Can upstart Woodfibre eclipse its LNG rivals?
In a sign of the old industry giving way to the new, the first Canadian liquefied natural gas shipment from the new wave of proposed projects could come from a site on which a pulp mill once stood.
Woodfibre LNG Export Pte. Ltd., a subsidiary of Singaporebased Pacific Oil & Gas Ltd., plans to export 2.1 million tonnes per year of Canadian LNG, if it decides by the second quarter of 2015 to proceed with the $ 1.6- billion project.
As many as 16 LNG projects have been proposed at various locations on British Columbia’s coast, with Petronas Bhd., Royal Dutch Shell PLC and Chevron Corp. among the top contenders weighing the prospect of lighting up Pacific Rim markets from natural gas in B. C.
But if all goes according to plan, the small company may beat its better known West Coast competitors and start shipping LNG to Asia by the first quarter of 2017.
“It’s got to be up there at the top of the projects [ that may proceed],” said Darryl Anderson, managing director at Victoria- based Wave Point Consulting, a management consultancy.
Woodfibre will submit its environmental assessment application to B. C. within the next month, and expects its approval by the second quarter of next year, says Byng Giraud, the company’s vice- president.
Located at a pulp mill site closed in 2006 by Western Forest Products Inc., the project comes ready with a deepwater port, transmission and a gas pipeline from FortisBC, and an electricity transmission line connected to the BC Hydro grid.
“It is a brownfield project so the environmental impacts are diminished,” Mr. Giraud said in a phone interview. “It gives us an advantage in terms of speed of regulatory process. You may see more of these types of projects. I would not want to say it is better, but it is probably a little more nimble.”
Despite certain advantages and Squamish’s industryready site, the project’s costs may be offset by the distance to north Asia, compared to the distances from Prince Rupert and Kitimat, both closer to the Pacific Rim.
“It is going to lose on the ocean economics, and economies of scale that comes with bigger projects, but gain on lower capital costs and being first to market,” Mr. Anderson says.
It is a brownfield project so the environmental impacts are diminished
The Woodfibre project is tiny compared to Petronas’s massive Pacific Northwest LNG project on Lelu Island, which aims to take a final investment decision by mid- December.
But the project is far from certain with Petronas firing a warning to the Liberal government in Victoria that “without material cost reduction efforts across the project,” it will “have a tough time reaching a positive FID ( final investment decision) by mid- December 2014.”
Petronas officials have also expressed disappointment over regulatory delays. While Woodfibre hasn’t had the same experience with regulators, Mr. Giraud says, the company Wednesday joined the BC LNG Alliance, a group of would- be producers to bargain for better financial terms with the Canadian government.
While the BC LNG Alliance has come out guns blazing to pressure the government, Woodfibre will hold fire until it sees B. C.’ s fiscal tax regime, expected to be announced on Oct. 20, according to Mr. Giraud.
Separately, Woodfibre and Petronas signed letters of intent with the B. C. government in May, which request that the province “provide certainty about costs that are under the control of the province and that are applicable only to LNG investments.”
Parallel to the negotiations, the company has committed to run its liquefication project on electric power to cut carbon emissions by 80%, hoping to earn environmental points from the community. In September, Woodfibre awarded an engineering and procurement contract to the Munichbased Linde Group, which will deploy an “all- electric- drive” technology using hydropower.
Despite efforts to curb greenhouse gas emission, the project has faced opposition from the community worried about tankers crawling through the picturesque Howe Sound fiords. One district councillor has proposed a referendum on the project.
For now municipal council has ruled out a referendum, but has set up a committee to determine the various aspects of the project to make a more informed decision, says Squamish Mayor Rob Kirkham.
The company’s application notes four tankers would be required a month to transport the LNG, which is jarring to some residents of the district that has rebranded itself as “the outdoor recreation capital of Canada.” Opponents say more than 4,000 new residents now live in Squamish since the closure of the pulp mill at the site, dispelling the notion that the town needs heavy industry to flourish.
Mr. Kirkham expects Squamish to generate $ 2- million from the project in revenue alone each year, which would raise its property tax revenue 10%, which is “significant for our community.”
“They are already spending up to $ 8- million on cleaning up the contamination left behind by the pulp mill,” Mr. Kirkham said in a phone interview. “We are looking at some long- term, good- paying jobs. But our environment is very important to us. We do have concerns.”
Building an industrial project in B. C. or in Canada always comes with some opposition, Mr. Giraud says, downplaying the issue. “We believe we are in a fairly good space with the community, and have had over 14 town- hall open houses in the past year.”
Beyond keeping the community on its side, project developers are also looking to get customers on board as well. In September, Woodfibre and China’s Guangzhou Gas Group Co. signed a memorandum of understanding to purchase one million tonnes of LNG per year for 25 years.
Parent company Pacific Oil & Gas says it’s one of two foreign- owned companies allowed to invest in Chinese LNG infrastructure and holds a 35% stake in the 6.5- milliontonnes- per- year Jiangsu Rudong LNG Receiving Terminal on the country’s northeast coastline, giving Woodfibre a strong foothold in North Asia.
Company executives have also travelled to Japan and South Korea to secure buyers for the remaining 1.1. million tonnes per year, according to Mr. Giraud, and negotiations are ongoing.
While the company won’t reveal its price structure, Mr. Giraud acknowledged that Russia’s US$ 400- billion natural gas deal with China has changed the tone of negotiations.
“But it is easier to find a space for two million tonnes per annum as opposed to some of the larger projects.”