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Developing Canada’s first LNG export terminal

Fri 25 Jan 2019 by John Snyder

Developing Canada’s first LNG export terminal
Artist’s rendering of the LNG Canada export terminal being built in British Columbia (credit: LNG Canada)

LNG Canada is the largest of 13 LNG export terminals proposed for British Columbia and one of the country’s largest infrastructure projects ever

The emergence of abundant, cheap US shale gas over the last decade has dramatically changed the North American gas market and, by extension, the world energy picture. One result of the US shale gas revolution has been to lessen its reliance on natural gas piped in from Canada.

Data from the US Energy Information Administration bears that out. In 2007, natural gas pipeline imports from Canada to the US were 3,782,708M ft3. In 2017, natural gas imports fell 22% to 2,962,689M ft3.

With natural gas pipeline exports to the US falling, Canadian gas producers shifted their gaze beyond North America to the more lucrative markets of Asia and Europe. The result is that since 2011, 24 LNG projects have been issued long-term export licences by Canada.

Since Canada only has one operational LNG terminal – Canaport LNG’s regasification import terminal located in Saint John, New Brunswick – it also set in motion proposals for developing 18 LNG export facilities. Those proposals include five in eastern Canada – two in Quebec, three in Nova Scotia – and 13 others on its west coast, all in British Columbia.

The largest of the LNG export terminals proposed is in British Columbia (BC). LNG Canada export terminal is one of the largest ever infrastructure projects in Canada. Construction on the Can$40Bn terminal has already begun. In January, it awarded contracts worth Can$937M after the facility’s first three months of construction.

LNG Canada will be located on a site near Kitimat, BC, on the Douglas River. In phase one, LNG Canada will have two LNG trains, with storage tanks and processing equipment, a rail yard and wharf that can berth two LNG carriers. A second phase will add two more trains. Annual LNG exports are estimated to be equivalent to 1,357.8Bn ft3 of natural gas per year, or 3.72Bn ft3 per day (Bcfd) inclusive of a tolerance allowance. If all goes according to plan, LNG Canada should be operational by 2021.

LNG Canada will be the first LNG export facility to bring Canadian natural gas to Asia, with China, South Korea and Japan eager consumers. China, in particular, would benefit from a steady supply of clean natural gas to replace its dirty coal-fired plant habit. Coal-fired plants generate about two-thirds of China’s electricity.

Forbes reported that domestic gas supply shortages in recent years have led China to soften its policy on displacing coal heating with natural gas.

China approved nearly US$6.7Bn worth of new coal mining projects last year, and it produced 3.55Bn tonnes – a 5.2% increase. Coal imports also jumped 9% last year.

One of the five joint venture (JV) partners in LNG Canada is PetroChina Company Limited. It owns a 15% stake in the JV through its subsidiary PetroChina Canada Limited; along with Royal Dutch Shell plc, through its affiliate Shell Canada Energy (40%); Petronas, through its wholly-owned entity North Montney LNG Limited Partnership (25%); Mitsubishi Corporation, through its subsidiary Diamond LNG Canada Ltd (15%); and Korea Gas Corporation, through its wholly-owned subsidiary Kogas Canada LNG (5%).

Map of proposed LNG export terminals in British Columbia
 

Stimulating the local economy
While consumers in Asia will benefit from shale gas and conventional natural gas liquefied and shipped from LNG Canada, the jobs created by the project will be a welcome sight for the town of Kitimat, which saw a methanol supplier shutter operations in 2006 and Eurocan pulp and paper mill close its doors in 2010 after 40 years.

“For First Nations communities,” said LNG Canada’s director external relations Susannah Pierce, “it is delivering on the opportunities we have committed to that will help the Nations address issues of poverty, unemployment and skills development. For local communities, it is the opportunity for young people to find employment that allows them to remain living in the North.”

While the project has faced opposition from some local indigenous groups, it has won support of other First Nations groups because of the employment opportunities the project is expected to create. It is estimated that 10,000 Canadian workers will be employed during the years of construction of the LNG Canada and the Coastal GasLink pipeline that will transport natural gas from north-eastern BC to the LNG export facility for processing. TransCanada Pipeline will build the 670-km Coastal Gas Link pipeline.

“One of the most significant early decisions was to site our project in Kitimat, BC, on the wharf of the former Eurocan Pulp and Paper mill and the Methanex jetty,” Ms Pierce told an audience during a presentation at The Walrus Talks discussing the project in 2017. “This decision not only enabled us to use an existing industrial port, but also provided access to infrastructure to support construction and operations, road and railways, in addition to the deepwater, beautiful Douglas Channel.”

Ms Pierce noted that the site also offered the opportunity to build a relationship with a First Nation that had experience with industry. “Kitimat was a city planned and built in the 1950s by the Aluminum Company of Canada – now known as Rio Tinto.”

Rio Tinto spent some US$4.8Bn to modernise an aluminium smelter near town and remains a large local employer.

LNG Canada has also forged a strong relationship with the Haisla First Nation on whose traditional territory the facility would be built. She said the company recognised early on that collaboration with local stakeholders and the Haisla would be crucial for the future success of the project.

Aiming for a smaller carbon footprint
LNG Canada has committed to making the export terminal one of the most environmentally friendly LNG facilities in the world. During a keynote address at the British Columbia Natural Resource Forum on 22 January 2019, LNG Canada chief executive officer Andy Calitz said, “We designed our facility to have the lowest CO2 emissions of any large-scale LNG export facility operating in the world today. We recognised the concern about climate change, and we wanted to be part of the solution.”

The BC Government has exempted LNG Canada from a Can$15-a-tonne increase to the carbon tax until 2021 if it can keep its promise. The move is in line with the BC Government’s goal to cut CO2 emissions in the province by 40% based on 2007 levels.

To minimise its carbon footprint, LNG Canada will use the BC hydro-supplied grid with hydroelectric power. It will also:

  • Employ highly efficient General Electric LMS 100 gas turbines to liquefy the natural gas.
  • Use Shell’s dual-mixed refrigerant technology process in combination with the gas turbines.
  • Use an existing industrial development area for the LNG plant site and refurbish existing harbour infrastructure where feasible during marine construction.
  • Adopt best-in-class LNG plant simplicity, utilising the lowest equipment count per LNG capacity.
  • Implement mitigations and associated sampling programmes that prescribe to the most up-to-date standards and methods recognised by government and industry.
  • Implement an integrated engineering environment for plant design to minimise process safety risks throughout the life of the project.
  • Adopt state-of-the-art design and engineering practices that exceed requirements laid out in legislation.

The expectation is that the end result positions LNG Canada as the lowest carbon intensive LNG export facility of its scale in the world – at about 0.15 tonnes of carbon per tonne of LNG produced.

“What does that mean? It means that LNG from LNG Canada shipped to China and used for power would backout approximately 40 coal power plants and reduce CO2 emissions by 60 to 90M tonnes on an annualised basis,” Ms Pierce told her audience at The Walrus Talks. “As a reference point, BC’s emissions in 2014 were 60M tonnes.”

LNG Canada’s development also appears well timed. In the LNG Canada project study it prepared for LNG Canada Development, Inc, Navigant Consulting forecast sustained long-term growth of BC natural gas production as a result of the Montney and Horn River development.

Navigant projected Canadian dry gas production will increase 57% between 2015 and 2062 (from 15.2 to 23.9Bcfd), “driven by the significant increases in British Columbia shale gas production to build on the roughly level Alberta conventional gas production.”

Further, Navigant expected that natural gas production in Alberta will likely improve in the future as new plays and additional markets are developed.

“Similar to Canada, total North American shale gas production will add a significant amount of incremental gas supply on top of stagnant conventional production, with a 160% increase in shale gas production from 37.9 Bcfd in 2015 to 98.9 Bcfd in 2062 leading to an overall 70% increase in total North American production from 91.6 Bcfd in 2015 to 156.0 Bcfd in 2062,” said Navigant. At that time, shale gas will account for 63% of North American gas production.

Keeping costs down

LNG Canada is using a module strategy designed to cut valuable time from the construction schedule to keep the costs manageable. As Canada does not have the physical and technical capability to produce large complex LNG modules domestically, it will rely on overseas yards with the size, scale and experience to build these large modules off site, then transport them via water to the site.

In addition, it selected JGC and Fluor as its engineering, procurement and construction contractor to construct the LNG Canada project on a lump sum basis. The approach reduces the risk for the JV partners’ investors, because it offers greater certainty as to the final costs.

 

Canadian LNG import and proposed export facilities

13 west coast (British Columbia) export terminals

Project Export Licence Export Mtpa - Bcf/d Project Cost (Can$Bn)
Kitimat LNG 20 Years 10 Mtpa - 1.3 Bcf/d $15
LNG Canada 40 Years 26 Mtpa – 3.5 Bcf/d $25-$40
Cedar LNG 25 Years 6.4 Mtpa – 0.8 Bcf/d  
Orca LNG 25 Years 24 Mtpa – 3.2 Bcf/d  
New Times Energy 25 Years 12 Mtpa – 1.6 Bcf/d  
Kitsault Energy Project 20 Years 20 Mtpa – 2.7 Bcf/d  
Stewart LNG Export Project 25 Years 30 Mtpa – 4.0 Bcf/d  
Triton LNG (On Hold) 25 Years 2.3 Mtpa – 0.3 Bcf/d  
Woodfibre LNG 25 Years 2.1 Mtpa – 0.3 Bcf/d $1.60
WestPac LNG Marine Terminal 25 Years 3 Mtpa – 0.6 Bcf/d  
Discovery LNG Terminal 25 Years 20 Mtpa – 2.6 Bcf/d  
Steelhead LNG: Kwispaa LNG 25 Years 30 Mtpa – 4.3 Bcf/d $30
Watson Island      

 

Five east coast export terminals

Goldboro LNG 20 Years 10 Mtpa – 1.4 Bcf/d $8.30
(Nova Scotia)
Bear Head LNG 25 Years 12 Mtpa – 1.6 Bcf/d $2-$8
(Nova Scotia)
AC LNG 25 Years 15 Mtpa – 2.1 Bcf/d $3
(Nova Scotia)
Energie Saguenay (Quebec) 25 Years 11 Mtpa – 1.6 Bcf/d $7
Stolt LNGaz (Quebec) 0.5 Mtpa – 0.7 Bcf/d $0.60
Total     216 Mtpa – 29 Bcf/d  

Source: National Resources Canada 

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