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Spelling the future with LNG

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James Waterman File Photo

Premier Christy Clark visited Spectra Energy's new Dawson Processing Plant for its grand opening in July.

When Tyler Kosick says it was a good year in the natural gas plays of northeast British Columbia in 2012, he does so with a note of cautious optimism.

The outgoing president of the Fort St. John Petroleum Association has his finger on the pulse of the oil and gas industry in the region as well as anybody. Born and raised in Fort St. John, he is now the owner and general manager of the family business, Trans Carrier Ltd (TCL), and Backcountry Truckin’, both of which provide various services to the energy sector. So, his words carry a certain weight when the topic of conversation turns to the patch.

“I think the past year has been good with the outlook of the LNG (liquefied natural gas) terminals on the coast and us being able to export our resources,” said Kosick, noting the importance of diversifying the markets for Canada’s oil and natural gas beyond what has traditionally been our biggest trading partner – the United States – through initiatives such as exporting natural gas from B.C. to Asia in liquid form.

Still, it was a challenging year for natural gas producers in this province.

Already suffering through a period of record low commodity prices that was slowing production, especially in the Horn River Basin shale gas play that lacks the more valuable liquids-rich gas that is fairly common in the Montney play, companies had to deal with a summer of forest fires threatening wellsites and gas plants, not to mention a severe drought that led to the BC Oil and Gas Commission (OGC) suspending water withdrawals from many of the watercourses in the region for industry uses such as hydraulic fracturing.

However, Kosick can see a glimmer of hope on the horizon, largely because of the recently approved acquisitions of Canadian oil and gas producers Nexen – which has natural gas assets in the Horn River Basin – and Progress Energy Resources – which has significant assets in the Montney formation – by China National Offshore Oil Corporation (CNOOC) and Petronas, respectively.

Nexen has been kicking the tires on an LNG export project using natural gas from their Horn River Basin assets, while Petronas and Progress were already partnering on producing natural gas in the Montney play and plans to export that resource as LNG prior to the acquisition.

Petronas is one of the major players in LNG globally.

“I think there’s a lot of excitement,” said Kosick.

“What it’s telling us is there’s foreign countries – foreign companies – that are willing to invest in Canada’s infrastructure,” he continued.

“They’re not only investing in our land, but also our technology and our people.”

Although reports on the oil and gas industry in major newspapers across Canada in 2012 were often about embattled plans to transport Alberta oil sands bitumen to refineries in the southern United States via TransCanada’s Keystone XL pipeline and export crude to Asian markets via Enbridge’s Northern Gateway pipeline that would stretch across B.C. to the coast at Kitimat, the hot topic in the Northeast was often the burgeoning LNG business.

A few projects were already in the works when the provincial government made LNG the focal point of their Natural Gas Strategy that was launched in February.

The LNG industry was front and centre again when Premier Christy Clark visited the Peace Region in July for the grand opening of Spectra Energy’s new Dawson Processing Plant, as well as when minister of energy, mines and natural gas Rich Coleman spoke at the Fort St. John Energy Expo in May and the Dawson Creek Energy Conference in September.

“The year 2012 was one of much excitement and progress, especially for B.C.’s growing natural gas sector,” said Coleman, sharing his thoughts on the past year and the new one just beginning with Pipeline News North.

“We reached out to investors and built strong business relationships with prospective trade partners,” he added.

“Significant steps forward were taken, including policy changes to foster growth and ensure power availability to support development.”

A key policy change was an amendment to the Clean Energy Act that now allows burning of natural gas for power generation to supply electricity to liquefaction facilities that require considerable energy.

However, Charlie Lake residents and opponents of BC Hydro’s Site C proposal Rick Koechl and Mike Kroecher want to see natural gas power generation on a scale large enough to eliminate the need for the controversial hydroelectric project.

“We live overlooking the Peace River Valley,” said Kroecher. “And we’ve become extremely fond of this area. Of the valley. I’d hate to see it destroyed, which Site C would definitely do.”

“The natural gas is being sourced here, it’s available and it’s being processed here,” said Koechl.

“It could stimulate the main industry we have in this area: gas production,” added Kroecher.

“Nobody has an issue with the fact that probably 90 per cent of our homes in this province are heated with natural gas,” he continued. “Perfectly normal. Nobody argues that point. But when we want to generate some electricity by using natural gas, people say, ‘It’s not clean.’”

“All of this is sort of counterintuitive,” said Koechl.

Kosick believes Site C could be important to the success of the natural gas industry in northeast B.C. and not only because the energy is required for LNG.

“Honestly, I think that’s going to play a big role in retention of skilled workers if it goes through,” said Kosick.

“If done properly,” he continued, “we’ve got the potential to grow our community, bring in a lot of very good services.

“I think that could be very good for the community, but it has to be structured properly.”

The BC LNG Export Co-operative and the Kitimat LNG partnership, which now consists of Apache and Chevron Canada after the latter acquired stakes in the project previously held by EOG Resources and Encana, had already received LNG export licenses from the National Energy Board (NEB) when Shell Canada and British natural gas giant BG Group officially entered the fray in 2012.

BG Group announced in early September that they would be working with Spectra Energy to build a pipeline to Prince Rupert for the purpose of exporting B.C. natural gas as LNG.

Previously, Shell Canada and their partners, PetroChina, Mitsubishi Corporation and Korea Gas Corporation (KOGAS), announced that they would be moving forward on a project to export natural gas produced from their Montney formation assets in the Groundbirch area just west of Dawson Creek under the banner of LNG Canada.

It was just part of a busy summer for Shell that included the grand opening of their new offices in Fort St. John and the water reclamation plant the company built with the City of Dawson Creek.

Sewage treated at that facility becomes non-potable water perfect for hydraulic fracturing. Shell now pipes that water to their Groundbirch operation, thereby virtually eliminating freshwater consumption at that site.

Shell also contracted TransCanada to build the Coastal GasLink pipeline that would connect Groundbirch to the proposed export terminal in Kitimat.

As one of the first major projects to face federal regulatory review under the new CEAA 2012 Act, which was brought into effect on July 6 in order to improve the efficiency of that review process, the pipeline proposal caused a minor stir in November.

The issue was that the Canadian Environmental Assessment Agency (CEAA) issued a call for public comment on Coastal GasLink on Nov. 13, indicating that comments received could play a role in determining if a federal environmental assessment of the project is necessary.

A popular B.C. newspaper ran with the story that Coastal GasLink might not face a federal environmental assessment as a result, ignoring that a list of projects that usually require such assessments, known as the Regulations Designating Physical Activities, suggests that an environmental review is highly likely.

After the acquisitions of Nexen and Progress by Asian companies, industry experts were suggesting that LNG projects featuring an Asian partner stand a better chance of securing contracts with customers in that continent than projects such as Kitimat LNG that solely involve North American outfits.

“You’re guaranteeing your end supply,” Kosick said of the Asian companies investing in Canadian resources that they need at home.

“I’m not going to go out and buy a whole bunch of trucks if I don’t know that there’s a contract on the table to go and move a whole bunch of stuff,” he continued, discussing the contract situation.

“It’s no different. They’re not going to invest a whole bunch of money in Canada and our natural resources if there’s not … a market for it.

“With that being said, I think we need to retain a portion of it. We don’t want to give it all away.”

Kosick began to turn his attention to very local matters as he set his sights on 2013.

“There’s some infrastructure needs that need to be done,” he said, suggesting that a transportation corridor between Fort St. John and the Alberta border should top the list of priorities.

“For personal safety reasons for everybody,” he added. “And access to the community, knowing that there’s growth potential.”

The Horn River Basin Producers Group has been discussing a similar idea with the provincial government to build a new transportation corridor between Fort Nelson and the patch north of town, also citing safety concerns as a reason for the project.

“It makes sense,” said Kosick. “You have to plan for the growth. But the worst part about Fort Nelson is, right now, it’s hard to justify it, because they’re slow.”

Activity is expected to increase in the Horn River Basin when LNG projects are really underway, but that timeline is still very uncertain.

“I think once the shovels are in the ground and the pipe is getting laid to the coast and those contracts are in place, there’s probably … two to three years of pipelining, which gives you two to three years to build some infrastructure,” said Kosick.

“It’s a balancing act.”

Kosick and his peers in the patch are also worried about the spring election.

“I think there’s a very big concern in our area [about] an NDP government,” he said, noting that a resurgence of the BC Conservative Party could split the vote on a right wing that has essentially been the exclusive domain of the BC Liberals in recent years and allow the NDP to form the government.

“Small business, big business, business in general in the province – my belief and a lot of belief of local business people is that the NDP is detrimental to that.”

However, the NDP has also voiced their support for LNG.

“And they have to because LNG is such a big part of our economy,” said Kosick.

Kosick doesn’t think NDP support for LNG will create an opportunity for local service sector companies to discuss their concerns with that party if they do form the government.

“They overspend on social programs,” he said.

“There’s certain services that, in a recession time, can’t be provided,” he added.

“Currently, we’re still in a recession. Even though B.C. is working strong, we’re not quite out of it yet. So, we’re in very tender times. And if somebody throws a monkey wrench into the whole thing, we have the possibility of going way backwards instead of continuing on the climb.”

Even though his party may not hold the reins of government for very long, Coleman is enthusiastic about the prospects for the next year, which will feature the first international LNG conference in Vancouver in February.

“Moving into 2013,” said Coleman, “we remain confident in our aspirations for LNG and its potential to generate thousands of jobs and billions of dollars in revenue for the Province.”


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