Vancouver Island secures LNG storage plant in $100 million deal
Island's first liquefied natural gas facility to be built near Ladysmith to service area demand and fuel new Duke Point power plant
Vancouver Island is set to enter a new era in energy supply following the approval of its first liquefied natural gas plant in a deal worth close to $100 million.
The need for the LNG storage plant is driven by future demand forecasts and a natural gas-fired power plant being built near Nanaimo as part of a 25-year electricity supply contract between BC Hydro and Duke Point Power Ltd. Partnership. Under the newly approved Hydro contract, Terasen Gas (Vancouver Island) Inc. is expected to deliver natural gas to the plant.
To meet increasing energy demand and avoid a supply shortfall by the winter of 2007, TGVI applied to the province's utilities commission to build the LNG plant at Mount Hayes, near Ladysmith.
The plant will be able to provide 100 million cubic feet of natural gas per day. The corporation will have the option of selling any excess capacity to other parties - principally Terasen Gas Inc. - with revenue from the anticipated surplus estimated at $27.6 million per year.
Construction on the plant is slated to begin this spring. Gas will be supplied to the plant via Terasen's pipelines before being liquefied and saved for periods of peak demand.
The Lower Mainland has very little gas storage compared with the U.S. Pacific Northwest.
A National Energy Board study quoted by TGVI in its main argument to the commission stated that "the main physical tool for dealing with gas price volatility, which reflects short-term changes in gas demand, is storage."
TGVI's biggest island customers are currently Hydro and seven large pulp and paper mills, including four owned by NorskeCanada.
The entire LNG project hinged on Hydro's plans for Duke Point. Had its natural gas-fired power plant fallen at the final hurdle, TGVI had pledged to scrap its LNG project.
"There is nothing really exotic about LNG. It's part of our evolution," said Mike Davies, manager of business development at Terasen Gas Inc. "It is really about capacity on the island and gas supply costs."
He said the real revolution in LNG will come if, or when, plants importing tanker-loads of LNG are built in the province's northwestern corner. B.C. has already been identified as a key potential entrance point for LNG imports from Russia, the Far East and the Middle East.
As reported in BIV in December, two companies - Galveston LNG and WestPac Terminals Ltd. - are going head to head in a race to create B.C.'s first import and distribution plant for LNG. They want to build facilities at Kitimat and Prince Rupert, respectively.
TGVI currently provides natural gas services to around 80,000 residential, commercial and industrial customers on Vancouver Island and the Sunshine Coast via around 640 km of high pressure transmission pipeline. It reckons customer numbers will swell by an average of 2,400 per year between now and 2026.
Mount Hayes was chosen for the $94.4 million project because it was away from population centres, had no environmental or archaeological complications and had existing road access, TGVI told the utilities commission.
Choosing Mount Hayes, however, rules out supplying the plant with LNG via tanker or barge because capital costs needed for the project to accommodate the vessels would be too great.
TGVI, a subsidiary of Terasen Inc., predicts it will cost $1.78 million a year to operate and maintain the plant.
The site is owned by Weyerhaeuser Co. Ltd. and TGVI has an option to buy it for $614,000. The property includes a 12-hectare plant site and a 20-hectare buffer zone.
It's also part of the land slated for purchase last month from Weyerhaeuser by Brascan Corp. (See story page 5.)
Among the conditions set by the commission in approving the TGVI plan is that construction of the LMG plant must begin by December 31, 2005.