Liquid gold

Chuck Childress likes to tell people his Texada Island home is protected by three moats: Howe Sound, Jervis Inlet and Malaspina Strait – the three bodies of water that need to be crossed to get there from Vancouver.

Like many of the 1,100 residents who call the biggest Gulf Island home, he enjoys the isolation of life on an island that’s a ferry ride away from Powell River and has only a couple of restaurants, a gas station and little else. “Most people move here because it’s affordable paradise and because this is the most pristine Gulf Island,” he says.

Viewed from the seat of a plane overlooking the area, his claim seems preposterous. Huge aggregate quarries scar the north end, like scabs of exposed rock. Further south monstrous BC Hydro power lines rise out of Malaspina Strait like giant-squid tentacles. The lifelines of Vancouver Island power cross the island in a buzz cut through the forest and disappear into the dark waters of the Strait of Georgia. In the same vicinity, below ground, is Terasen Gas’s buried natural-gas pipeline. Old mines litter the island.

But on the ground, his claim seems true. More than half the island remains undeveloped. Healthy stands of second-growth forest surround almost all the rural properties. Retirees from Calgary, Vancouver and even Salt Spring Island, attracted by lax building codes and cheap land, are driving a boom on the island; finding a tradesperson is almost impossible. The island’s first million-dollar mansion was just finished. But some fear the idyllic life is in jeopardy, and the culprit is liquid natural gas, a.k.a. LNG.

Texada and Kitimat, near Prince Rupert, are both home to proposals to build LNG-import facilities – a new phenomenon to most of North America.

Natural gas, or methane, is the cleanest-burning fossil fuel. It heats our homes and is increasingly being used in power generation as a greener alternative to coal and a chea­per alternative to oil.

Western Canada’s Sedimentary Basin, spanning Alberta, Northern B.C. and most of Saskatchewan, has an abundant supply, which for decades has been transported to domestic and U.S. customers through a network of pipelines that spiderweb to almost every corner of the continent.

But that domestic supply can no longer meet increasing North American demand. One solution is to ship the gas by freighter from overseas suppliers, and the only practical way to ship natural gas is to turn it into a liquid by cooling it to -164 degrees Celsius (which also reduces its volume by 600 times). Import hubs then unload the tankers, convert the liquid back to gas and funnel it into pipelines.

Most import facilities include a natural-gas power-generation facility. Not only does a power plant provide a built-in customer for the off-loaded natural gas, the excess heat produced in power generation is used to warm the liquid methane back into a gas before it’s funnelled into pipelines.

Enter Texada and Kitimat. They’re just two of 64 sites proposed for LNG plants across North America, eight in Canada and

In July 2007, Surrey-based WestPac LNG Corp. proposed a joint LNG -import facility and natural-gas-powered generator for Kiddie Point on Texada Island. Texada may seem an odd choice, but it’s actually LNG heaven. WestPac can tap into the BC Hydro power lines and Terasen Gas’s natural-gas pipeline to Vancouver Island and the Lower Mainland with a minimum of infrastructure development.

The Texada Action Now Community Association (TAN), a group of island residents that bills itself as pro-sustainability (rather than anti-development), greeted the propo­sal with disgust.

“People are building their dream homes here,” says Childress, TAN’s chair. “They didn’t move here to be around heavy industrialized development, and that’s the future if the project goes ahead. We don’t like it at all. It doesn’t make sense on a lot of fronts, and we’re going to fight it, and we’re fighting it with the backing of Texada Island.”

Kitimat has the opposite problem of WestPac: its proposal is supported locally but faces significant infrastructure hurdles.

The two plants represent a combined investment of more than $3 billion. The potential bonanza is fuelled by speculation about future natural-gas demands in North America. The U.S. Department of Energy is forecasting a 20-per-cent increase in natural-gas demand over the next 25 years, driven by demand for more power and cleaner power sources. Fifteen per cent of the natural gas used in the U.S. is already imported, mostly from Canada. By 2030 the proportion of imported natural gas will hit 21 per cent.

In Canada natural gas is getting harder to find.The finds are smaller and national demand is growing, especially in Alberta’s booming oil-sands industry, where natural gas is burned to help extract oil from the sand. A supply-and-demand gap will grow, and importing LNG is the obvious way to fill it.

“LNG is inevitable,” says Robb Moss, an energy analyst for Calgary-based Acumen Capital Financial Partners Ltd., an investment bank. “In Canada the exploration costs are skyrocketing, manpower is harder to find and prices are low relative to the cost to drill, so there has been modest exploration for a number of years. Compare that to Qatar, Trinidad and Indonesia, where there’s lots of easily accessible natural gas. The problem there was how to get the gas to a global market, and that’s where LNG comes into play.”

So North America needs to import natural gas, and a quirk of pipeline technology makes B.C. an ideal west-coast import hub. Most pipelines in the U.S. only run one way; LNG unloaded in California can only be used in California. B.C., in contrast, sits at the top of a continent-wide pipeline system; from here, gas can go almost anywhere.

All of a sudden, B.C. looks like LNG Eden, a gateway to Pacific Rim LNG exporters linked into pipelines to all corners of the continent, complete with a business-friendly government.

“We probably don’t need LNG in Canada – we have lots of natural gas – but North America does need it,” says Greg Stringham, VP of the Canadian Association of Petroleum Producers (CAPP). He says any B.C. LNG facility is eyeing markets outside the province, predominantly in the U.S. B.C. already produces plenty of gas to fill growth in demand at home. According to CAPP, of the 2.8 billion cubic feet per day of natural gas produced in B.C. in 2006, 40 per cent went to the U.S. and another 40 per cent went to Alberta, primarily to feed the oil sands. The rest was used inside the province.

“Five years ago, there was a belief natural gas was going to fuel future power supplies, but so far it’s been a lot less than predicted,” Stringham says. “It’s too early to predict how big LNG will get. There’s a lot of uncertainty in Canada and the U.S. over government policy, costs and supply.” Stringham, like most industry observers, believes that only one or two proposals, in addition to an import facility already under construction in Baja, Mexico, will be built on the West Coast in the next five to 10 years. He expects only one of them to be built in B.C.

Of course, proponents for both of B.C.’s proposed import facilities think they should be the one. Kitimat LNG Inc. is the furthest along in the permitting stage and the only permitted LNG facility on the west coast north of Mexico. Kitimat LNG is a private Calgary-based company and a subsidiary of Galveston LNG Inc., a global LNG player also based in Calgary with projects in the Middle East and North America through its subsidiaries.

The province approved its environmental assessment in June 2006, two years after the project was first announced, with the local First Nations and community backing. The plan calls for a $500-million import facility capable of handling one billion cubic feet of natural gas a day, and its backers are negotiating with partners to build a separate power plant capable of producing 200 to 500 megawatts of power. The main prize, say Kitimat promoters, is the Alberta oil sands and its huge demand for natural gas, with other major gas markets coming second.

“If you look at the map, it is absolutely pimpled with proposed LNG projects,” says Patti Schom-Moffat, Kitimat LNG ’s communication director. “It’s a race, and, while we didn’t come in as early as we would have liked to, we’re still first.”

But it’s not a sprint; it’s a marathon. To get the gas into the pipeline system, Kitimat LNG needs the proposed $1-billion Pacific Trail Pipelines, a new pipe between Kitimat and Summit Lake, to be permitted and built. The pipeline is a 50-50 joint venture between Galveston LNG and Pacific Northern Gas Ltd., which already operates pipelines in the area. It would allow gas to flow from the coast to Summit Lake, a gas-pipeline hub near Prince George. An environmental assessment application for the pipeline was filed in June 2007.

On Texada, WestPac has the infrastructure, but it needs to deal with other problems. “We’re the right one for B.C.,” says Stu Leson, president of WestPac and a 12-year LNG-industry veteran. “There’s no need to build new infrastructure.”

WestPac originally proposed an LNG facility for Prince Rupert. The idea was to unload the LNG there and then barge it to communities on the coast using Texada Island as a major hub. But early on, WestPac planners realized the economics didn’t work, so on July 31, 2007, the company announced its new plan for Texada Island with an endorsement from Geoff Plant, former provincial attorney general and now a WestPac board member.

The $1-billion proposal includes a 500-million-cubic-foot-a-day-capacity LNG import facility and a 600-megawatt power plant to open in 2014, with a proposed second phase to up the power plant to 1,200 megawatts. The power and gas would go to the Lower Mainland and Vancouver Island. Leson says backers – big institutions and banks – would need to be found for the private company’s project.

But convincing the nearby communities that it’s worthwhile will be tough. Eighty-five per cent of Texada residents signed a door-to-door petition objecting to the LNG terminal in a campaign conducted by Texada Action Now volunteers. Leson says there’s more support for the project off the island, although the Comox Strathcona Regional District, across the strait, wrote a letter opposing it. “We’re confident we can alleviate most of the concerns through education,” he says.