New Canadian export entrant Steelhead LNG aligns with First Nations group

09 July 2014 13:19 Source:ICIS

A western Canadian LNG development company has announced a partnership with the Huu-ay-aht First Nations for a scheme to export from Vancouver Island.

Calgary-based Steelhead LNG entered into a development agreement with the First Nations which potentially could secure a land option to develop on tribal-owned lands on the south end of the 460km-long island.

Steelhead LNG submitted a series of applications to Canada’s National Energy Board (NEB) to export as much as 30mtpa for a 25-year period.

A proposal from one site is to develop four 6mtpa trains near Port Alberni at Sarita Bay, on Vancouver Island. A second option would also include a 6mtpa facility along a proposed pipeline route.

The project, estimated to cost $30bn for exports of 24mtpa and closer to $15bn for a first phase, will be structured similar to a tolling arrangement, said Steelhead CEO Nigel Kuzemko.

Depending on the time of construction and financing, the project could be started within eight years.

“It’s a natural place ... we don’t have an upstream or a downstream position and a tolling type model would be a suitable one for us,” he said.

Although British Columbia (BC) lacks the mature and integrated pipeline gas market that has aided the development of US liquefaction tolling agreements, Kuzemko said the capacity agreements could be based on the Canadian AECO gas hub so long as it suits the future customers and suppliers.

Kuzemko said the project could be structured with each buyer taking on the full control of a train, or with a number of participants with offtake capacity. He said the project would be marketed to Asian buyers or LNG trading companies interested in reducing their risk.

According to Steelhead, the project would work closely with the Huu-ay-aht First Nations on regulatory, environmental and technical assessments. A vote on a possible land lease to the project is expected in November in front of the Huu-ay-aht First Nations People’s Assembly.

This is the second publicly known project proposed for Vancouver Island. The Discovery LNG project, developed by the Canadian junior oil and gas explorer Quicksilver, is planned at Campbell River, about 150km north of the site for Steelhead LNG, with a 2019 start date. However, the project has yet to submit an export application with the NEB.

Canadian pipeline operator and utility FortisBC is proposing a natural gas pipeline loop from its existing transmission line in order to serve another proposed small-scale facility, the planned 2.1mtpa Woodfibre LNG facility, north of Vancouver. The expansion project, known as Eagle Mountain, would run from north of the Coquitlam watershed in metropolitan Vancouver to Squamish.

However, the proposed pipeline expansion for Woodfibre would be too small to feed into multiple LNG export projects.

FortisBC currently has two pairs of smaller gas transmission lines that connect across the Strait of Georgia, but these would not be able to accommodate large-scale export project.

The city of Vancouver is about 1,400km south of Kitimat, where the first LNG export projects were pitched for BC.

The western Canadian province lacks the feedgas pipelines that would bring the abundant unconventional gas reserves of northern BC to the proposed sites.

Besides Steelhead LNG, the NEB is currently reviewing four other export applications in both eastern and western Canada. The agency has approved 11 export projects, including two projects based in the US that have applied to export Canadian gas across the board to export out of Oregon.

Kitimat marketing efforts forge on

While new proposed projects have numerous land options but are making little marketing headway, the proposed 12mtpa LNG Canada project led by Anglo-Dutch energy major Shell is understood to be advancing with its offtake efforts.

Shell’s partners, South Korea’s KOGAS, Japanese trading company Mitsubishi and China’s PetroChina, recently reshuffled partnership stakes, with Shell now holding 50% of the venture, PetroChina with 20% and KOGAS and Mitsubishi each with 15%. Unlike PetroChina and Mitsubishi, KOGAS holds less acreage independently from the consortium and was understood to be interested in shedding a further stake.

A spokesperson for Shell declined to comment. A spokesperson for KOGAS did not respond to requests for comment before publication.

The Canadian Shell venture was understood to be marketing long-term capacity to customers on an oil-indexed system, using an S-curve that held crude-oil-based slopes plus a constant. The Japanese trading company was understood to be looking at an oil and natural gas hub parity. Ruth Liao

By Ruth Liao