THE REMOTE CANADIAN TOWN AND THE START OF A GLOBAL ENERGY REVOLUTION
Shell and partners believed to be behind a vast Dh110bn LNG terminal in rural British Columbia
Aflurry of activity in a remote Canadian town is raising optimism that Royal Dutch Shell and its partners are ready to go ahead with the nation’s largest infrastructure project: a C$40 billion (Dh110.17bn) liquefied natural gas terminal that could at last unlock energy exports to Asia.
The action is unmistakable in Kitimat, British Columbia, the Pacific coast city hugging a deep inlet that would be the closest launch point on the continent for LNG cargoes to Asia. The lights are on, shades open and 4x4s parked outside a 49-unit apartment complex built to house Shell executives, which sat mostly darkened for the past two years. Local workers have left jobs at a Rio Tinto smelter nearby to join contractors ramping up for the LNG project. Landlords are raising rents and houses are selling twice as fast as they used to in anticipation of a flood of workers coming to town.
“I would put money on it – it’s going ahead,” says Phil Germuth, mayor of Kitimat, who recently hosted a banker from Barclays Bank visiting from the UK to examine the project. Mr Germuth also met a group of officials reporting to the board of Mitsubishi, one of the project’s five partners, who visited the site in May.
When Crystal Smith, head of the Haisla Nation whose indigenous lands surround the proposed terminal, was invited to the project site last week by another group from Mitsubishi, she couldn’t find a spot in the usually deserted car park.
“Who gets excited to see a full parking lot? I got goosebumps from seeing it full,” she said. While she has met officials in the past as the leader of a community whose consent is integral to the project, she recounts “this meeting was a little different”. There was no agenda. “They just wanted to meet – in the sense that they’re very optimistic we’re going to be together for the next 40, 50 years.”
LNG Canada, as the project is called, is stunning in scale. It proposes to eventually ship as much as 28 million tonnes a year out of Kitimat, the equivalent of 10 per cent of global LNG supply in 2017. It would carve out a new path – the shortest by days – between North America and Asia for super-chilled gas. For Canada, whose energy exports are sold almost exclusively to the US at depressed prices for the lack of a coastal facility, it means unlocking the Montney, a huge formation holding about half the total reserves of Qatar. It would also mean an investment triple the size of Canada’s largest single infrastructure project to date, LNG Canada chief executive Andy Calitz said in a LinkedIn post last month.
LNG Canada – comprised of Shell, Mitsubishi, Malaysia’s Petronas, PetroChina and Korea Gas – expects to make a final investment decision by the end of the year. An exact date is up to the partners to make, said Susannah Pierce, spokeswoman for LNG Canada.
The project’s backers twice postponed the decision in recent years amid a global supply glut. That outlook has turned around. Energy producers from Shell to Total to Anadarko Petroleum are looking again at projects deemed too risky just a year ago as demand picks up faster than expected.
“Goodbye gas glut,” Sanford C Bernstein & Co analysts said in a June 28 note. New supplies of LNG are “being easily mopped up by rampant market growth”. While only one major LNG project gained approval last year, in the next 18 months some $150bn worth of LNG ventures have a better than even chance of going ahead, according to Energy Aspects. Meanwhile, prices in Asia – the biggest market for the fuel – are rebounding.
Stream Asset Financial Management in Calgary said this week it believes a positive final investment decision “is effectively a done deal” and will be announced earlier than expected, probably in the second or third week of September. National Bank of Canada analyst Greg Colman believes “the probability is weighted towards a positive decision”. His team, using Google Earth, has spotted old storage tanks being cleared from the site, a barge installing piles to expand the pier, and preparatory work for the vast camps that would host thousands of workers.
Terrace mayor Carol Leclerc, whose city 60 kilometres to the north serves as the region’s hub, says she is “99.9 per cent” sure the project will move forward, citing the flurry of activity. “It’s going to be like a tidal wave coming into the north-west.”
The clock is ticking. British Columbia has set a November 30 deadline for a final decision if the project is to claim as much as C$6bn in tax breaks and savings. Meanwhile, both LNG Canada and TransCanada, which would build the 670km pipeline to supply the terminal, have selected their main contractors to lock in prices for the project.
Graham Pitzel, a Re/Max real estate broker in Kitimat, says he is getting calls nearly every day from people in Vancouver, Edmonton, Calgary and Toronto interested in purchasing properties in the town of 8,000 people, speculating prices will surge as the project takes off. Homes used to stay on the market for six months; now the average is half that. He says bungalows never fetched more than C$200,000 earlier, but he has just sold one for C$260,000 and has an offer of C$290,000 on another.
“I’m building a house because if you try to do it after the project’s going, it’s going to be hard to find a contractor,” Mr Pitzel says. “It’s now or never.”
Hurdles remain. The federal government has yet to clarify whether it will grant the project an exemption from duties on the complex steel modules needed to build a terminal. Each LNG model can be as tall as a 10-storey building and weigh as much as 10 jumbo jets – no Canadian assembly yard has the experience or space to build them along with the water access to ship them to site.
“We are confident in our position that large, complex LNG modules cannot be made in Canada, and therefore should not be subject goods,” Ms Pierce said.
Canada can hardly afford to let another major energy investment flame out. Former British Columbia Premier Christy Clark once boasted that more than 20 LNG projects would be built in the province, yet none has gone ahead.
In May, Prime Minister Justin Trudeau’s administration had to buy Kinder Morgan’s Trans Mountain oil pipeline system for C$4.5bn to ensure the controversial expansion gets built amid fierce local opposition. While LNG Canada has the support of the provincial government, the proposed pipeline route runs near one group of indigenous opponents in northern British Columbia pledging to block the project.
Still, indigenous and municipal officials say Shell has cultivated on-the-ground support and is unlikely to face local opposition. The plant will have the lowest carbon emissions in the world per tonne of LNG produced, according to the provincial government.
To address fears of pipeline leaks, it hired an energy consultant to lug a vat of chilled gas to local schools, pouring LNG on to the floor to demonstrate how quickly it evaporates into thin air. Amid a national outpouring of grief over a deadly April bus accident involving a junior hockey team from Saskatchewan, Shell donated a new bus with seatbelts to a Kitimat high school.
“If there were a blueprint of how to approach any kind of major industrial project, especially in oil and gas, LNG Canada is one to learn from,” said Ms Smith.
Local workers have left jobs at a Rio Tinto smelter nearby to join contractors ramping up for the LNG project