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Decarbonization drives new export markets

LNG, wood pellets, critical minerals, ammonia exports driven by climate change policies
westview-pelletterminal-coppersky
The Westview Wood Pellet Terminal in Prince Rupert has seen exports nearly triple since opening in 2014.

Climate change policies aimed at decarbonizing industrialized nations may not be moving as fast as many would like, but they are already having an impact – mostly positive – on B.C.’s economy in the form of new or increased commodity exports and markets.

The most obvious new export industry being developed in B.C. as a direct consequence of decarbonization is liquefied natural gas (LNG). New LNG terminals are being built in B.C., in Kitimat and Squamish.

It’s an industry that would likely not have developed here were it not for the demand for natural gas, particularly in Asia, to replace coal, as well as other higher-carbon fuels like diesel.

Another export that has grown as a direct result of decarbonization efforts on the part of power producers is wood pellets. When the Westview Wood Pellet Terminal opened in 2014 in Prince Rupert, it shipped 512,000 tonnes to Asia and Europe, where they are burned as a carbon-neutral alternative to coal to produce power.

By 2021, export volumes of wood pellets through the Port of Prince Rupert had nearly tripled to 1.4 million tonnes, and wood pellet exports through the Port of Vancouver doubled from 1.2 million tonnes in 2011 to 2.5 million tonnes in 2021.

Wood pellet producers in B.C. use mostly wood waste and pest- and fire-damaged timber as a feedstock.

“We see a phase-out of thermal coal,” says Prince Rupert Port Authority CEO Shaun Stevenson. “We see thermal coal being replaced by LNG, being replaced by wood pellets.”

Despite the imperative to decrease the use of fossil fuels, global demand for crude oil is not expected to begin peaking until the end of this decade, and an expansion of the Trans Mountain pipeline and Westridge Marine Terminal in Burnaby will result in increased crude oil tanker shipments through B.C. by as much as 500,000 barrels per day.

Meanwhile, the energy transition can be expected to drive increased exports through B.C. ports of alternative fuels, like wood pellets and ammonia (a carrier for hydrogen), and critical minerals, like copper, nickel, aluminum and lithium.

“For some time, we will benefit from a boom in both areas, as the world population is still growing and demand for fossil fuels isn’t going down that quickly,” says Werner Antweiler, an economist specializing in environmental and energy economics at the University of British Columbia’s Sauder School of Business.

“We’ll still be exporting a fair bit of oil and gas over the next number of years.” 

But at some point, Antweiler says critical minerals could eventually rival oil as Western Canada’s most valuable export.

“I think there’s a very strong case to be made that Canada will play an important role by shifting from an oil exporter, primarily, to one where we will find new resources, like nickel and other minerals, that will be powering the electrification that will take place more and more around the world,” Antweiler says.

The top four commodities produced in B.C. for export, in terms of value, are wood products (such as lumber, logs and pulp), metallurgical coal, minerals and natural gas, in that order.

Currently, almost all natural gas exports from Western Canada are to the U.S. by pipeline, but that will change as new LNG terminals come online, and Asia becomes a new market for Western Canadian natural gas.

Of the $6.6 billion worth of minerals and metals exported from B.C. in 2021, copper accounted for $4.2 billion and zinc, $1 billion. Those kinds of exports can be expected to only grow, as new mines are built or expanded across Canada to meet the demand for energy transition minerals and metals.

B.C. might also expect to see increased exports of wood pellets. The demand for wood pellets as an alternative to coal has grown significantly in recent years, prompting Drax Group PLC to buy seven wood pellet plants in B.C., two in Alberta and five in the U.S.

The British power company eliminated coal altogether for power generation. Its thermal power plant in the UK now uses biomass, and plans to add carbon capture and storage, which would result in 8 million tonnes of negative carbon dioxide emissions annually.

“The wood pellet biomass market is inextricably linked to the world cottoning on, and desire to do something about climate change. Biomass is Europe’s largest single source of renewable energy,” says Ross McKenzie, director of international affairs for Drax Group.

Many other coal power plants in Asia and Europe will also likely increase their use of biomass.

“We know that biomass from Western Canada can play a significant role in being able to transform those power stations to generate that renewable, reliable power instead of coal,” McKenzie says. “We see a bright future for biomass from Western Canada, and I think we need to see it certainly as a market that can grow.”

The one commodity that could disappear entirely from B.C. ports is thermal coal, the export of which the Trudeau government has pledged to ban by 2030. Thermal coal accounts for roughly half of the coal exports though Prince Rupert and about a third of coal exports through the Port of Vancouver.

Thermal coal shipped through B.C. ports comes from Alberta or the U.S. All of the metallurgical coal shipped through B.C. ports, however, is mined here in B.C. It is used to make steel.

Wood Mackenzie projects strong demand for seaborne metallurgical coal from B.C. for decades to come, with much of the future demand driven by India.

But the new owners of the former Ridley coal terminal in Prince Rupert, Trigon Pacific Terminals Ltd., thinks that even metallurgical coal exports from B.C. could decline, not for a lack of demand, but because as existing mines become exhausted, companies may find it harder to get new ones permitted in B.C. and Alberta.

“I think in that 10-year window, there will be little change in the volumes,” says Trigon CEO Rob Booker. “I think after 10 years, I would be loathe to guess at what the permitting conditions are, what the market demand is. I think there’s a lot of volatility at the end of that 10-year piece.”

Facing the loss of thermal coal, and the possible decline in metallurgical coal exports, Trigon is now looking to develop an ammonia export terminal – something that could take an investment of $700 million to $1 billion.

To meet emissions reduction targets, global hydrogen use will need to more than double by 2030, according to S&P Global. Alberta is poised to become Canada’s biggest producer of hydrogen, though B.C. also has the potential to produce it.

Since it seems unlikely that a dedicated hydrogen pipeline would ever be built between Alberta and the B.C. coast, any hydrogen exported through B.C. ports will likely move by rail in the form of ammonia, as it does now.

Ammonia’s primary use is in making fertilizer. But since it is one-part nitrogen to three-parts hydrogen, ammonia is also a “carrier” for hydrogen. Once ammonia arrives at a destination, it can be “decomposed” into hydrogen and nitrogen.

Booker and Stevenson say Prince Rupert is well positioned to become a major ammonia export hub.

“Certainly Prince Rupert will play a future role in Canada’s hydrogen ambitions, in particular as it looks at key markets like Japan,” Stevenson says.

Trigon has a permitted second berth ready to develop, and is at the terminus of “an under-utilized rail corridor” between Alberta and Prince Rupert.

Both the federal and provincial governments are actively supporting and promoting the development of a hydrogen production industry, and a significant new market for hydrogen is developing in Japan.

“They’re asking for 500,000 tonnes per year starting in 2027 for a 20-year contract,” Booker says. “There’s a real market developing.”

The challenge, Booker says, will be for Western Canada to develop hydrogen and ammonia production capacity quickly enough to gain market share. Nationally, Canada needs to move fast on developing a hydrogen industry.

“Otherwise, we really are going to end up like LNG,” Booker says. “We’re going to be the last guy producing something in an energy transition world.”

This article was originally published in BIV Magazine's Gateway issue under the headline 'Decarbonization drives new export markets.' Check out BIV's full digital magazine archive here.