Resource World Magazine

www.resourceworld.com 11 A P R I L / M A Y 2 0 1 4 Korea Gas Corp. [036460-Korea SE] and Mitsubishi [8058-Tokyo]; and Triton LNG by AltaGas [ALA-TSX] and Idemitsu Canada [5019-Tokyo]. Even Campbell River, with Discovery LNG by Quicksilver Resources [KWK-NYSE]; Squamish with Pacific Energy Corp.'s Woodfibre LNG; and Kitsault with Kitsault Energy and some undiscovered partners could find them - selves with an LNG plant. But less than half have export permits, while only a couple have put in for environ- mental assessments and are conducting site work. All have yet to make their FID (final investment decision). Some analysts caution against too much optimism, noting many regulatory and financial hurdles remain. And it's noteworthy that Apache's original partners, Encana and EOG, have pulled out. Meanwhile Fortis BC, which already operates two of Canada's five LNG stor - age facilities, and provides LNG as fuel for remote communities, is working with Pacific Energy Corp., a subsidiary of Pacific Oil & Gas, on their small-scale export Woodfibre Project near Squamish. They also are expanding their Tilbury facil - ity in Delta to add a million gigajoules of storage capacity. "We're serving the demand in the mar- ket. We're working with government to provide energy," said Fortis BC corporate communications advisor Michael Allison. Fortis sees domestic opportunities for LNG use. Since 2009 the company has provided LNG as fuel for transport fleets – with an incentive program in place since 2012 – to reduce the reliance on diesel. And they also supply public utilities like Yukon Electrical in Watson Lake with LNG to replace diesel. "That's an ongoing part of our business and it results in significant emissions decreases," said Allison. Exporting LNG is a "need-to-do" for the industry, said Geoff Morrison, manager of BC operations for the Canadian Association of Petroleum Producers (CAPP). "We need market diversification. We need to find new buyers," he said, noting that natu - ral gas exports to the US, Canada's largest gas trading partner, are drying up as that country develops its own shale gas reserves with plans to become energy self-sufficient within five years. "It's a changing marketplace in North America," said Morrison. "BC and Canada have always had exports to the US to rely on but due to the technology that has unlocked their shale gas, that has changed supply and demand, and exports to them are declining. "BC has a tremendous resource but its main customer doesn't need it now." That raises the question of whether BC will gain a toehold with the anticipated markets in Asia. China can easily get its nat - ural gas from Russia through existing (and more are planned) pipelines until it devel- ops its own natural gas, estimated to be the third largest deposit in the world. And Japan, which imports a third of the world's LNG, has a government largely in favour of restarting its nuclear plants, mothballed after the Fukushima meltdown of 2011. That leaves Korea, the Philippines, Vietnam and India as potential customers. But India isn't wealthy and it is 16 days shipping time closer to Australia than BC. "These are legitimate risks that need to be managed," said Morrison, "but we need market diversification. We need to find new buyers and the emerging economies in Asia need natural gas." Morrison said there's no doubt the competition for those markets will be stringent but he stressed that it will take time for China to develop its reserves until it becomes "both customer and competitor", while India now buys from a dozen nations and will want to keep that diversity of supply. In fact, Asian customer countries, which import 70% of the world's LNG production, are well on the way to forming a 'buyers' club' with the stated purpose of fetching better prices for consuming nations. Indian Oil Minister S. Veerappa Moily, noting that prices offered by the same seller to Europe and Asia tend to vary greatly, said recently that large Asian buyers joining together can negotiate "from a position of strength". The competition will undoubtedly have a downward impact on projected prices for BC's LNG, which Premier Clark predicted would be in the $17 per million British thermal units range. But the competition doesn't scare producers, said Morrison. "Market diversification is important for large consumers as well as producers," he said. "Meanwhile, we don't get better at what we do by waiting until later." But while the companies measure increasingly suspect potential gains against up-front costs of $10-$20 billion per plant, BC's political leaders have to be worried about having to eat their grandiose pro - jections. Already the numbers have either fallen or are being questioned. For example, while the provincial government continues to allude to 100,000 jobs that will be cre- ated, analysts have noted that LNG pants will require up to 2,500 workers during three-year construction phases and only up to 250 workers to run the plants once they're operational. If only five plants go forward (and some estimates are as low as three) that's under 14,000 jobs. Of course, estimates are that about 12,000 jobs could be created in the extraction and delivery side, and a few thousand more in spinoff jobs in surrounding – and growing – communities. "Liquified Natural Gas (LNG) is being touted by many as the pot of gold at the end of the rainbow for British Columbia, Canada."

• Cover