limited), Kogas Canada LNG Ltd. (an affiliate of Korea Gas Corporation) and Diamond LNG Canada Ltd. (an affiliate of Mitsubishi Corporation) to acquire or lease a wharf and associated land at its port facility at Kitimat, British Columbia, Canada. LNG Canada is proposing to construct and operate a natural gas liquefaction plant and marine terminal export facility at Kitimat. The agreement provides LNG Canada with a staged series options payable against project milestones. The financial arrangements are commercially confidential.

Read the full Rio Tinto report:
Rio Tinto first half 2014 report  (PDF)

“Good bits”

According to The Australian other aluminum operations aren’t  doing so well, and the newspaper says that RT is starving under performing units in favour of the “good bits.”

The qualifier is that there is still much work to do on the aluminium front, Rio having splurged $US38bn on the acquiring Alcan in 2007.

Aluminium’s contribution to underlying earnings increased from the $US214m in the previous corresponding period to $US373m. But returns remain miserable, and that is from the good bits.

The underlying loss was $US182m, an increase from the $US158m loss previously. At least the bad bits of aluminium are being starved of capital expenditure, with Walsh putting them on the private equity-type approach to running a business.

But is has to be wondered how much longer the pain will be endured. And there is increasing chatter that closures are on the cards, with the long-term future of Rio’s Australian smelters the real concern.

Making money

Overall Rio Tinto is making money with earnings up 21 per cent, according to the report:

Sam Walsh said “Our outstanding half year performance reflects the quality of our world-class assets, our programme of operational excellence and our ability to drive performance during a period of weaker prices. These results show that our current strategic and management focus is making a meaningful contribution to cash flow generation.

“During the first half we have increased underlying earnings by 21 per cent to $5.1 billion and enhanced operating cash flow by eight per cent. We delivered what we said we would, exceeding our $3 billion operating cash cost reduction target six months ahead of schedule while producing record volumes and driving productivity improvements across all our businesses.

“We have decreased net debt by $6.0 billion compared with this time last year, through our stronger operating cash flows, sharply reduced capital spend and proceeds from divestments. We are confident Rio Tinto’s low cost, diversified portfolio will continue to generate strong and sustainable cash flows over the coming years. This solid foundation for growth will result in materially increased cash returns to shareholders, underscoring our commitment to deliver greater value.”

Net income increased 156 per cent to $4.4-billion while revenues were $24.3-billion. Rio Tinto said it reduced operating costs by $3.2-billion, exceeding its $3-billion target six months ahead of schedule.

New boss?

Despite the good news, the financial press is already speculating that Sam Walsh who is 64, may not last long as boss of Rio Tinto. His contract expires at the end of 2015. The Financial Times is quoting analysts as saying despite Walsh’s desire to stay on, the company is already looking for a successor.

According to the FT these include

Andrew Harding, head of iron ore, holds the job that was previously Mr Walsh’s, running Rio’s most important division, and for that reason is probably a front runner. Aged 47, he is a 21-year Rio veteran and previously ran its copper business. Chris Lynch, finance director since 2013, is the only executive on Rio’s board other than Mr Walsh and is another industry veteran, but at 60 is only a few years younger than Mr Walsh.

Alan Davies, head of diamonds and minerals, and Harry Kenyon-Slaney, head of energy, also have important operational experience across commodities and lengthy Rio careers but like Mr Harding are relatively new to their current roles. The heads of the other mining businesses are also relatively new to Rio. Jean-Sébastien Jacques, head of copper, joined Rio in 2011 from Tata Steel while Alfredo Barrios came to the group from BP only in June and is running aluminium.

Dump out of Kitimat, New York hedge fund tells Apache

A New York hedge fund, also known as an aggressive activist investor, which just bought a huge stake in Apache, is urging the company to get out of the Kitimat LNG project.

Numerous media reports say that Jana Partners recently bought a one billion dollar stake in the Houston and Calgary based oil and natural gas producer. Jana Logo

Bloomberg reports that Jana is a $10 billion hedge-fund firm run by Barry Rosenstein “known for pushing corporate managements to make changes”

According to both Bloomberg and the Wall Street Journal, Jana wants Apache to get out of LNG projects in both Canada and Australia and concentrate on the United States. Bloomberg says

Jana said it has “engaged in discussions with management” and urged Apache to sell its international businesses to focus on U.S. shale opportunities, exit its investment in liquefied natural gas, and be more forthcoming about how much oil and gas lie beneath its holdings in West Texas’s Permian basin, among other demands.

The Wall Street Journal says Jana believes that Apache should free up cash flow:

by exiting two major projects in Canada and Australia that aim to export natural gas, which will take years and billions of dollars to fully develop. If the company doesn’t take further steps to increase its value,

“Investors are unimpressed by [Apache]’s global diversification and have voted with their feet,” Jana wrote in a letter to investors on Monday that was reviewed by The Wall Street Journal.

Investors apparently consider the Kitimat project a drain on Apache’s capital, so far costing $2 billion in 2014. Apache CorporationThe hedge fund said the company had poor performance compared with rivals, several of which are pure-play companies that drill exclusively in U.S. shale formations such as the Permian Basin. Jana also wants Apache to consider selling itself.

According to the Wall Street Journal,  Apache raised $10 billion from selling assets around the world. In both February and May Apache said it is looking for a buyer for some of its stake in Kitimat LNG.

In Australia,Bloomberg says Apache is in early discussions with potential buyers for its stake in the $27-billion Wheatstone LNG project in Western Australia, which like Kitimat LNG it operates in partnership with Chevron. First LNG deliveries from Wheatstone are expected in 2016.

Bloomberg quotes a Jana newsletter as saying that selling Wheatstone and its stake in Kitimat would free $3 billion to $4 billion cash to fund share buybacks and reduce future spending risks.

A Calgary-based spokesman for Apache told the Financial Post said joint marketing efforts for LNG by the company and Chevron on the project are progressing, but did not offer detail. It is well known that Kitimat LNG has had a problem finding customers for the project, due to the increasing volatility of the LNG marketplace.

The Shell-led LNG Canada project has customers in the partners, KoGas, Mitsubishi and PetroChina but is also under pressure due to growing costs.

Barron’s quoting a Deutschebank analyst says Apache stockholders will likely welcome Jana’s demands.

Apache management has been active over the past 12+ months managing the portfolio. Since the February 2014 analyst meeting where the baseline expectation was that the LNG business would be retained (selling down the 50% interest in Kitimat has been a consistent goal), there has been a change in Apache’s messaging on the topic. Recent investor presentations and press articles have suggested all or part of Wheatstone could be monetized (we remove LNG capex from our EV/DACF target multiple valuation as a result). From this perspective, Jana’s proposal is likely to reach more sympathetic ears at Apache (today relative to 6 months ago), in our view. The good news for current shareholders is that the substance of the activist proposal has likely already been substantially evaluated by management and a process to this end could already be underway, if not nearing completion.

According to the Hedge Fund Letters, Jana is a very aggressive investment company

Jana Partners’ core investment strategy is primarily based upon a value-oriented (interestingly towards both value and growth stocks) and event-driven investment methodology with the ever-present tagline being “ignore the crowd”. Mr. Rosenstein…is often an activist investor, using Jana Partner’s capital (sometimes combined with others’, most famously with Carl Icahn) infusion into a company to promote change against management directives that he perceives as detrimental to shareholders.

LINKS

Wall Street Journal
Jana Partners Wants Changes at Apache: Activist Investor Wants Oil Producer to Exit Some Projects to Free Up Cash Flow

Barron’s
July 22, 2014, 10:28 A.M. ET
Apache: Not a ‘Hard Conversation’ With Jana, Deutsche Bank Says

Calgary Herald
Hedge fund Jana invests $1 billion in Apache Corp. Bloomberg

Financial Post
Apache faces breakup in Jana’s US$1-billion activist stake

Bidness Etc
Jana Partners call for Change’s in Apache’s Strategy

LNG Canada calls Wednesday morning news conference

LNG Canada logoLNG Canada has called a news conference in Vancouver early Wednesday morning to “announce a project milestone.”
BC Premier Christy Clark, BC LNG Minister Rich Coleman, LNG Canada executives and delegations from the joint venture partners, Shell Canada Energy, Diamond LNG Canada, an (“affiliate” of Mitsubishi), Korea Gas Corporation and Phoenix Energy (an “affiliate” of PetroChina) will be present at a downtown hotel.

Rio Tinto, Shell LNG on shopping spree in China: Financial Times

Britain’s Financial Times today chose two Kitimat related companies to highlight how western business is turning more and more to China.

Shell turns to Asian suppliers in US shale race  (Registration/subscription required)

Royal Dutch Shell has said it will deploy more Chinese equipment at its struggling US shale business – becoming the latest natural resources company to try to reduce costs by switching to cheaper Asian suppliers.
Miners such as Rio Tinto and Antofagasta have already been encouraged by improvements in the reliability of Chinese machinery, which they say can now be integrated into their existing operations without compromising efficiency or safety standards….

Shell’s move comes as oil and mining companies – which ramped up capital expenditure in recent years amid a huge commodities boom – are being pressed by shareholders to curb spending and improve returns….

Rio Tinto, the Anglo-Australian miner, has also been on a spending spree in China. The company, which is slashing its capital spending after disappointing investors with cost overruns, says it made close to $2bn-worth of equipment purchases in China last year, and around $1bn-worth in India.

 

Rio Tinto Alcan has said that much of the building materials and equipment for the Kitimat Modernization Project has come from China, often in huge modules which are then inserted into the new buildings as part of the aluminum smelter upgrades.

Coastal GasLink pipeline opens environmental assessment process

The Coastal Gaslink pipeline proposal  to bring natural gas to Kitimat for the Shell LNG Canada project is now entering the 45 day public comment environmental assessment period. It opens on March 21, 2014 and closes May 5, 2014.

Coastal GasLink Pipeline is a wholly-owned subsidiary of TransCanada Pipelines. The company is proposing to develop an approximately 650 kilometre pipeline to deliver natural gas from the area near the community of Groundbirch, B.C., to the LNG Canada gas liquefaction facility proposed to be developed by Shell Canada Ltd. and its partners in Kitimat.

An electronic copy of the Application and information regarding the British Columbia environmental assessment process are available at www.eao.gov.bc.ca.

The British Columbia Environmental Assessment Office, with the support of Coastal GasLink, will host four open houses in northern B.C. communities during the comment period.

The proposed Project would have an initial capacity of about two to three billion cubic feet (bcf) of natural gas per day with the potential for expansion up to about five billion cubic feet per day. The company says the expansion scenario assessed in the application does not involve the construction of additional pipeline; the number of potential future compressor stations would change.

The proposed pipeline is subject to review under British Columbia’s Environmental Assessment Act.

Starting on March 21, there are 45 days for the submission of comments by the public in relation to the Application. All comments received during this comment period will be considered. The intention of seeking public comments is to ensure that all potential adverse effects – environmental, economic, social, heritage and health – that might result from the proposed Project are identified for consideration as part of the assessment process.

The BC EAO accepts public comments by:

By Online Form: http://www.eao.gov.bc.ca

• By Mail:

Mr. Brian Westgate
Project Assessment Manager
Environmental Assessment Office
P.O. Box 9426 Stn Prov Govt
Victoria, B.C. V8W 9V1

• By Fax: 250-356-7477

Copies of the application are available in digital or paper form at public libraries in the project area.

The BC EAO invites the public to Open House events on the following dates:

  • March 27, 2014: Chetwynd & District Recreation Centre
  • April 1, 2014: Fraser Lake Recreation Complex
  • April 2, 2014: Burns Lake Heritage Centre
  • April 3, 2014: Riverlodge Recreation Centre, Kitimat