KLNG says project timetable still intact

By Cameron Orr, Kitimat Northern Sentinel, October 15, 2008

The Kitimat LNG liquefaction terminal - a recent turnaround from the originally proposed regasification facility - is still on track for a late 2009 or early 2010 groundbreaking.

So says Ilene Schmaltz, vice president of supply marketing with KLNG, who gave an update on the project to city council.

“Prices in Asia are quite a bit higher [for natural gas] than North America and we expect that to be a long term situation,” she said, noting Asia’s heavy reliance on imported fossil fuels because of their own lack of domestic supply.

Schmaltz said the largest buyers of liquefied natural gas (LNG) in the world are the Asian markets, including South Korea and Japan.

European countries, which rely on the gas heavily in the winter months, are also significant buyers of LNG,

The “icing on the cake” as far as the decision to change the LNG direction was talk of world scale natural gas reserves - in the form of shale or unconventional gas plates - in Northeastern BC and Alberta which will be coming onstream over the next few years.

That spike in supply is a good thing for natural gas exports, especially as KLNG may now be competing for supply against another operation, LNG Partners LLC.

The LNG Partners venture would use excess capacity in western BC’s pipeline system to take natural gas to a liquefaction vessel which would be owned and operated by Maverick LNG Holdings.

Councillor Mario Feldhoff asked if this operation would affect the KLNG plans.

“No, we don’t believe that really affects us at all,” said Schmaltz. “We believe there will be lots of gas for our project.”

Feldhoff also noted oil sands projects themselves had a high demand for natural gas.

But Schmaltz responded that her company has talked with oil sands producers which had been interested in KLNG’s import facility, and “with the changes in development of natural gas reserves not only in Canada but in the US, they are much more comfortable that there is going to be lots of natural gas for everybody.”

Schmaltz said the liquefaction facility, to be located at Beese Cove, will occupy the same footprint as the regasification plant but will actually have lower air emissions and ocean disposal.

The number of vessels using the port will be the same, or potentially slightly fewer.

They will be exporting approximately 3.5 to 5 million tonnes annually, and the Pacific Trails Pipeline, a partnership between KLNG parent company Galveston LNG, and PNG, will still be built.

That will be a 470 kilometre, 36-inch diameter pipe.

Provincial approval for the pipe was given in June - the pipe was permitted as bi-directional - and federal approval is expected at the end of the year, although Schmaltz said a slight delay may be expected due to the current election.

Mayor Rick Wozney wished KLNG the best after Schmaltz’s presentation.

“Construction will certainly be a welcome aspect in our community,” he said. “One-hundred jobs will certainly go a long ways to trying to recoup our economy in our community.”

Another LNG player emerges

By Malcolm Baxter, Kitimat Northern Sentinel

KLNG is not the only company looking at exporting liquefied natural gas through Kitimat.

KLNG announced last month (Sentinel, September 24) it was reversing direction on its planned Kitimat plant, looking at exporting rather than importing.

Now an outfit called LNG Partners LLC is looking to do the same thing.

And as part of that it is seeking an arrangement with Pacific Northern Gas to use its existing pipeline to transport the gas here.

Greg Weeres, PNG vice-president of operations and engineering, told the Sentinel his company had made application to the BC Utilities Commission to approve that arrangement.

What it involves is LNG Partners paying PNG a non-refundable fee of $1.5 million in exchange for an exclusive six-month option to book the currently unused capacity in the PNG line to Kitimat.

That excess capacity exists because of the 2005 closure of the Methanex methanol plant - it had been PNG's biggest customer.

"The purpose of the option period is to allow them to evaluate whether they can make their proposed project work," said Weeres.

But if they cannot nail down all the numbers within that six months, LNG Partners has the option of purchasing a further six month option, again for $1.5 million.

And if they conclude they can make a go of it, LNG Partners would then negotiate a deal with PNG that would see the former's exclusive rights to use the spare capacity continue for between three and five years.

The arrangement is potential good news for PNG's existing customers even if the LNG Partners never get into production - at least in the short term.

That's because PNG proposes two-thirds of the option fee be used to reduce delivery rates - the amount the utility charges to deliver the gas to your door.

That rate has been hiked substantially over the past three years, in the main to make up for the loss of the Methanex revenue, but also to cover lost revenue resulting from a rate decrease for Eurocan and reduced usage by commercial and residential customers.

At the moment the delivery charge is almost one half of the cost per gigajoule of natural gas PNG charges.

But the company cannot yet say how much of a break customers might get. Weeres explained because this is very early in the process, PNG hasn't yet crunched the numbers.

However, he added, "Clearly there will be a benefit, you bet."

That benefit would rise dramatically should the LNG Partners project go-ahead - PNG calculates having its pipeline run at 100 per cent capacity would generate close to $15 million in extra annual revenue, $3 million more than it was getting from Methanex.

As for what an LNG Partners deal would mean for the proposed KLNG-PNG Pacific Trail pipeline project, Weeres emphasized it would have no impact on the Kitimat-Summit Lake line.

"It is certainly our intention to continue development of the KSL project regardless of what happens with LNG Partners," he said.

That position is echoed by KLNG - see story: KLNG says project timetable still intact

Lineup for LNG project adds a competitor

by Ted Sickinger, The Oregonian


Steven Nehl/The Oregonian
Peter Hansen, chief executive of Oregon LNG, has spent nearly
five years pushing a proposal to build a liquefied natural gas
terminal on the Skipanon peninsula, just west of Astoria
(in background). His company filed a formal application
Friday with federal energy regulators.

Most controversy over liquefied natural gas in Oregon has focused on proposals to build an import terminal 20 miles east of Astoria on the Columbia River and on a competing project in Coos Bay.

With little fanfare Friday, however, backers of a third LNG project delivered 21 binders to federal energy regulators containing their application to build a terminal on a spit of sand and blackberry brambles that juts into the Columbia River from Warrenton.

Oregon LNG, as the company is called, isn't exactly new. The project was launched in 2004 by Calpine Corp., which went into bankruptcy a year later. Managers of the project kept pushing local land-use approvals for the terminal, and later bought out Calpine with backing from a New York-based holding company, Leucadia National Corp., that specializes in distressed investments. Their plan is to erect three mammoth gas-storage tanks on the Skipanon peninsula, each 17 stories tall, almost as wide as a football field and highly visible from Astoria, which is directly across Young's Bay from the project site.

The gas-receiving terminal would be coupled to a pier sticking 2,100 feet into the Columbia, where a new generation of LNG supertankers would dock in a dredged basin to unload their cargoes.


Click map to enlarge

The $1 billion terminal would be capable of importing a billion cubic feet of natural gas a day - almost twice Oregon's daily consumption. The gas would be shipped to markets throughout the Northwest and California via "the Oregon pipeline." The 36-inch, high-pressure line is slated to arc through 121 miles of farm- and forestland in Clatsop, Tillamook, Washington, Yamhill, Marion and Clackamas counties to a gas hub in Molalla.

Oregon LNG's application comes as the U.S. market for gas appears to have temporarily collapsed. Domestically produced gas is cheap and abundant. Asian countries are willing to pay such eye-popping premiums for LNG cargoes that many industry experts doubt it makes sense to import LNG to the United States.

Industry giants are sending the same message. British Petroleum recently backed out of a proposed terminal on the Delaware River, citing lousy industry conditions, while several terminals are applying for permission to export U.S. and Canadian gas to take advantage of the Asian bonanza.

Moreover, just as the Houston-based backers of the Bradwood Landing LNG proposal have met vehement opposition, local landowners, environmentalists and tribal groups could put up a stiff fight against Oregon LNG.

"We're opposed," said Brent Foster, executive director of Columbia Riverkeeper. "It would have a massive impact on the Columbia estuary. It comes with a significant pipeline that would impact farms, forestlands and rivers. And it's right in the middle of the flight path to the Astoria airport.

"There's no way you can call this a good site."

Oregon LNG executives obviously disagree. They figure their chances of commercial success are good enough to justify investing tens of millions of dollars in a labyrinthine permitting process.

Oregon LNG Chief Executive Peter Hansen said his aim is to build collaborative relationships and open dialogues - even with his opponents. The approach has built credibility and some good will among state regulators, tribal groups and environmental opponents.

Julie Carter, a lawyer with the Columbia River Intertribal Fish Commission, said the jury is still out on how the tribes will react to the project, which they still consider a huge industrial development on the river. But she said the company's approach has been refreshing.

"We've been pleased with the way they've been treating our interests and concerns, and how they've carried on this process," Carter said.

Hansen said Oregon LNG has spent $20 million and will continue spending $1.5 million a month to resolve myriad environmental, engineering and safety questions. This summer, for example, the company had biologists in the Tillamook forest hooting like spotted owls to determine whether its pipeline would harm owl habitat. It has done similar surveys for marbled murrelets and rare native plants.

"You can give agencies what they want today or fight them for two years, then give them what they want," Hansen said. "In the end, the issues are what they are, and you're the only one in any kind of a hurry."

As far as gas supply goes, Hansen says producers will more than double the supply of LNG on world markets by 2015, freeing up cargoes to come to the United States at competitive prices.

"There's a lot of interest in having a bridgehead to the U.S. market on the West Coast," he said. "From a producer's perspective, this is a pretty cheap option."

Hansen, a Dane who has traipsed around the globe as an energy industry engineer, has spent the past five years on the Oregon LNG project, first as an executive with Calpine Corp. When that company went bankrupt, he continued pursuing the project and later led a management buyout from Calpine.

Lately, his quest has become something of a knife fight with the backers of the Bradwood Landing LNG project, upriver from Astoria. Backers of the projects always have been competitive, but that competition has become more hostile recently, with each trying to scuttle or at least slow the other's regulatory approvals.

Hansen contends his Warrenton site is far superior to Bradwood. From an environmental standpoint, there's simply far less fish habitat to harm off the Skipanon peninsula, he contends. And he pulls no punches in discussing what he perceives as Bradwood's major flaw.

"Why would you bring an LNG tanker under the Astoria bridge?" Hansen said. "A pool fire is like a nuclear meltdown. The likelihood of such an accident is remote, but the consequence is enormous. ... It would burn Astoria."

If it's OK to bring LNG to Bradwood, Hansen asked, then why not put a terminal much farther upriver - say, in Kalama or Portland? The answer, he said, is plain common sense: "Let's not take that risk," he said.

Bradwood's backer, Houston-based NorthernStar Natural Gas Inc., counters that Oregon LNG sits on an unstable sand spit in the middle of earthquake and tsunami zones. The site is too close to Astoria's airport, NorthernStar executives say — one reason they rejected it in their early research.

Moreover, NorthernStar contends it has acquired an ownership interest in the Skipanon peninsula site. It has asked regulators to stop processing Oregon LNG's application and has indicated that it intends to take a spoiler role in any land-use changes that Oregon LNG seeks.

The back and forth between the companies is likely to continue. Both have invested heavily in their projects, and both say only one terminal ever will be built. Though NorthernStar already has federal approval and is seeking to win state permits sometime in early 2009, Hansen said that's wildly optimistic and that he still thinks he can beat his rival to the regulatory finish line.

Ted Sickinger; tedsickinger@news.oregonian.com

LNG opponents to intervene in Oregon LNG Project

The Hillsboro Argus

ASTORIA - The Oregon LNG project, a proposed liquefied natural gas and pipeline development that would involve a terminal in Warrenton and a 118-mile pipeline through the Willamette Valley, drew a swift reaction from its opponents after Oregon LNG filed its official application with FERC. A coalition of farmers, foresters, businesses and conservationists will intervene in the Federal Energy Regulatory Commission process to challenge the project.

Dan Serres, with Columbia Riverkeeper, challenged the alleged need for the Oregon LNG project. "Oregon LNG's project is wrong for Oregon. They are proposing to tear up the Columbia River to import LNG at a time when North American LNG and gas companies are actively seeking to export LNG, and when global LNG prices are several times higher than domestic gas supplies. We will intervene to protect the Columbia River and to block this newly proposed foreign fossil fuel addiction."

Steve Wick, chair of the Yamhill County LNG Citizens Advisory Committee and a Gaston landowner whose property could be impacted by the project's proposed high-pressure, non-odorized pipeline, anticipated strong resistance coming from landowners along the route. "The Oregon LNG pipeline represents another blatant attempt of a private company to take our private land for an ill-advised energy scheme through the use of eminent domain. Our own Oregon Department of Energy has said there is no need for this pipeline, so this project should not be forced on unwilling communities."

Oregon LNG also faces stiff opposition from local activists and businesses near Astoria, where Cheryl Johnson, a retired school librarian, expressed her disgust with the proposal. "It's outrageous that Oregonians have to waste their time fighting terrible ideas like this one, proposals that put our public safety, our river and our future in renewable energy at risk. Make no mistake, though - we will fight them every step of the way."

Don West, president of the Columbia River Business Alliance, added, "There are real risks associated with this project for the public and for our economy. Oregon LNG is trying to build an LNG facility near the Astoria Airport. Their three proposed storage tanks are 17 stories tall and almost a football field in width, and they want to put these in the flight path of our airport? If we ever want to expand the airport we cannot allow this type of obstruction and threat to our continued growth on the north coast of Oregon."

By filing to intervene, individuals and groups such as Columbia Riverkeeper will retain the right to appeal FERC's decision on the project.