Copyright of the Daily Oil Bulletin 2018
While West Coast Export Projects Have Been Challenged, AltaGas Propane Export Facility A Bright Spot
In what might be the Canadian corporate version of the sporting world’s “home field advantage” Calgary-based AltaGas Ltd.’s substantial British Columbia presence played a significant role in the company’s development of Canada’s first propane export terminal, at Ridley Island, B.C.
While there were several factors that led to development of the $500 million project, now under construction, Dan Woznow, vice-president of energy exports at AltaGas, said it was the company’s deep roots in the province which played a role in the project going ahead — in a Canadian energy space filled with the casualties of a challenging regulatory environment and Aboriginal and environmental opposition.
“I know B.C. and that’s the key,” said Woznow, Vancouver-based vice-president of energy exports with AltaGas. “We have our feet on the ground.”
Woznow, who grew up in the Vancouver area and has worked in the past in northeastern B.C., said the company’s strong B.C. presence has played a significant role in its “northeastern B.C. strategy.”
In fact, the company, which has grown from a tiny company with seed capital of $37,000, founded by current company chairman David Cornhill in 1994, to a midstream energy giant with a market capitalization of $10 billion and with a three-pronged strategy focused on the natural gas, power and utility businesses, has a significant presence in the province.
For instance, it owns the Bear Mountain Wind Park, a 102 megawatt (MW) plant near Dawson Creek, the 84 mmcf/d Blair Creek natural gas plant and gathering system near St. John, the 195 MW Forrest Kerr Hydroelectric plant in northwestern B.C., the 66 MW Mclymont Creek hydro plant, also in the northwest, the 16 MW Volcano Creek hydro plant, also in the northwest, the 750 mmcf/d Younger natural gas extraction plant, near Taylor, and the Townsend facility, which processes 198 mmcf/d, as well as the related Townsend 2A sweet gas plant, which processes 99 mmcf/d.
The company is also developing other facilities in the province.
It is building a 30,000 gallon/d LNG liquefaction plant, along with storage, loading and distribution capacity, near Dawson Creek. It is examining the feasibility of building a network of small and medium sized LNG plants to service B.C., Yukon and the Northwest Territories as well.
It is also developing the North Pine Gas Liquids (NGL) Facility, located 40 kilometres northwest of Fort St. John. That facility, under construction, will have two separate NGL separation trains, each capable of processing 10,000 bbls/d of propane plus NGLs, for a total of 20,000 bbls/d. The first phase will also include 6,000 bbls/d of condensate terminal capacity, with the ultimate capacity for 20,000/d. In addition, a second 10,000 bbl/d NGL separation train is planned.
The company is also building two eight-inch diametre pipelines, each about 40 kilometres long, to connect with its existing Alaska Highway truck terminal. A new rail siding has been built at North Pine that can handle 25 cars per day.
“By the time Ridley Island is completed, we will have invested over $3 billion in B.C.,” said Woznow.
The company announced earlier this year it would proceed with the project, after executing long-term agreements to secure land tenure, along with rail and marine infrastructure on a section of land near Prince Rupert that was leased by Ridley Terminals Inc. from the Prince Rupert Port Authority.
It announced earlier this year that global tank storage company Royal Vopak had obtained a 30 per cent interest in the terminal, which will lead to the export of 1.2 million tonnes of LPG (propane) a year.
In August, AltaGas announced it had signed an agreement with Astomos, a Japanese company owned by Mitsubishi Corporation and Idemitsu Kosan Co., that will see the firm purchase 50 per cent of the plant’s volume.
Cornhill pointed to the significance of the deal for western Canadian gas producers, who have seen the market for their propane virtually disappear in the last few years, as a result of the fracking boom in the U.S.
“We could see this growing to $500 million a year in new exports, and that works out to a six to seven per cent increase in exports to Japan,” he said in August. “The key thing for us is getting world price for our products — Canadian natural gas. For Japan, it is about secure, dependable partners who will deliver clean energy to Japan, and clearly that is an opportunity.”
Japan, like many other nations without local natural gas production, is a large LPG consumer, with about 24 million people daily using it.
Astomos handles 10 million tonnes of LPG annually and now operates a fleet of 21 large gas tanker ships.
Woznow hinted that future expansion at Ridley Island is likely.
“It’s a big opportunity to help diversify the economy of B.C. and of the Prince Rupert area,” he said. “But we need to work on [finding] more markets.”
However, he said the site where it is developing its project “has limited space” so expansion there is unlikely.
Its partner in Ridley Island, Amsterdam-based Royal Volpak, one of the world’s largest fossil fuel storage companies, which also is involved in the LNG and other midstream sectors, owns adjacent land where it is looking at developing a bulk liquids facility. It has also said it is considering partnering with AltaGas on future LPG export opportunities.
“It could be an opportunity,” said Woznow.
As large as its Ridley Island facility will be — it will handle the equivalent of 40,000 bbls/d of liquids, it is a minnow when compared to the U.S. Gulf Coast.
“The Gulf Coast is at the equivalent of one million barrels daily of exports,” said Woznow.
Aside from Japan and other Asian nations, where propane is in widespread use, he said the company is looking at Mexico as a potential export market. Natural gas infrastructure doesn’t exist in much of Mexico and LPG is widely used. The Mexican west coast would be a logical market.
Despite the much larger size of the propane export facilities on the U.S. Gulf Coast, Canada’s West Coast has an advantage, AltaGas points out. For instance, exporting the product to Japan involves only a 10-day voyage from Prince Rupert, compared to a 25-day voyage from the Gulf Coast.
Also, at this point, there is a cost advantage, with propane prices in Western Canada’s landlocked market lower than in the U.S. Prices for propane in Edmonton have traded recently at a US$8/bbl discount to benchmark prices at the Conway and Belvieu trading points in the U.S.
However, brokerage firm Raymond James speculated in a research note issued on Nov. 22 that that steep discount could soon end as a result of the Ridley Island Terminal being built, along with proposed polypropylene plants in the Edmonton area, being planned by Pembina Pipeline Corporation and partners and Inter Pipeline Ltd., as well as other value-added propane plants.
The note, written by analyst Chris Cox, argues that there is the potential for overbuilding of such plants which could “eat away at the long-term economic returns of these projects.”
The roughly $6.5 billion of potential investment in propane-related investments is good news for producers, Raymond James says, but western Canadian propane markets could become “fairly tight.”
Woznow said the company isn’t too worried about domestic propane prices rising so much that high domestic propane prices render Ridley Island and other propane-related projects uneconomic.
“We monitor those markets closely,” he said.
As for Ridley Island, there are now 220 construction workers on the site, most of them local.
The balance of plant fabrication and first modules are scheduled to arrive in the first quarter of 2018 and the facility is to be in operation by early 2019.
Woznow said local support for the project, from First Nations, unions, environmental groups and others, has been strong.
The regulatory approval process also moved ahead rapidly.
This was occurring while other Canadian energy-related projects, such as oil pipeline and LNG export plants were virtually stopped in their tracks.
Woznow attributes that to a number of factors.
For one, the plant is being built on a brownfield site that was formerly planned as a sulphur export facility that was never developed. Because it is a busy port area, from which large volumes of coal are exported, rail, port and other facilities service the area.
Woznow said because the plant is being developed in an existing industrialized area “we aren’t disturbing new ground.” In addition, AltaGas began community engagement in the area starting in mid-2015.
He said the company knew it needed First Nations support in the area, which has six First Nations communities.
“About 40 to 50 per cent of the Prince Rupert population [of about 13,000] is Aboriginal,” he said.
He said First Nations leaders appreciated the role the terminal would play in diversifying the area’s economy, with a port that is heavily reliant on coal exports.
The plant is located within Lax Kw’alaams traditional territory. For the same reason, the company was able to secure strong support from local longshoreman’s union members.
The timing of the project also played a role in the rapid development of Ridley Island, he said.
In the early stages of the project there were as many as 20 LNG export facilities being proposed for the West Coast, all much larger, multibillion-dollar plants. None have been developed.
“Our project was viewed as having a much smaller impact,” he said. “We were under the radar.”
LNG in the future?
He said AltaGas, which was a partner in the Douglas Channel LNG plant, a $600 million export plant proposed for Kitimat, B.C., which was postponed in 2016, is still interested in LNG exports. Its Japanese partner, Idemitsu, backed out of the project, which would have exported 550,000 tonnes a year, using a floating platform.
However, Idemitsu is a partner in Astomos, which signed the deal with AltaGas to import LPG into Japan.
Woznow suggested that the company’s LNG export hopes have not been dashed, especially given the success of Ridley Island.
“We’re still looking at LNG opportunities,” he said. “In Asia they’re now thinking: ‘you [in Canada] can get something done.’”