LNG Projects Across BC and Canada

May 6, 2022

From difficult terrain to pipeline politics, Canada is so close to becoming a global liquefied natural gas player, but faces obstacles

From Darrin Marshall’s viewpoint, a mountain stands in the way of Woodfibre LNG’s goal of shipping liquefied natural gas overseas from Canada’s West Coast.

As FortisBC’s project director for a new pipeline that would feed Woodfibre LNG’s proposed export terminal, he has devised plans to bore through the mountain near Squamish, B.C., about 65 kilometres north of Vancouver.

Mr. Marshall, dwarfed by the mountain as he stands on a spit of land that extends into the Squamish River, points to the area where a tunnel-boring machine would be positioned next year. Woodfibre LNG is located at the site of a former pulp mill on the west side of Howe Sound, which leads to the Pacific Ocean. “The most prudent option is to extend the tunnel all the way to the site,” he said.

Woodfibre LNG’s situation is emblematic of export proposals in Canada. The vast majority of LNG projects over the past decade have been mired in costly logistical problems that have thwarted or delayed contractors. It has become an ordeal to build pipelines for transporting natural gas to proposed terminals, which would supercool natural gas into liquid form.

FortisBC recently proposed to construct a tunnel with two pipelines inside, running nine kilometres underneath the Skwelwil’em Squamish estuary wildlife management area and through Monmouth Ridge Mountain. There would be a second tunnel-boring machine at Woodfibre LNG’s site.

The need is getting more urgent. Companies and governments want to accelerate plans for LNG exports after Russia’s invasion of Ukraine in February. The war has upended global energy markets, leaving Europe scrambling to reduce its dependence on natural gas from Russia.

Canada has a golden opportunity to help Europe. But entering the LNG export game requires deep pockets and a strong mindset for placing risky bets on terminals that typically take at least five years to construct – assuming builders already have their pipeline route plans firmed up.

There is also greater blowback to contend with. Opposition to pipelines and terminals from environmentalists and key Indigenous leaders has mounted.

In short, although Canada is the world’s sixth-largest producer of natural gas, it isn’t in any position to help Europe quickly and directly with LNG supplies.

“These companies realize that because of a lack of infrastructure, it’s very difficult to do these projects,” said Omar Mawji, a Toronto-based analyst with the Institute for Energy Economics and Financial Analysis.

“The honest truth is that if I’m a company and I want to build a pipeline, that is something I have to factor into my analysis,” Mr. Mawji said.

Russia’s invasion of Ukraine has also reignited interest in proposals for LNG exports from Canada’s East Coast. LNG Newfoundland and Labrador Ltd. is studying the feasibility of securing offshore natural gas from the Grand Banks. It wants to start LNG exports to Europe in 2030, but first, it must get regulatory approvals and build a 600-kilometre pipeline along the floor of the Atlantic Ocean.

Ottawa in talks with Repsol, Pieridae Energy about speeding up proposed east coast LNG export terminals

Despite pipeline challenges and other obstacles, the federal government dreams that Canadian-based export terminals will help boost global supplies of LNG by the end of this decade. Yet Ottawa is also still striving to meet Canada’s net-zero carbon emissions goals by 2050.

“We are wanting to help our allies with energy security, but we are also committed to fighting climate change,” said Natural Resources Minister Jonathan Wilkinson. “You can do both. You have to be able to walk and chew gum at the same time. We have to be able to think about how we help our allies at a time of great crisis.”

If anything, getting Canadian LNG projects planned and financed, and securing regulatory approvals and construction permits for pipelines and terminals, is getting tougher.

Of the 24 Canadian LNG proposals tracked by federal authorities in 2017, 18 were in British Columbia, all focused on exports to Asia. There were also three in Nova Scotia, two in Quebec and one in New Brunswick, each targeting Europe.

Today, industry analysts say just nine proposals have a chance of success – five in B.C., one in Quebec and three in Atlantic Canada.

A reality check indicates three have the best odds of forging ahead with construction within the next three years. All are in B.C.: LNG Canada’s Phase 2 in Kitimat, and two small-scale projects: Cedar LNG, also in Kitimat, and Woodfibre LNG, near Squamish. There is also LNG Canada’s Phase 1, on track for completion in 2025, when it would become the country’s first export terminal for the fuel.

Meanwhile, the United States is racing ahead. In 2015, Canada and the U.S. didn’t have any LNG export terminals. Today, seven are operating south of the border, and at least another five facilities, including expansions at three existing sites, are likely to open by 2028.

In a sign of the times of Canada’s diminished LNG expectations, gatherings for proponents have also been scaled back over the years. An international conference staged by the then BC Liberal government in 2015 attracted 1,600 delegates in Vancouver. In mid-2017, two weeks after taking office, the NDP cancelled a conference planned for that fall.

Next week, the Canada Gas & LNG Exhibition and Conference, an industry-backed event, is expected to attract about 500 delegates in Vancouver. That will be slightly higher than the previous private-sector conference held in 2019, but the theme remains the same: Canada’s LNG opportunity.

Why is Canada so close to becoming a global LNG player, yet still so far away?

At the head of Douglas Channel, construction of LNG Canada’s Phase 1 terminal began in 2018 on a Kitimat industrial site on the Haisla Nation’s traditional territory.

A 10-storey module arrived at LNG Canada from China two months ago, the first in a series of massive units that will be installed over the next 18 months.

LNG Canada’s seven years of construction for Phase 1 will cost $18-billion, and the co-owners of the joint venture are pondering whether to approve Phase 2, which would double the export capacity to 28 million tonnes a year. The Shell PLC-led joint venture is the only LNG export terminal under construction in the country.

The LNG exports to Asia would indirectly help Europe because those new supplies would free up the fuel elsewhere in the world, which could be rerouted to European countries seeking to wean themselves off Russian natural gas.

LNG Canada’s engineering involves Canadian and global supply chains. Huge modules are being built at China Offshore Oil Engineering Co. Ltd.’s fabrication yard in Qingdao, China. The 10-storey module that arrived in March will be connected to the 670-kilometre Coastal GasLink pipeline system to be operated by TC Energy Corp.

While LNG Canada is by far the most advanced of any export plans in this country, serious infrastructure concerns remain.

The Coastal GasLink pipeline is being built to transport natural gas from northeastern B.C. to LNG Canada’s Kitimat site, and it is costly and contentious. The pipeline’s current budget is $6.6-billion, though industry experts estimate cost overruns of $1-billion. In February, TC Energy reached option agreements to sell a 10 per cent stake in Coastal GasLink to two groups of elected First Nations along the route.

But a vocal group of Wet’suwet’en Nation hereditary chiefs and their supporters say that the pipeline project still does not have the consent of those hereditary leaders.

John Ridsdale, a climate activist whose Wet’suwet’en hereditary chief name is Na’Moks, said continuing demonstrations against Coastal GasLink are also designed to shake investor confidence in other proposed B.C. pipeline routes. Those include Enbridge Inc.’s Pacific Trail Pipeline and Westcoast Connector Gas Transmission, as well as TC Energy’s Prince Rupert Gas Transmission.

Plans for Pacific Trail Pipeline call for the route to cross the Wet’suwet’en’s traditional territory on the way to delivering natural gas to Bish Cove, located near Kitimat. Last year, Chevron Corp. and Woodside Petroleum Ltd. indefinitely suspended their Bish Cove project.

“Did we scare them away? I think they woke up to the risk of losing money,” Mr. Ridsdale said. Chevron and Woodside ultimately decided on their own that the economics didn’t make sense for their LNG ambitions. No buyers have emerged for the Bish Cove proposal.

Chevron and Woodside disclosed a total of US$2.32-billion in writedowns related to asset devaluations from their investments in their joint venture. The site preparation and other work near Kitimat, including constructing a new road along difficult terrain near Douglas Channel, turned out to be much more costly and complicated than originally anticipated.

Besides LNG Canada’s Phase 2, just four other proposals for exporting with dedicated LNG vessels remain active in British Columbia: Cedar LNG, Woodfibre LNG, Ksi Lisims LNG and expansion plans by a terminal called Tilbury LNG, which is currently focused on production for domestic use and storage. One niche player in B.C., Port Edward LNG near Prince Rupert, is considering exporting LNG in containers on a very small scale: 300,000 tonnes a year.

A group of producers known as Rockies LNG is promoting the Ksi Lisims LNG project, in collaboration with the Nisga’a Nation. Rockies LNG has narrowed its pipeline route across northern B.C. to either Westcoast Connector Gas Transmission or Prince Rupert Gas Transmission. Whatever route is chosen is bound to be controversial.

Groups such as My Sea to Sky, the Wilderness Committee and the Canadian Association of Physicians for the Environment have opposed LNG proposals in B.C.

Construction on the Coastal GasLink pipeline project is nearly 55-per-cent completed. The pipeline system is already designed to have the capacity to accommodate Cedar LNG’s needs and LNG Canada’s potential Phase 2, subject to adding more compressor stations.

The Haisla Nation co-owns the Cedar LNG venture in Kitimat with Pembina Pipeline Corp., which joined the project last year. “Adding Pembina to our team has definitely solidified our confidence,” said Haisla elected Chief Councillor Crystal Smith.

Haisla leaders say LNG poses far fewer environmental risks than crude oil, noting that they vehemently opposed the now-defunct Northern Gateway oil pipeline plans. Cedar LNG plans to use a floating production facility, and rely on electric-drive technology – which is more expensive than natural-gas-fired turbines – to liquefy three million tonnes a year.

Electric drive powered by hydro emits far lower levels of greenhouse gases, and Susannah Pierce, Shell Canada president and country chair, is receptive to the technology for Phase 2, which would be a change from the natural-gas-fired turbines in Phase 1. Shell PLC owns 40 per cent of LNG Canada and will work with its four joint venture partners (JVPs) to examine the feasibility of hydroelectricity for Phase 2, Ms. Pierce said.

“It is something that the JVPs have to really take a look at themselves,” she said. “They’re going to look at their options around the world, they’re going to look at the affordability and the economics of this particular second phase and go from there.”

Peter Tertzakian, ARC Energy Research Institute’s deputy director, said the expansion of LNG Canada is, in many ways, the most promising project right now. “The pro of LNG Canada is that a lot of the infrastructure will be in place already,” he said.

The West Coast also has competitive advantages over the East Coast because of much shorter distances for natural gas to be transported from northeast B.C. and Alberta, through various connecting lines.

FortisBC’s 50-kilometre pipeline route would start in the Eagle Mountain region, near the Vancouver suburb of Coquitlam, and end at Woodfibre LNG. FortisBC’s Mr. Marshall said the concept of having two pipelines instead of one inside the tunnel through Monmouth Ridge Mountain and the Squamish area would provide a backup system in case of any trouble with one of the pipes.

But the cost of FortisBC’s proposed nine-kilometre tunnel and the two pipelines inside is estimated at $341-million. That’s sharply higher than for the original plans, which were subsequently dropped because of the risk of environmental damage to the estuary. The new estimate doesn’t even include the rest of the 50-kilometre pipeline route.

The much-delayed Woodfibre LNG project is privately owned by Singapore-based RGE Pte. Ltd. and controlled by Indonesian businessman Sukanto Tanoto. It would have an export capacity of 2.1 million tonnes a year, or one-seventh the size of LNG Canada’s Phase 1. Floating LNG storage tanks would be placed on the waters of Howe Sound, with the onshore terminal to run on hydroelectric power.

FortisBC, the largest distributor of natural gas to homes in British Columbia, recently submitted its revised pipeline plans to the B.C. Environmental Assessment Office and the Squamish Nation, which will review the details before deciding whether to approve the changes.

As Canada struggles, U.S. LNG exports soar. Supplies of natural gas from the abundant Permian Basin in Texas and New Mexico are a relatively short distance to five export terminals along the U.S. Gulf Coast.

The Calcasieu Pass project in Louisiana began exporting in February, becoming the seventh U.S. LNG export facility in operation. There are three terminals in Louisiana, two in Texas, one in Maryland and one in Georgia. At least five more are expected to be on stream within six years.

Golden Pass LNG, a joint venture between Qatar and Exxon Mobil Corp., is eyeing an export start date in Texas in 2024.

The array of U.S. LNG projects on the horizon alarms climate activists. “A flurry of new gas export facilities that will ship fuel primarily to Asia and Europe will wreak havoc on Louisiana’s Gulf Coast,” according to a grassroots group organized by the Louisiana Bucket Brigade.

Clark Williams-Derry, a Seattle-based analyst with the Institute for Energy Economics and Financial Analysis, ranks the Plaquemines LNG proposal in Louisiana as one of four front-runners striving to get a shovel in the ground in the U.S. The other top prospects are expansions of existing terminals: Cameron LNG in Louisiana and Corpus Christi Liquefaction and Freeport LNG in Texas.

Compared with the U.S. front-runners, LNG Canada’s Phase 2 still has a long way to go before becoming reality, Mr. Williams-Derry said. By the time that LNG Canada’s Phase 1 begins exporting in 2025, it will be nine years after the first U.S. LNG facility started operating. Cheniere Energy Inc.’s Sabine Pass LNG project in Louisiana opened in 2016, making its initial shipment to Brazil.

On Canada’s East Coast, Repsol SA’s Saint John LNG in New Brunswick, Pieridae Energy Ltd.’s Goldboro LNG in Nova Scotia and LNG Newfoundland and Labrador are possibilities.

Quebec, New Brunswick and Nova Scotia would stand a better chance if the projects in those provinces could secure natural gas from the U.S. Northeast, especially from the Marcellus shale deposits in Pennsylvania that are part of the Appalachian basin.

But the U.S. has its own domestic competition for natural gas, meaning Quebec, New Brunswick and Nova Scotia have to rely on Western Canada for their fuel source.

Canada’s lack of infrastructure remains a major obstacle to East Coast terminals. Upgrades and expansions would be needed on TC Energy’s pipeline system through Ontario and Quebec, in order to connect to a snaking route that leads to the Maritimes & Northeast Pipeline from New England to Nova Scotia.

Unless changes are made to improve and expand the system, the missing link threatens to be a showstopper for proposals in Quebec, New Brunswick and Nova Scotia, given the reliance on transporting natural gas long distances from Western Canada.

Still, Ottawa has been touting East Coast proposals as a way to directly help Europe during a time of energy shortages.

Mr. Wilkinson, the Natural Resources Minister, said LNG proponents face time pressures. “We are interested in opportunities on the East Coast to help our European friends if it can be done within the relevant time frame,” he said. “We also have to be clear that that we don’t want to create stranded assets because we cannot continue to burn natural gas in a significant way around the world if we’re going to achieve net zero by 2050.”

Leo Power, president of LNG Newfoundland and Labrador, said an overhaul of the country’s regulatory system in 2019 means greater scrutiny of LNG export projects by the Canada Energy Regulator and the Impact Assessment Agency of Canada.

“Demand for LNG is growing so fast,” Mr. Power said. “We need certainty that investors can have the confidence that this project will get permitted and get through the regulatory system.”

GNL Québec Inc.’s Énergie Saguenay proposal appeared to have been shelved last year. But after Russia’s invasion of Ukraine, hopes have been rekindled for exporting LNG from Quebec, despite the original plans being rejected by the Quebec government and federally.

Last month, the Quebec government effectively banned oil and gas exploration in the province, so Énergie Saguenay’s slim prospects continue to hinge on obtaining natural gas from Western Canada.

Pieridae has vastly scaled back plans for Goldboro LNG, switching to a proposed floating facility instead of a large terminal that would have been built on land. Pieridae chief executive officer Alfred Sorensen said Goldboro LNG needs Ottawa to intervene to help resolve problems related to insufficient pipeline capacity in Ontario and Quebec.

Pieridae is seeking a financial partner and expects to make a final investment decision by the end of 2022 on whether to press ahead with Goldboro LNG.

“Canada would be lucky to get all of the projects done, but I think that’s going to be difficult until some of the transportation issues are resolved,” Mr. Sorensen said, although it isn’t too late for Canada to catch the next LNG boat of opportunity.

“We certainly missed the last boat,” he said.