By Vaughn Palmer, Vancouver Sun, October 17, 2011
NEB approval grabs attention of would-be operators of Oregon's Coos Bay terminal
When the National Energy Board green-lighted an export permit for the proposed liquefied natural gas terminal at Kitimat last week, it underscored the momentous nature of the decision for both the industry and the province.
"This is the first LNG export licence that the board has considered ... since 1985," noted the regulatory agency in the opening paragraph of the 50-page reasons for decision issued Thursday. First to be considered. First to be granted. And first realistic opportunity to export LNG from B.C. since several proposals collapsed along with the market in the early 1980s.
Indeed, when the Kitimat proposal was activated in the middle years of the past decade, it was for a terminal to import LNG to North America from overseas, the expectation being that domestic production couldn't meet a growing demand.
Then came a revolution in the exploitation of the vast deposits of natural gas locked up in shale rock and a rapid-fire transformation in the marketplace.
No longer was anyone talking of importing gas.
With prices driven downward by burgeoning domestic supplies, producers and royalty-dependent governments alike were eyeing Asian markets, where prices were two to three times higher.
Not just here in B.C. The state of Oregon has a trio of LNG proposals, the most advanced being for a terminal in Coos Bay, near the California border.
The would-be operators recently took the first step toward obtaining an export permit from U.S. regulators. But they did so with an eye to what is happening on this side of the border, according to a story in The Oregonian newspaper.
"The company is still testing the waters with prospective customers and won't go ahead with the expensive and Byzantine permitting process without firm commitments," wrote reporter Ted Sickinger. "Before signing on, prospective customers may wait to see what happens with proposals for a similar facility in Kitimat, B.C."
Those customers will doubtless note this week's progress with the NEB. The B.C. project still needs a permit from the oil and gas commission for the pipeline that would feed the LNG terminal.
But overall, Kitimat is well ahead of Coos Bay.
The Oregon LNG proposal faces significant obstacles from Americans who say domestic supplies could be better used as a substitute for other fossil fuels in truck fleets or electrical generating plants.
Steve Duin, columnist for The Oregonian, detailed those concerns in a recent warning that exports could drive up prices for domestic consumers and constitute a "thumb-in-the-eye of U.S. energy independence."
Canada already exports natural gas to the U.S., so it is no departure to seek out other markets in Asia. Also, gas-fired generation, though preferable in jurisdictions that rely on coal, is not regarded as a green alternative in B.C.
One of the standout aspects of the Kitimat LNG project is the relative dearth of opposition.
The big "O" Opposition, meaning the New Democratic Party government-in-waiting, is strongly supportive, thanks to the strong leadership of John Horgan, the party's energy critic and house leader.
I was reminded of that when I reported recently on what sounded like some discouraging words about LNG development from NDP environment critic Rob Fleming: "You can't rush these things ... the development of the industry still has some question marks around it ... there's no shortcuts when it comes to the environment."
Fleming himself called to say that his words should not be interpreted as opposition to LNG development.
His view, like that of the party, was as expressed by Horgan: fully supportive.
First nations are on side as well. The Haisla supplied the land for the terminal at Bish Cove and have taken a partnership position. The pipeline is backed by a consortium of 15 first nations, who have assumed an equity stake and stand to share half a billion dollars in revenues over 25 years.
The NEB weighed a range of considerations from the impact on domestic markets to fears about shale gas development, before issuing a reassuring verdict in favour of the project on all of them. (Full rationale posted on the NEB website.) With that decision in hand, and the pipeline permit likely to pass muster in the new year, the main outstanding consideration involves the marketplace itself. Despite the recent jitters in the global economy, the NEB took an optimistic view.
"Forecast demand growth for LNG in the Asia Pacific region provides a new opportunity for Canadian producers to diversify their export markets. ... The board concludes that the proposed export volume is likely to flow."
But the regulators aren't risking their own money on those calculations. Final call on whether to put up an estimated $5 billion for the terminal and pipeline is up to consortium of one Canadian and two American companies; decision is expected early next year.
If they go ahead, the first phase would be operational by 2015.
The export permit would then run for 20 years with the province standing to gain $90 million in additional royalties, plus jobs and other spinoffs, in the first year of operations alone.
Taxpayers better hope they go ahead before the window of opportunity slams shut the way it did last time.
vpalmer@vancouversun.com
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