North America may be a little closer to quenching Asia's thirst for liquefied natural gas (LNG) after Royal Dutch Shell awarded a contract to TransCanada Corp. to design, build and operate a $4-billion pipeline in northeastern British Columbia.
TransCanada beat out Enbridge Inc. and Spectra Energy Corp. to build the 435-mile West Coast GasLink, which is expected to transport over 1.7 billion cu ft (bcf) of gas per day from the shale-gas fields at Dawson Creek to Shell's planned LNG export facility near Kitimat, B.C.
A crucial piece of the plan is TransCanada's existing Nova Gas Transmission system in Alberta. The West Coast GasLink would connect to that system, providing a wealth of options for Shell and its partners, says TransCanada's vice president of business development, Rick Gateman. "Not just in terms of where the supply sources come from for the gas," he says, "but [also] the ability to ramp up production while the LNG facility is being built and then have that production go to other markets while they're waiting to flip the valve open to go west."
Carl Kirst, an analyst from BMO Nesbitt Burns, says Shell would be tapping a system that can provide 11 to 13 bcf per day of natural-gas supply instead of the two bcf per day that eventually will come out at other locations, such as Horn Lake, in northern British Columbia.
Kirst says a huge market is Asia, where the price for LNG—at upward of $12 per million Btu—far outstrips what can be obtained in U.S. markets awash with domestic supplies of natural gas. Industry has been falling over itself to pry open west-coast shipments of natural gas, with Shell leveraging British Columbia's unique geographic location (a day and a half closer to Asian markets) to entice Asian customers. Shell's ability to fend off challenges from American and Australian LNG proponents will be made easier with its partners, such as Mitsubishi, a major player in the dominant Japanese LNG market, and Petro China, in what is considered the largest growing LNG market.
"They bring a lot of expertise to the table across the value chain," Williams says. "They bring some market knowledge with them, which is always important, and we've worked with them before on LNG and other types of projects."
Physical, Environmental Challenges
The West Coast GasLink won't be without its physical challenges, particularly on the western end of the route. "There are some significant elevation changes and probably some horizontal drilling that we'll need to do off some mountain passes," says Gateman. Meanwhile, so far, Shell and TransCanada have escaped a major complaint plaguing other pipeline proposals, such as Enbridge's Northern Gateway: that pipelines degrade the environment and the aboriginal people's traditional way of life. Gateman says he's sensing a different feeling in the community with respect to a natural-gas pipeline compared to a crude-oil or bitumen pipeline. "Some of the First Nations, especially those on the west coast, have publicly come out in favor of LNG development and associated pipelines," he says. Among them are the Haisla First Nation and an alliance of coastal First Nations, which have been looking at the long-term economic benefits from LNG gas production and its secondary markets.
Meanwhile, Shell has dodged another bullet in its effort to win support for its LNG facility in Kitimat. In late June, British Columbia Premier Christy Clark announced her support for amending the Clean Energy Act so companies can use natural gas as a source of energy for LNG production. Previously, only clean sources such as hydroelectricity were to be used to produce LNG as part of the province's plan to cut greenhouse-gas emissions. The changes to the act hinge on whether natural gas can be considered a "clean" energy source, when it will add to greenhouse-gas emissions. Clarke argues it will help offset dirtier fuels, such as coal in China. A key benefit of the project will be up to 60,000 person-years of employment over the next decade, she said, something TransCanada already is gearing up for in a "prime engineering procurement contract" that Gateman says will lead to jobs in design, construction and operation of the West Coast GasLink. Adds Shell's Williams, "I think there will likely be opportunities for contractors."
