West Coast LNG

October 1st, 2017 by

LNG

A new regulatory ordeal, possibly lasting up to 15 months, has begun to determine pipeline service and costs for production stranded by cancellations of liquefied natural gas (LNG) export projects on the north Pacific coast of British Columbia (BC).

The lengthy proceeding follows an unsuccessful attempt to provide a fast fallback. After hearing from rivals and opponents, the National Energy Board (NEB) turned down a bid by TransCanada Corp. for swift conversion of an approved LNG supply line into a route to markets across Canada and the United States.

Instead of rubber-stamping the change to the pipeline’s purpose by immediately granting an approval “variance,” the NEB has launched full-dress hearings on the new plan for the C$1.4 billion ($1.1 billion) North Montney Mainline.

The board’s issues list for the case include hotly contested, conflicting toll practices among rival BC pipeline builders and demands for a fresh review of cumulative gas industry effects on the environment and native communities.

Obeying legislated regulatory timelines, the NEB set a target date of December 2018 for a decision — nearly a year later than TransCanada aimed to start building the repurposed pipeline on a quick schedule calling for deliveries in 2019.

The switch proposal, made in March, anticipated summer cancellations of the Aurora and Pacific NorthWest LNG coastal terminal projects for overseas exports of up to 6.3 Bcf/d of northeastern BC shale gas.

The North Montney Mainline holds federal and provincial approvals as a supply collector for the cross-BC TransCanada conduit left an orphan by the LNG failures, Prince Rupert Gas Transmission.

The repurposing would change the project into a branch of TransCanada’s western supply collection network for markets across North America, Nova Gas Transmission Ltd. (NGTL).

The switch attracted delivery bookings for all 1.5 Bcf/d of the northern project’s initial capacity: 700 MMcf/d by Pacific NorthWest’s sponsors, which kept shale production properties, plus 785 MMcf/d by Kelt Exploration, Aitken Creek Gas, Painted Pony Petroleum Ltd., Arc Resources, Saguaro Resources, Black Swan Energy, Tourmaline Oil, Canbriam Energy and UGR Blair Creek.

The repurposing application predicted North Montney drilling would establish 85 Tcf of reserves and more than quadruple the BC region’s production to 3.1 Bcf/d over the next 20 years.

“NGTL expects demand for natural gas across North America to increase from 95 Bcf/d in 2016 to over 130 Bcf/d by 2030,” TransCanada told the NEB. “On average, production from existing wells in the Western Canada Sedimentary Basin is declining by 18% each year, which results in approximately 2 Bcf/d of new supply being required each year to meet existing supply and market requirements on the NGTL System. This natural decline alone is sufficient to absorb the incremental supply associated with the [North Montney] facilities.”

As the North Montney Mainline repurposing case began, an announcement by Veresen Inc. and Encana Corp. highlighted the large-scale production and demand for services gathering momentum in liquids-rich BC shale gas regions.

Encana on Wednesday reported starting up a 200 MMcf/d processing plant for Montney output called Tower and two others twice its size, under construction in the region, 400 MMcf/d Sunrise and 400 MMcf/d Saturn, are to begin operating soon.

A statement by Veresen echoing industry and government agencies including the NEB, described the BC shale formation as “one of North America’s most prolific and competitive liquids-rich resource plays.”

TransCanada Untethers North Montney Mainline Construction from Stalled LNG Terminal

TransCanada Corp. moved Monday to accelerate expansion in British Columbia (BC) by breaking a pipeline project’s previous reliance on stalled liquefied natural gas (LNG) export terminal construction on the northern Pacific coast.

A new application to the National Energy Board (NEB) seeks permission to build the dormant North Montney Mainline as an addition of 1.5 Bcf/d to TransCanada’s Alberta and BC supply collection grid, Nova Gas Transmission Ltd. (NGTL).

TransCanada said the C$1.4 billion ($1 billion) addition no longer relies on delayed construction of the Asian entry in the 20-project BC LNG lineup: Pacific Northwest LNG, led by Malaysian state energy conglomerate Petronas.

NGTL has secured shipping contracts from 11 customers developing Montney Shale gas supplies in the region that the new line would serve west of the northern BC leg of the Alaska Highway, TransCanada told the NEB.

The Canadian subsidiary of Petronas, Calgary-based Progress Energy, has signed up for 700 MMcf/d. Another 785 MMcf/d of capacity has been sold to Kelt Exploration, Aitken Creek Gas, Painted Pony Petroleum Ltd., Arc Resources, Saguaro Resources, Black Swan Energy, Tourmaline Oil, Canbriam Energy and UGR Blair Creek.

TransCanada has conditional federal and provincial approvals that only permit construction of the North Montney Mainline if the Pacific Northwest LNG terminal is built. Petronas also has government approvals but embarked last fall on a “total project review” and set no deadline for an investment decision.

The new NEB application points out that BC shale deposits have emerged as a leading source of replacement as well as growth supplies for markets in Canada and the United States.

Development of the North Montney region alone is forecast to establish 85 Tcf of reserves along the way to more than quadrupling production to 3.1 Bcf/d over the next 20 years, the application says.

“NGTL expects demand for natural gas across North America to increase from 95 Bcf/d in 2016 to over 130 Bcf/d by 2030,” said the TransCanada filing.

“On average, production from existing wells in the Western Canada Sedimentary Basin is declining by 18% each year, which results in approximately 2 Bcf/d of new supply being required each year to meet existing supply and market requirements on the NGTL System. This natural decline alone is sufficient to absorb the incremental supply associated with the [North Montney] facilities.”

TransCanada’s project package includes use of “rolled-in” tolling by NGTL, a practice which is hotly contested in BC and a key subject of an inquiry that the NEB launched last Friday into the province’s gas competitive landscape. The new North Montney Mainline schedule sets target dates of early 2018 to start construction and 2019 for completion.

 

With Pacific NorthWest LNG Scuttled, Pipeline Proposal Orphaned, Says TransCanada

No candidate has emerged to adopt a C$5 billion ($4 billion) orphan pipeline project deserted in British Columbia (BC) by former sole customer Pacific NorthWest LNG, according to TransCanada Corp.

The Calgary pipeline operator said “key questions cannot be answered at present” about the Prince Rupert Gas Transmission (PRGT) proposal left hanging by the cancellation of Pacific NorthWest’s C$11.4 billion ($9 billion) liquefied natural gas (LNG) terminal in July.

TransCanada made the admission in a written clarification requested by the National Energy Board (NEB) in response to a successful environmental protest lawsuit. Canada’s Federal Court of Appeal ordered an NEB hearing on a demand to explain why national authorities set aside jurisdiction over export projects to leave approvals of PRGT up to provincial regulators, the BC Oil and Gas Commission and the BC Environmental Assessment Office.

National supervision of cross-border industry has been accepted by a request for NEB approval of an alternate route for gas stranded by the LNG terminal cancellation to markets across Canada and the United States.

TransCanada has asked to convert its proposed North Montney Mainline, originally approved to fill PRGT, into an addition to its Alberta and BC collection grid, Nova Gas Transmission Ltd.

Obeying the court order is no longer necessary because the demise of the LNG export terminal dramatically changed the gas outlook, TransCanada said.

“At this point, without a customer, and with NGTL’s variance application, there is no link between a potential project carried out under the existing provincial permits and either an international or interprovincial market or undertaking,” said TransCanada.

“If another customer is found for a project under those permits, then its scope, as well as any functional integration or common management, control, and direction with any other undertaking, would be determined in the future.”

No target dates for finding new support for PRGT were set, and no prospective customers were identified.

The North Montney project is still on track by Pacific NorthWest’s sponsors: Malaysia’s state-owned Petronas, Japan Petroleum Export Corp., PetroleumBRUNEI, IndianOil Corp. and Sinopec-China Huadian.

As a drilling partnership led by Petronas subsidiary Progress Energy, titled the North Montney Joint Venture, the group holds an 800,000-acre drilling rights spread in the richest, most accessible BC and Alberta shale gas formation.

The Asian group’s long-range agenda calls for large-scale gas development. The North Montney Mainline was designed to support the first stage of PRGT, which was planned to start at 2 Bcf/d with built-in capacity to expand to 3.6 Bcf/d.

Partners pull plug on Aurora LNG project near Prince Rupert for economic reasons

CALGARY — The partners developing the $28-billion Aurora LNG project pulled the plug on the project Thursday after four years of examination, dealing another setback for B.C.’s liquefied natural gas export industry.

Nexen Energy, a Calgary-based subsidiary of Chinese oil giant CNOOC Ltd., said it has decided with Japanese partner INPEX Gas British Columbia Ltd. to stop work on a feasibility study on the proposal.

The company said in a statement posted on its website that the current “macro-economic environment” doesn’t support building a large LNG business as proposed at Digby Island, west of Prince Rupert, B.C.

“Our decision was market-based and driven by capital discipline,” said spokeswoman Brittney Price in an email.

“We require every business investment to meet minimum criteria including sustainable, long-term profitability.”

She declined to say how much has been invested to date. She said the decision would result in “some impacts to our workforce over the coming months” but reductions would be minimal.

According to its website, the Aurora project would cost $28 billion to build and each of its two phases would employ about 300 permanent workers.

In July, a consortium led by Malaysia’s state-owned Petronas cancelled its $36-billion Pacific NorthWest LNG project near Port Edward, B.C., citing a downturn in market conditions.

The project would have included a natural gas export terminal on Lelu Island on the province’s northern coast and a 900-kilometre pipeline to bring the natural gas in from northeastern B.C.

B.C.’s previous Liberal government had hoped to have three LNG plants operating by 2020, but none have started construction. About 20 have been proposed.

Commodity analyst Martin King of GMP FirstEnergy said he’s not surprised that Canadian LNG projects are being cancelled because world prices have plunged to around US$6 per million British thermal units due to a surplus in the market.

“That was the pipe dream, that everybody was going to capture these big double-digit prices, $14, $15, $18 per mmBTU, maybe $20 on a spike, and here we are at half that,” he said.

Meanwhile, he said new LNG projects under construction in places such as the United States, Australia and Russia are expected to add 14.6 billion cubic feet per day of capacity by 2020 to the current capacity of just under 50 bcf/d.

In a recent report, the National Energy Board warned Canada is a late entrant to the global LNG market and the next seven years will be critical to the development of the industry.

The Aurora project was awaiting word on a B.C. environmental assessment certificate. Phase 1 was tentatively set to begin construction in 2020 and begin shipping it to world markets by 2025.

Aurora has a 25-year permit from the National Energy Board to export up to 25 million tonnes of LNG per year.

Last November, Woodfibre LNG announced it would proceed with a 2.1-million-tonne-per-year LNG export development in Squamish, B.C. In July, it announced a revised environmental certificate had been approved.

Like Petronas, CNOOC says the Aurora partners will continue to produce natural gas from their Horn River wells in northeastern B.C. while monitoring the North American market to evaluate future investments.

 

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