A low-key 11-year-old Singapore firm has emerged as the surprise leader in a crowded field of established global giants racing to export liquefied natural gas (LNG) from B.C. to Asia.
While the likes of Chevron, Shell, BG, ExxonMobil, CNOOC, and PETRONAS dominate the headlines, Pacific Oil & Gas is quietly on course to make the all-important final investment decision (FID) to sanction construction of its LNG project in southern B.C.’s Squamish district. Its planned first-quarter 2017 start-up puts it ahead of the dozen or so competing projects, all located near the northern B.C. ports of Prince Rupert and Kitimat.
In an interview in Singapore, president Ratnesh Bedi told the Georgia Straight that he expects the company’s Canadian subsidiary, Woodfibre LNG Export Pte. Ltd., to meet its “soft” FID target for the $1.7-billion project by the fall of 2014.
Pacific Oil & Gas only came into reckoning in early 2013, when it acquired an abandoned pulp mill 75 kilometres north of Vancouver as the unlikely site for its pioneering cross-Pacific venture. Licensed to export a small annual volume of 2.1 million tonnes of LNG, the project is undergoing community-consultation and environmental-approval processes as well as further technical studies by B.C. energy-utility firm FortisBC.
A soft FID alone will likely inject the first wave of hundreds of millions of dollars into the local economy.
“We will be making down payments for equipment worth hundreds of millions of dollars…[accompanied by] some manpower hiring,” Bedi said.
A “hard” FID would give the green light to full-scale financing and construction and turn Squamish into a gas-trading hub located between Vancouver and Whistler. The 123-kilometre-long corridor connecting the three cities could emerge as an important growth centre for the province, with its future increasingly tied to the rising economies across the Pacific Ocean.
The B.C. government needs this first project to prove its LNG strategy, which Premier Christy Clark says will add $1 trillion to the provincial economy, create 100,000 jobs, and eliminate its estimated $60-billion debt. Voters bought her LNG vision in reelecting her government last May.
Although some Canadians reject (because of environmental concerns) a shale-gas-based economic boom and the Clark government has likely overstated LNG’s promise, there is little doubt that the Woodfibre project has quiet but strong local support.
The Squamish economy touched a low point in 2006 when Western Forest Products closed the mill at Woodfibre. The site remained idle until an unknown company from half the planet away acquired it for $25.5 million in early 2013 with an outrageous idea to turn it into an LNG-export plant.
“I think that there are some real positives for Squamish,” Mayor Rob Kirkham said by phone on March 3, citing creation of local jobs for a district where many families have a member who must travel long distances to work.
Kirkham also said the project would bring the opportunity to clean up a contaminated site and furnish tax income for a community now overly dependent on private homeowners. “It would be put in use for what it is zoned for [industrial], and it would generate tax revenue for the district.” (When it shut down, the mill was contributing about $2 million annually in property taxes to the municipality.)
As well, the mayor added, “It would be an opportunity to get some [local] skills training.”
To be sure, the project must still clear provincial and federal environmental approvals that could take up to 18 months to achieve, Bedi said in his 50th-floor office overlooking Singapore’s financial district.
At the company’s community meetings with aboriginal, environmental, residential, and business groups, local groups have voiced concerns about issues like pollution, emissions, taxation, and shipping traffic.
“While there are no guarantees in any environmental-assessment process, we are confident that the certificates will be received with necessary conditions to ensure proper protection of the local environment,” Bedi said. “Once that is complete, FortisBC will begin construction.”
In preparation for the project’s launch, Woodfibre LNG has hired Anthony Gelotti—whose 30-plus years in the industry include experience with Shell and Chevron—as its president and expects to double its staff size to 30 by the end of this year.
In an industry notorious for delays and cancellations, the Woodfibre LNG project has progressed rapidly on account of three factors.
While its rivals are owned by consortia of shareholders and partners with differing views and risk profiles, Pacific Oil & Gas is controlled by one person: Indonesian tycoon Sukanto Tanoto.
Secondly, shareholders in the other LNG projects are increasingly worried about rising costs, shifting corporate priorities, tax issues, and the province’s infrastructure and skills deficits.
Most carry a hefty price tag of more than $10 billion, with the latest proposal by CNOOC’s Nexen expected to exceed $20 billion. Shell’s new cost-cutting CEO is taking a second look at its proposed joint $12-billion to $15-billion investment in a Kitimat plant with three Asian partners.
The U.K.’s BG Group is two years from making an FID on its estimated $11-billion project, near Prince Rupert, that will be tied to plans by its joint venture with Canada’s Spectra Energy to build a gas pipeline. Malaysia’s PETRONAS, having sold off a combined 38-percent stake to partners from Japan, Brunei, and India, wants to further pare down its shareholding in the Pacific Northwest LNG project, which includes the construction of a $9-billion to $11-billion plant near Prince Rupert by 2018.
And a Chevron-Apache venture is also aiming to start up its Kitimat plant sometime between 2018 and 2020.
Woodfibre’s single-minded focus on building a relatively small plant has helped speed up its decision-making to choosing between a floating and a land-based terminal.
“Around the time of the soft FID, we anticipate to have made a decision on [either] a floating or a land-based LNG,” Bedi revealed. “The technical study will be due in October 2014.”
Meanwhile, the other projects’ shareholders must compete for access to huge reserves of natural gas and pipeline capacity, long-term contracts with Asian customers opposed to paying high prices, and contractors and skilled labour in population-scarce northern B.C.
Thirdly, Woodfibre’s biggest advantage is perhaps Tanoto’s decision to launch its project from a decades-old 86-hectare industrial site that the other players probably overlooked. It came with an established pipeline system, electricity and gas supplies, and a sheltered port that can all be converted, upgraded, and expanded to handle LNG. Its proximity to Vancouver and Whistler is a bonus for attracting workers.
After buying the site, the Vancouver-based company commissioned FortisBC to study the expansion of the existing 600-kilometre pipeline network serving the plant. Completed last December, the study supported the construction of a 52-kilometre pipeline to carry an additional 220 million standard cubic feet per day of natural gas, all for export. This could mean up to 40 annual tanker shipments, sufficient to support the project’s viability but small enough not to strain the reserves and supplies of producers already linked to the main pipeline.
The B.C. government probably had the Woodfibre project in mind when its latest budget announcement revealed that it expects only one plant to be built by 2017.
With an eye on this year’s Chinese zodiac symbol, the premier will be desperate for the Woodfibre dark horse to quickly cross the FID line and, hopefully, launch the province’s LNG era.