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Yukon sets sights on B.C. gas

Yukon Energy is paying careful attention to a new mining development underway in their territory, and the reason for that close scrutiny is actually related to an emerging industry and a hot topic of discussion in British Columbia - liquefied natural

Yukon Energy is paying careful attention to a new mining development underway in their territory, and the reason for that close scrutiny is actually related to an emerging industry and a hot topic of discussion in British Columbia - liquefied natural gas (LNG).

Western Copper and Gold is currently engaged in a feasibility study for their Casino mine project, a process that includes a serious look at using LNG produced in the Horn River Basin shale gas play of northeast B.C. to power the operation.

"Our schedule is to have the feasibility study complete at the end of this year," said Paul West-Sells, president and COO at Western Copper and Gold.

"The other thing we're doing in parallel is working towards getting our submission in to the regulatory agencies in Yukon," he added, noting that their goal is to complete that part of the process by the first or second quarter of 2013.

Western Copper and Gold has approached natural gas suppliers and processors operating in the Horn River Basin about the LNG component of the project.

"[We have] talked to them and gauged their interest in working together to develop a source of liquefied natural gas at Fort Nelson," said West-Sells. "Right now, there is not a facility that actually liquefies natural gas in that area.

"We've had some preliminary discussions with a number of groups there," he added. "And there's certainly lots of interest in working together. And we're sort of just hammering out some of the details around that."

Yukon Energy is involved in the project because the territory is actively seeking solutions to their peculiar energy challenges.

"Yukon is in a rather unique situation in that we are not connected to the North American transmission grid," explained Yukon Energy spokesperson Janet Patterson.

That is vastly different from the situation in B.C., said Patterson, where they can deal with other jurisdictions to buy and sell power, depending on whether they have a deficit or a surplus.

"We can't do that because there's no transmission line that goes from the Yukon down to either Alberta [or] British Columbia, or over to Alaska," she continued.

"What that means is that every bit of power we need, we have to come up with a way of generating it ourselves. And it also means that if we do find ourselves in a situation where we do have excess power, we can't sell it to anybody else. And so because we can't sell it to anybody else, and because we're a very small population - we only have about 35,000 in the entire territory - we are very conscious of the fact that we can't go ahead and overbuild, thinking "oh well, we can just sell the stuff we don't need."

"We can't do that because we can't sell it. And then with the small ratepayer numbers that we have, people just can't afford it.

"We're very conscious of how much these big projects cost. And we find ourselves in a situation where it's extremely difficult to do anything without partners, without help from the federal government or the Yukon government."

Yukon Energy is also working with the private sector and First Nations governments to find joint business venture opportunities.

However, the fact that their economy is so closely tied to mining presents another challenge when it comes to energy.

"Our economy is very up and down," said Patterson. "We rely a lot on mining. It's one of our major [industries] in the territory. But it's all tied to the price of metals, of course. So, right now, metals are high. Mines are opening or have opened. But if metal prices bottom out, well, then those mines are likely going to close before too long, and where does that leave us?"

In the nineties, the Faro Mine, which was a massive project, was Yukon Energy's biggest customer.

"When they shut down," Patterson continued, "all our other customers had to sort of take on the expenses. We didn't have a major customer to help pay all the costs. So, everybody else had to pick up the slack. And it was really difficult for people."

The utility has tried to keep that from happening again.

"Whenever we do negotiate a contract with a mine, we try to have them contribute something in terms of legacy," said Patterson.

"I'll use the example of the Minto Mine," she continued. "Not only did it pay the full cost of the line from its property to our main transmission line, but it also gave us $7.2 million towards the building of that main transmission line, which, whether the Minto Mine exists or not, that's a line that is useful to the vast majority of Yukoners."

Presently, Yukon is approaching the end of its supply of hydro power, which means Yukon Energy will need to use more diesel power to supply the territory with electricity. They would prefer to replace that hydropower with other forms of clean and renewable electricity, with natural gas possibly serving as a transition fuel.

"It's cleaner than diesel," said Patterson. "It's cheaper than diesel. But it's not totally clean either."

Patterson noted that some Yukoners also have concerns about the possible effects of hydraulic fracturing.

"If it's feasible," she continued, "does it make sense for us to use that instead of diesel in the short-term, while we continue to look for these renewable options?"

Those renewable options could include wind farms and additional hydro projects, the latter of which would take a minimum of ten years to build.

"And we don't have ten years," said Patterson. "We could continue looking and working on that project, but in the meantime we want to find something that's a little better than diesel, and that's why we're looking at liquefied natural gas."

The first priority for Yukon Energy is energy efficiency and conservation and so they are working with the Yukon government and Yukon Electrical to devise a conservation plan for the whole territory.

"Because, obviously, the more power we save, the less we have to build," said Patterson.

"We are trying to squeeze as much electricity out of our existing assets as we can," she continued. "Last year we built Mayo B, which was a new powerhouse in the area of Mayo A, our initial Mayo hydro station. And it gave us ten extra megawatts of power without having to build a new dam and without needing more water.

"We added a new hydro turbine at our Aishihik Plant. That's given us seven additional megawatts. And we're doing upgrades to our equipment to make it as efficient as possible."

They are also examining a project in Whitehorse that would increase the water supply for hydro projects when electricity demands are highest, which are the winter months.

"We only have two small experimental wind turbines near Whitehorse," said Patterson. "Very small. They can only produce enough for about 150 homes. But we do have now some wind monitoring equipment at a spot in the central Yukon and we're trying to see whether we could set up a wind farm there. Probably 20 megawatts. There's another spot near Whitehorse [where] we're going to be looking at the same thing, maybe 20 megawatts of wind if that proves viable."

The utility is considering producing electricity from the municipal garbage and through biomass such as wood waste from sawmills and trees that have fallen prey to bark beetles. Both of those initiatives could also provide heat for homes and businesses.

Being in the Pacific Ring of Fire means that geothermal electricity is also a possibility.

"We know that there's very hot water deep underground," said Patterson. "And we'd love to find some so that we can use it to produce electricity. But it's really expensive to find. It's like drilling for oil. So, while it's on our radar, we don't, at this point, have a geothermal project."

As Yukon Energy began considering using LNG to generate power in the territory, they saw an opportunity to examine the idea jointly with Western Copper and Gold.

"We've been working with Western Copper [and Gold] over a period of years to serve a smaller mine that they have, which is really close to the grid," said David Morrison, CEO of Yukon Energy. "And when they started looking at LNG, we had a discussion early on to put our resources together to examine the LNG options jointly. They for their purposes and us for our purposes.

"From my perspective," he continued, "It's a very good approach, because we're sharing information."

However, Morrison doesn't view this as a pilot project to assess the potential for the larger scale use of LNG in Yukon.

"That generally leads people to think that this is just some little thing [where] you're going to try it out and maybe you'll do it," he explained. "What we're looking at is what are our options for putting new generation into the system to meet growing load. So we're trying to figure out [if] LNG is the most cost effective and timely way to do it. Or is it something else?"

"Natural gas energy in the form of LNG is an option that we've been looking at for about five years," said Ron Sumanik, acting director of oil and gas business development for the Ministry of Energy, Mines and Resources in Yukon.

Initially, power generation projects of that type would rely on imports of natural gas from Alberta or British Columbia.

"We do have natural gas resources and activity exploring for those resources, but currently we have nobody that's ready to supply product for an LNG consumer or an energy consumer," said Sumanik.

"We have a large natural gas project in the Eagle Plains area of the Yukon that a company is looking at," added Morrison. "And if, in fact, there one day turns out to be local resources [of LNG], we would use that."

However, plans for oil and gas production in Yukon took a bit of a hit on April 12, as Energy, Mines and Resources Minister Brad Cathers announced that the province would not be issuing oil and gas exploration rights in twelve areas of the Whitehorse Trough under consideration for oil and gas development by interested energy companies.

The decision followed a 60-day public review period.

"When the Yukon government received these requests for postings, I noted that it had come as a surprise," Cathers said.

"As I said in February, government would need to decide whether to allow bids in all of the areas, some of the areas, or none of the areas, following the technical review and public consultation. What we heard during the public review period is that many Yukoners have concerns and questions about oil and gas exploration and development in the Whitehorse Trough at this time.

"The recent public review was our first real opportunity to hear from Yukoners on the possibility of oil and gas exploration rights being issued in the Whitehorse Trough," he added.

It has been suggested that natural gas power generation in B.C. would require associated carbon capture and storage (CCS) facilities in order for the province to stay on track with its greenhouse gas (GHG) emissions targets, but Sumanik doesn't feel that that would be such a necessity in Yukon.

"Carbon capture is something that's not lost on us," he said.

"The upside of our energy crisis situation is we're basically out of hydroelectric energy and our next alternative is diesel," he continued, echoing the words of Patterson. "So even without carbon capture if we were to switch over to the use of natural gas, we're simply improving upon firing up diesel generators. It's a positive step forward in terms of GHG emissions. And a cleaner fuel."

Of course, all these issues aren't necessarily the concern of Western Copper and Gold, who simply continue to push forward with their plans.

West-Sells explained that LNG is the preferred option for Casino because the project requires a constant 120 megawatts of power.

"Because of our location, things like hydro are not on the table," he said. "So, really, you're reduced down to diesel or some sort of natural gas solution. And it's pretty much cost. Delivered liquefied natural gas comes in quite a bit less expensive than diesel."

"Casino is sufficiently robust and the location is such that, for us, trucking makes a lot of sense," he added, discussing fuel transportation options. "It's still an economic project trucking in the liquefied natural gas even though it's a fairly long haul. A pipeline would deliver it much cheaper, but the length of time that it would take to permit that, plus the capital cost, makes it somewhat prohibitive."

According to a cumulative economic effects study, the results of which were released on February 23, noted an estimated $9.8 billion contribution to Canada's Gross Domestic Product (GDP) while creating 55,000 full-time equivalent (FTE) positions resulting in $2.8 billion in income.

"It's a big project," said West-Sells. "The capital cost is $2.1 billion dollars. The cash flow on it is, depending on which prices you're using, is sort of in the $500 million to $800 million per year range. So, it's a big project. It generates a lot of revenue. It pays a lot of tax and contributes significantly to the GDP of Yukon.

"Casino, with the liquefied natural gas, it adds 20 per cent to the GDP of the Yukon," he continued. "Putting in a facility that would supply the liquefied natural gas in the Horn River area in British Columbia is going to be relatively smaller impact. One of the things that we're going to be determining is what the capital costs of that project would potentially be, but it's not going to be in the billions of dollars. This is a pretty small amount of LNG that we're considering that we would need.

"I mean, this isn't sort of an export facility to load up big ships. This is just to load up trucks. So, it's going to be in the low hundreds of millions [of dollars]."

Despite the relatively small investment in the LNG facility, West-Sells and Morrison are encouraged by the growing links between resource industries and provincial-territorial economies in Canada's North suggested by this project.

"The territory has, over a number of years, used resources in Alaska to develop its economy and its resource industry," said Morrison. "And what I mean by that is the port of Skagway. So, that's how we get ore out of this territory other than by straight truck, which means that we're using highways in the province of British Columbia or Alberta, depending on what we're doing.

"I think the inter-jurisdictional piece is really important," he continued. "How we support each other and how we benefit each other - because there's benefits as well - is a big part of how the North gets developed. And it always has been. That goes back as far as I can remember."

"It's an exciting time to be a mining company in northern Canada," said West-Sells. "There's been quite an exploration boom, particularly in Yukon, and also spreading into the Northwest Territories and Nunavut. And there's enormous potential. And what's holding back the potential has been infrastructure. And what does that mean? That means energy and roads. And the thing that's exciting for me about Casino is that it's a big enough and robust enough project that we can carry some of that infrastructure - we're carrying an extension of a road.

"But, really, the LNG has been the last piece of the puzzle to really bring this project together," he added. "It's just an excellent energy source. It's a clean energy source. It's an economic energy source."

In fact, during the pre-feasibility study that was completed in April 2011, the company was using a model where natural gas was at $6.00 per thousand cubic feet (mcf), which is well above the current price.

"At current prices," said West-Sells, "it's very, very economic.

"And I think that using liquefied natural gas is just going to open up the development of the North," he continued.

"As an interim fuel. I think, eventually, you're going to see, potentially, pipelines and power transmission be developed better in the North. But, at this point in time, with the sparse population and still sparse development, having a transportable fuel like LNG is what makes sense."