LNG in BC: petro-state politics – 3 part series

What is happening with the LNG in BC?

British Columbia is counting on three LNG projects operating by 2020 in Prince Rupert, Squamish, and Port Alberni.

On Thursday, February 19th, Prime Minster Harper arrived in Surrey to announced 10 years of tax relief for the BC LNG industry, including a joint venture led by Malaysia’s state-owned PETRONAS.

When the BC government  unveiled its provincial LNG tax structure last October,  Petronas president Shamsul Azhar Abbas requested more incentives to do business in BC.

Meanwhile, in Squamish and West Vancouver open houses were recently held by the LNG industry to answer questions regarding the proposed new LNG Plant in Squamish.

This is a 3-part series based on a presentation by investigative journalist Andrew Nikiforuk to Squamish residents last year on LNG in BC. In his presentation, Nikiforuk covered the following points:

  • LNG overview
  • Who are the Players?
  • Fracking—what is it?
  • Economics— the money
  • Australia’s experience—10 years with LNG
  • Fracking of coal seams, what does this mean?

So far there are 15 proposals for LNG projects in BC.  This would change the direction of BC for the future.

LNG explained:

LNG has been around for about 50 years. The first LNG tanker was made in 1957. The technology back then to liquefy Natural Gas was too expensive so it didn’t really take off.

Basically you are taking gas and cooling it down so that it could fit in a quart of milk, for example. You have to use energy to cool it down.

Natural Gas is expensive. It costs between 7 and 10 times more to transport LNG than oil or coal. This is why most Natural Gas is consumed in its region of origin because it is too expensive to transport.

The challenges with Natural Gas are: liquefying, transporting and re-gasifying.

The LNG game:

It wasn’t until Qatar started putting Natural Gas on the market in 2002 that the market got heated up plus many other countries got in on the game.  There has been an explosive growth of Natural Gas extraction. Here are some of the major players in LNG in the world today:

  •  Australia
  •  Qatar
  •  Malaysia
  •  USA
  • Nigeria
  • Indonesia
  • Trinidad/Tobago
  • Algeria
  • Russia

BC is new to the LNG game. This is a very expensive game to get into.  One of the things that has changed is the price differentials around the world. Natural Gas prices are low in the United States due to the shale boom.  Prices in Asia are much higher.

So the idea is “why don’t we sell our cheap BC Natural Gas over in Asia and we can beat them at their prices?”

How are you going to pay for building these projects?

LNG projects are complex and costly. We know that hydro carbons are getting more expensive to capture. The fact that we have to go off shore and look for oil is another indicator that we are running into the age of extreme hydrocarbons. Extreme hydrocarbons means:

  • high capital
  • high energy output
  • high environmental costs
  • high complexity
  • high risk

One of the challenges is that building LNG infrastructure is getting more and more expensive. We have captured all the cheap stuff at the top. Now we are at the bottom. Industry is doubling what it is spending just to get the hydrocarbons out of the ground.

Out of the last 12 LNG projects, 10 went over budget, many by as much as 40% to 50%.

Now we are trying to crack open rock that is as tight as granite (that is what shale formations are like) in northern BC in the Montney Formation. So we have to use brute force to open the rocks.  This process involves using a fleet of engines to blast water, sand and chemicals at extremely high pressures 1 to 2 miles underground in order to break open the rock.

From 2000 to 2013 industry spending has grown from $400 billion to $900 billion to extract  hydrocarbons. Costs are growing more to extract but production is flat. Cost overruns are telling us something about the resource. Since 2000, liquefaction unit costs have tripled or even quadrupled in this time period.

Not all projects work out. Four out of every five oil and gas mega-projects fail.  So projects are sped up resulting in cutting corners which is a recipe for failure.

Who owns the LNG resource?

Minister of Natural Gas Rich Coleman, says it’s you the taxpayer:

“We are your partners in this. You need to know we’re going to make this a win for you. We know in our government… That profit is a very good word and profit means that everybody wins. And you need to win large enough for your large investments…we will beat Australia, we will beat them hands down.” Min. Natural Gas 2013.

Fracking Vancouver Island

Coal is found only in sedimentary rocks. The coalfields on Vancouver Island are:

  • Cowichan coalfield
  • Nanaimo coalfield
  • Alberni coalfield
  • Comox coalfield – active coal operation
  • Suquash coalfield
  • Quatsino Sound coalfield

Water quality concerns:
Imagine fracking Vancouver Island. What will that do to water quality on the Island?
“because of the shallow depth of many CBM (coalbed methane basins), the potential exists for a fracture growing out of zone and affecting freshwater aquifers. Schlumberger 2009

LNG terminal in Campbell River

Another proposal to turn an old pulp mill site to an LNG terminal is in Campbell River. Quicksilver Resources Inc. is a Texas based oil and gas company. Quicksilver’s main expertise is fracking coal. There are coal seams on Vancouver Island. They have been involved in fracking coal fields in Alberta over that last 10 years.

Why would you put an LNG terminal in Campbell River? Where is the Natural Gas going to come from? It will cost $4B to $5B to build an LNG plant.  Most likely, Quicksilver will go after Natural Gas reserves on Vancouver Island.

As an example, more than 20,000 wells have been drilled over the past 5 to 6 years in Quicksilver’s Alberta operation.

Who are the players?

1. Sukanto Tanoto is a billionaire tycoon with interests in palm oil, pulp, timber, oil and gas and is behind Woodfibre LNG in Squamish.

Tanoto owns the world’s largest pulp company, Royal Golden Eagle company. One of Tanoto’s companies is called APRIL, Asia-Pacific Resources International Ltd.  Nearly half of the deforestation in the Sumatran tiger habitat between 2009 and 2011 was in pulp concessions. APRIL group was responsible for a sixth of all forested tiger habitat loss over this period.

Giant palm oil branch of the Royal Golden Eagle International conglomerate of forestry, rubber and palm plantation companies, owned by the billionaire tycoon Sukanto Tanoto, was using a web of shell companies based in Road Town and other tax havens to enable its palm oil companies to evade tax. – Guardian May 10, 2014

In January 2013 it was reported that Indonesia’s Supreme Court ordered Tanoto’s company Asia Agri to pay more than US$390 million to the state for tax evasion. According to evidence contained in the 8,000 court papers, Asia Agri which employs 25,000 people across 14 subsidiaries and owns 165,000 hectares of plantations, was engaged in routine and systematic fraudulent accounting practices. They were setting up shell companies in the British Virgin Islands.

Pacific Oil and Gas is another division of Tanoto’s company. It is one of only two foreign owned companies allowed to invest in Chinese LNG infrastructure. For some strange reason this guy has a sweetheart deal with China and has the one LNG terminal in China. Very strange for a protectionist country.

2. Petronas: Petroliam National Berhad is a Malaysia state-owned company that’s been around for over 40 years with operations around the world. Petronas provides 40% of their government’s revenue.

Petronas reports directly to the Prime Minister of Malaysia, bypassing parliament. Therefore it has very low levels of transparency and accountability. They have major investments in BC and Alberta in the energy sector. They purchased various Canadian owned energy companies.

In 2013, two senior managers at PETRONAS were charged with graft and money laundering for $RM1 million.  As a result, EITI approached Petronas to adopt transparency standards. Petronas doesn’t want to sign onto transparency suggested through EITI standards.

Petronas, was “ready to call off” its project in BC amid delays in the approval process and the recent imposition of an LNG tax by the BC government and a “lack of appropriate incentives” Financial Times of London re Prince Rupert project.

Now with Stephen Harper’s recent announcement, it looks like PETRONAS has got their way.

3. SINOPEC is a Chinese state-owned mega-player in the LNG industry.

Part 2 coming soon…