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MARCH 16, 2018

WHAT IS FORT ST. JOHN PETROLEUM SOCIETY? The purposes of the society “Fort St John Petroleum Association” is to create a nonproﬁt fraternal organization for educational benevolent and social purposes.

• To create a medium through which the society members may express themselves in Social activities, Educational pursuits and Athletic endeavours. • To contribute to the community in supporting worthwhile projects as decided upon from time to time by the society. • To provide entertainment that is enjoyable, instructive and beneficial to its members and families. • To encourage a spirit of good fellowship among the society members VISIT http://fsjpetroleumassociation.com FOR MORE DETAILS

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MARCH 16, 2018

PIPELINE NEWS NORTH •

COMMENTARY

PETROLEUM-ECONOMIST.COM

Tribunal’s Steel Decision Could Seal LNG’s Fate

anada just can’t seem to get out of our own way when it comes to major infrastructure projects and responsible resource development. Political leaders and bureaucrats keep tripping us up with red tape, questionable decisions, higher taxes and costly self-inflicted mistakes. One could be forgiven for thinking that we have set about to sabotage our economic future. Earlier this year, a little-known federal body, the Canadian International Trade Tribunal (CITT), issued a decision that, if left to stand, could kill British Columbia’s emerging LNG industry and cost us thousands of high-paid jobs and billions in new investment. LNG Canada is close to a final investment decision on a major LNG plant in Kitimat – the $40 billion project would represent the largest private sector investment ever anywhere in Canada. To do it, the company would need large complex steel modular components built abroad and transported to B.C. where they will be installed. But the trade tribunal has issued a ruling that certain fabricated industrial steel components exported from China, South Korea and Spain, are being “dumped” into the Canadian market and causing “injury” to the Canadian domestic steel industry. This has created a major problem for the emerging LNG industry in B.C. A key component of LNG facilities – large, complex, steel modular components – can only be built at a few shipyards around the world. No company in Canada can build these things here. The components cannot, and will not, be produced in Canada. Astoundingly, CITT chose not to decide on the critical issue of these large complex steel modules, simply lumping them in with all the other steel imports. We’re baffled. How on earth is the Canadian steel industry harmed if it is incapable of

producing these large complex steel modules in the first place? The Independent Contractors and Businesses Association has repeatedly expressed concern about the ruling’s impacts on the broader competitiveness of B.C.’s construction industry. There is simply no domestic supplier network – including fabricated steel – that warrants protection from international competition. And as bad as the ruling is for the construction industry generally, it could be fatal for B.C.’s potential LNG industry, and it simply couldn’t have come at a worse time. LNG Canada and Woodfibre LNG are both hard at work “sharpening their pencils” as they drive toward final investment decisions. If this CITT decision stands, it will inflate costs and could very well make these projects uncompetitive. The trade tribunal risks smothering billions of dollars in investment and killing thousands of jobs. LNG Canada alone would need 4,000 workers to build a facility in Kitimat. In addition, 3,000 more workers would be required to build the pipeline that will move natural gas from B.C.’s northeast to the west coast. The Conference Board of Canada has estimated that the LNG industry could deliver $7.4 billion annually to Canada’s GDP and generate about

65,000 jobs per year over 30 years. An all-hands-on-deck approach – including the federal government acting in the national interest – is required as the LNG industry drives hard toward the final investment decision goal line in 2018. B.C. and Canada do not have a great record of approving and building large infrastructure projects – witness the cancellation of PNW LNG, Energy East, and Northern Gateway while Site C, Keystone XL and the TransMountain Pipeline expansion projects are all facing legal challenges and protests. No wonder B.C. has sunk to the bottom 25 per cent, worldwide, of places where oil and gas executives feel comfortable investing billions of dollars. If there was an international “get-to-yes” challenge on major infrastructure projects, B.C. and Canada would fail. The stakes are high. We need to find a way to build these projects or risk being forever labelled a country where new capital, new talent and new ideas are not welcome. All Canadians will benefit through increased tax revenue, job creation, and the purchase of goods and services throughout the energy value chain. Further, Indigenous communities are important partners and significant beneficiaries from these projects. The CITT’s recent ruling is short-sighted and potentially fatal for the LNG industry. Time is of the essence, and the federal government should overturn this ill-advised, ill-considered and illtimed trade ruling. And if the federal government fails this test, British Columbians and all Canadians will be the losers – our competitiveness and our longterm prosperity will suffer while our global competitors will benefit. Chris Gardner is President of the Independent Contractors and Businesses Association

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OUTLOOK

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Symposium looks at challenges facing industry, communities MATT PREPROST What’s the best way to pull resources from the ground and get them to market, and how can the energy development dialogue be reset in British Columbia? Those questions and others about best practices and the future of resource development in B.C. filled the Pomeroy Hotel in Fort St. John Feb. 28 as elected officials, bureaucrats, lobbyists, and workers gathered for a daylong symposium to help inform a provincial energy roadmap being developed this year. “In the beginning, it was dark and man was very cold,” Rob Fraser, chair of the Northeast B.C. Resource Municipalities Coalition, the symposium’s host, said with a laugh to start the day. Of course, there’s been much change since that prehistoric beginning — and in Northeast B.C., there’s been much change in the last 60 years. The region has been at the epicentre of energy development in B.C. since natural gas was discovered in 1950s, a gas plant built, and a pipeline installed to the Lower Mainland, Fraser said. The Peace River was harnessed for hydro in the 60s and 70s, and demand for energy outstripped investments throughout continued growth in the 90s, he said. And while energy investments in the region totalled $80 billion in the region between 2005 and 2015, the province hasn’t updated its energy plan since 2007, under the former BC Liberal government, Fraser said. As the energy ministry begins developing its new roadmap this year, Fraser said there are three challenges ahead: access to world markets, increasing production and efficiencies while reducing carbon footprints, and recognizing that existing industries such as natural gas have benefits in the transition to a lower-carbon future. “Some may see them as barriers, but an energy plan should speak to those and help the province and our communities move forward,” Fraser said. How to build sustainable resource communities, partner with First Nations, and structure a roadmap were the focus of a morning panel discussion, before attendees split into groups in the afternoon to brainstorm ideas and issues on everything from carbon pricing to transportation and green building policies, to electricity and demand side management. Ines Piccinino, assistant deputy minister for the energy ministry’s oil and gas division, said the coalition was getting ahead of the curve in contributing input to the roadmap. “I prefer roadmap over the word plan. I think roadmap is more significant in terms of setting the path,” she said.

Ines Piccinino, assistant deputy minister for the energy ministry’s oil and gas division.

“2018 is going to be a very busy year for us to put that roadmap together.” Part of her division’s work, she said, is looking at the oil and gas industry from a “complete value chain perspective.” There’s a global appetite for energy as the world’s population grows, up from three billion in 1960 to 7.6 billion today, she said. “The appetite for energy and energy products is not only coming from a growing and expanding population, it comes from the fact a lot of people are entering the middle class and wanting things we all take for granted,” she said. “There’s a strong opportunity for Canada, with our regulatory regime and environmental targets.” You can’t talk energy without talking about climate, Piccinino said, but the numbers can be boiled down to this: there are one billion cars today, she said, machines that are about 60 per cent plastic, she said. “Plastic comes from oil and gas. There’s going to about two billion cars in a decade and half,” she said. “The reason why I’m throwing those numbers out there it it’s important to think about the world’s appetite for energy.”

RESETTING THE ENERGY DIALOGUE Communications is important to understanding that appetite and resetting the dialogue with British Columbians on how resources such as oil and gas are produced in B.C., said David Keane of the BC LNG Alliance. During a panel discussion, he said his agency would be polling Lower Mainlanders this week to determine the issues preventing them from getting a better understanding of the industry and how it operates. “I don’t know of another industry more

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Rob Fraser, chair of the Northeast B.C. Resource Municipalities Coalition.

focused on safety and technology and innovation,” Keane said. Energy outlooks consistently note natural gas will grow to about 22 per cent of the world’s primary energy, Keane said, and that gas will need to come from somewhere. “How are we going to make sure people understand the strict regulations we operate under in B.C., which I think are really, really positive,” he said. “If the world is meeting its demand from other countries that don’t have the same environmental regulations … we’re going to have significant carbon leakage, and significant skills and employment leakages as well.” Technology advancements have helped the industry become more efficient in extraction, and open up new opportunities for exports. Looking ahead to 2040, Fort St. John Mayor Lori Ackerman said natural gas can help developing countries meet their energy needs and reduce global emissions, transition remote communities off higher carbon fuels, and help the transportation industry move from gasoline to natural gas systems. “We can have a knowledge economy when it comes to our resources,” Ackerman said. “We have really undervalued the knowledge that we do have.” But buy-in means ensuring communities bearing the brunt of development, such as those in the Northeast and in particular First Nations, are protected and have the resources and services they need. “We need to make sure we have the human resources our industries need. We need to make sure we have the healthcare, the education, and the public safety,” Ackerman said. “If those are not invested in a proper manner, our communities won’t have the foundation they need.”

LESSONS FROM THE PAST, AND LOOKING TO THE FUTURE From a First Nations perspective, Karen Ogden-Toews of the First Nations LNG Alliance said resources need to be extracted in a way that limits impacts to the land, water and air. Then, it’s about being transparent, honest, and inclusive when approaching and involving First Nations in development, and ensuring their long-term health and benefits are kept in mind. “Being inclusive means you’re including all of the stakeholders that are involved… communities, First Nations, hereditary chiefs where applicable,” she said. “All of those pieces together make for a good working relationship with First Nations.” Consultation has been secondary or nonexistent in the past, she said. She gave an example of her community in the Wet’suwet’en First Nation, which saw a gas pipeline built through its territory in the 1960s without consultation or accommodation. “Looking at at the energy roadmap … I think there have been lessons learned,” she said. “I always like to look at the historical factors, and how can we look at things differently today?” The coalition plans to present its findings from the symposium to the province this summer. Fraser said the coalition has had to re-evaluate what the new NDP government means for its communities, and to reintroduce its research and lobbying efforts to the new ministers. Beyond the symposium, the coalition plans to continue lobbying for stronger taxation enforcement on out-of-province contractors, take part in a provincial review of hydraulic fracturing practices, and undertake an economic study of the rail line from Prince George to the Northern Rockies, Fraser said.

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OUTLOOK Alberta threatens to cut oil supply to B.C. Lack of pipeline access costing Canada $15 billion a year, report says NELSON BENNETT/FRANK O’BRIEN Alberta Premier Rachel Notley addressed Albertans through her Lieutenant Governor in a speech from the Throne Thursday, March 8, but her message was aimed squarely at British Columbia. Any more funny stuff from the B.C. government that threatens the movement of Alberta oil, and Notley vowed she will follow the lead of former Alberta Premier Lougheed, who reduced oil production in Alberta as a way to punish Eastern Canada for its National Energy Program. Although a temporary truce exists in a trade war between Alberta and B.C. over the $7.5-billion Trans Mountain expansion project, Notley made it clear in the Throne speech that if the B.C. government continues to try to exceed its constitutional limits to prevent the expansion of the Trans Mountain pipeline, she will not hesitate to pull out the big guns. Although some gasoline and jet fuel comes from Washington State refineries, much of the gasoline and diesel used in B.C. comes from Alberta, either directly as refined fuels through the Trans Mountain pipeline, or as crude, which is refined in Burnaby. Jason Kenney, leader of Alberta’s United Conservative Party, has said that, if he is elected premier in the next Alberta election, he would stop permits that allows Alberta oil to flow to B.C. Through her lieutenant governor, Notley warned her government is also prepared to restrict the flow of oil and-or refined fuel to B.C. “Some people have asked how far we are willing to go,” said Alberta Lt.-Gov. Lois Mitchell. “Today, we reaffirm we will do whatever it takes. “In the past, when workers in our energy industry were attacked and when the resources we own were threatened, Premier Peter Lougheed took bold action. “Your government has been clear: Every option is on the table. We will not hesitate to invoke similar legislation if it becomes necessary owing to extreme and illegal actions on the part of the B.C. government to stop the pipeline. “Make no mistake, Alberta has no desire to take this step, but it is important that B.C. and the country know that we will do whatever it takes to make sure our constitutional rights are respected as partners in Confederation.” A trade war briefly erupted earlier this year, when Notley ordered a boycott of all B.C. wines – a move calculated to cost B.C. wineries $70 million annually. That boycott was in response to threats by B.C.’s NDP government to limit volumes of diluted bitumen flowing from Alberta through B.C. by rail or pipeline. Those limits were part of the B.C. government’s five-point plan to deal with the

potential risks of oil spills. Premier John Horgan backed off somewhat when he announced February 22 that the most contentious point – restricting bitumen volumes to current levels – would be held in abeyance until his government can get a ruling from the courts on whether or not B.C. has the constitutional authority to enact such restrictions. Notley immediately responded by suspending Alberta’s boycott of B.C. wine. Notley is facing re-election in 2019, and her province is still recovering from a severe downturn in its oil industry, as a result of plummeting oil prices in 2014. She is therefore under pressure from Albertans to make good on a promise to get pipelines built. A critical part of that effort was enacting new carbon taxes and other climate change policies – something intended to mitigate the emissions from Alberta’s oil sands and get social buy-in. A lack of pipeline access is costing Canada $15 billion a year, a recent Scotiabank Economics study estimated. Much of that loss is in Alberta. It is hoped that twinning the Trans Mountain pipeline will increase the value of Alberta oil by increasing its access to other markets, including Asia and California.

Threat to gas pipeline puts NEBC economy on notice Alberta’s recent objection to a new $1.4 billion pipeline from B.C.’s northern gas fields is the latest blow to a northern economy still staggered from cancellations of liquefied natural gas projects and threats to kill BC Hydro’s $9 billion Site C dam. The frustration is particularly close to the surface in the northeast, which has the only oil and gas projects working in B.C. The five projects are a far cry from what was expected just two years ago. Many locals blame southern media, environmentalists and politicians for helping to scuttle resource projects that the north provides and the provincial economy depends on. “I would not say it’s just a bit frustrating; I would say it consumes our lives,” said Moira Green. Green is the economic development officer for Fort St.

John, the second-largest city in the north, a major natural gas hub and a city that nearly borders the Site C dam site. A perceived threat to cancel Site C by the BC NDP government in 2017 – a threat later taken off the table – stoked northern suspicion that southern politics trumps northern prosperity. Green said it’s a never-ending source of discussion around Fort St. John, that elitist (read southern B.C.) sentiment toward projects like the Site C dam is negative, and backing resource investments for economic reasons is shortsighted and narrow-minded. “It’s infuriating that we cannot be heard because we’re the provincials, the uneducated, the ‘how could you possibly know what’s good for us rural dwellers,’” Green said. Many northerners also blame the provincial government for the recent pipeline-sparked trade war with Alberta. The temperature of that dispute was cooled significantly February 22 when Alberta Premier Rachel Notley rescinded the province’s boycott of B.C. wine after B.C. Premier John Horgan said his government would seek court clarification over the province’s constitutional authority to restrict bitumen flowing through B.C. Northerners still see Alberta’s filing against the new gas pipeline as the latest salvo in that battle, though both Victoria and Edmonton deny it. Last month, the Alberta government filed its objection over TransCanada Corp.’s $1.4 billion, 301-kilometre North Montney Mainline project that would run from gas fields near Dawson Creek. TransCanada is looking to build the repurposed pipeline to bring B.C. gas to markets in the East, as it originally planned to bring gas to the shuttered Pacific NorthWest LNG project in northern B.C. But B.C. also wants to levy a tariff on the pipeline that all users would have to pay. Alberta argues that Alberta producers would be expected to help pay for a gas pipeline that would be built to benefit B.C. gas producers. “This is all part of the politics around the oil pipelines,” said Dawson Creek Mayor Dale Bumstead of the latest interprovincial dispute. “It has just moved upstream.” —Business in Vancouver

MARCH 16, 2018

PIPELINE NEWS NORTH •

OUTLOOK Natural gas royalties forecast to jump 57.9% in 2018 B.C. expects its natural gas royalties to spike 57.9 per cent in 2018 as production volumes climb, before yo-yoing amid slumping natural resource revenues over the next three years. The province has forecast $229 million in royalty revenues in its 2018 budget released Feb. 20, up from $145 million estimated in 2017. Royalties are expected to rise with “increased production volumes, decreased utilization of royalty program credits, and higher prices for natural gas and natural gas liquids,” the province notes in its fiscal plan. From there, royalties are expected to drop due to declines in production and increased use of royalty program credits, the province says. The province forecasts it will collect $206 million in royalties in 2019, before rising again to $218 million in 2020. Production is forecast at just 48.4 billion cubic metres in 2017, and is projected to jump to 53.8 bcm in 2018 and 2019. Volumes are expected to drop to 52.9 bcm in 2020. A one per cent change in natural gas volumes and exchange rates can impact royalties by around $2 million, according to the plan. A 25-cent change in prices can swing revenues between $30 million to $50 million. The province expects revenues from bonus bids and rents on drilling licences and leases to plummet 58.2 per cent over the next three years, from $376 million in 2017 to $157 million by 2020. “The decrease over the three years reflects declining deferred revenue and cash sales that are expected to average just $10 million annually,” the province says. Natural resource revenues as a whole are forecast to decline an average of 5.5 per cent annually over the next three years,

according to the plan. The province expects to collect $2.4 billion in natural resource revenues in 2018, and just $2.1 billion in 2020. ining and minerals revenues is expected to drop an average of 27 per cent annually over the next three years, the province says, citing weakening coal prices and increased mine production costs, though copper prices are expected to rise to offset some of that decline. Forestry revenue is expected to remain flat in 2018, and decline an average of 3.2 per cent in annually over the next two years due to lower overall stumpage rates. The province expects 58 million cubic metres of timber to be harvested in 2018 and 2019 before dropping to 57 million in 2020. Other energy revenues from petroleum revenues, Oil and Gas Commission fees, and electricity sales through the Columbia River Treaty are expected to grow 2.7 per cent annually. Petroleum revenues are projected to rise from $66 million in 2018 to $76 million in 2020. Other natural resource revenues such as water rentals and hunting and fishing licence fees are expected to increase 1.3 per cent annually over the next three years. OTHER ENERGY SPENDING • The province says it’s allocating nearly $2 million over the next three years to the Ministry of Energy, Mines and Petroleum Resources to meet regulatory requirements and several tailings storage facilities at abandoned mines. • The province is also adding $4 million over the next three years to develop an Energy Roadmap, “in order to assist large carbon emitters in key transportation and industry sectors adjust to a low carbon future.”

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RESEARCH

Groundwater monitoring research project launched for NEBC The BC Oil and Gas Commission (Commission), Geoscience BC, the University of British Columbia (UBC), Simon Fraser University and the University of Calgary are collaborating on a research project to install 30 new groundwater monitoring wells within the Peace Region in Northeast B.C. “The Commission oversees the safe development and operation of oil and gas wells in British Columbia. Data from these new research groundwater monitoring wells will provide more information to our specialists and help strengthen the Commission’s oversight of the oil and gas industry,” said Commissioner Paul Jeakins. “Potential impacts to groundwater from energy resource Geoscience BC is already using drones with methane detection devices to determine where development are controversial leaks may be coming from in northeastern B.C.’s natural gas fields. and scientifically-based answers to many questions related to this are needed. In particular, legacy of permanent scientifically- new scientifically designed wells. more information is needed on designed monitoring wells. This Combined with a regimented groundwater conditions in areas infrastructure will allow ongoing sampling program, the project will of resource development in B.C., monitoring of groundwater trends characterize if methane is present including levels of methane and and cumulative effects in Northeast in Northeast B.C. groundwater, other hydrocarbons close to oil B.C. for decades to come,” said and if so, how much, its origins and and gas wells. This new research Geoscience BC Chief Scientific prevalence in areas near to oil and project will generate high quality Officer Carlos Salas. gas development. scientific data to address concerns Beginning this summer, a The project team will install its related to resource development in research team, led by the Energy first eight monitoring wells in the the Peace Region” said Dr. Aaron and Environment Research Peace Region this summer. The Cahill, Principal Investigator of the Initiative (EERI) at UBC, with field program will continue next project and Co-Director of UBC’s collaboration from the Commission year, as more wells will be drilled in Energy and Environment Research and Geoscience BC, is establishing the spring and completed in the fall Initiative. a groundwater monitoring network of 2019, with the project concluding “These 30 wells will provide a in the Peace Region consisting of 30 in spring 2020.

The project will: •

•

• •

Assess baseline groundwater conditions including methane levels in the Peace Region of Northeast B.C. Build on and/or complement the existing suite of methanerelated research underway at UBC andelsewhere. Provide data to support the Commission’s regulatory policy and technical guidance related to groundwater protection and gas migration. Provide data to support other government science initiatives and regulatory policies related to groundwater (for example, the B.C. government’s domestic well sampling program and aquifer mapping and science initiatives). Support the long term sustainability and viability of continued oil and gas development in the Montney region. Address recommendations related to groundwater monitoring made in several previous reports. Support the mandate of the Northeast Water Strategy Include community and First Nations engagement as a key element.

Canadian Natural planning test of autonomous oilsands heavy haulers The shift to a full fleet of autonomous oilsands heavy haulers is in the early stages for Suncor Energy north of Fort McMurray, and now another operator is starting testing just down the road. Canadian Natural Resources is planning a “small, discreet” field pilot in 2019 using autonomous haulers at its oilsands mining operations, president Tim McKay said. Earlier this year Suncor announced it has embarked on a roll out of more than 150 autonomous haulers following a successful pilot test that began in 2015. The company has estimated the systems could reduce its operating costs by 5 to 10 percent. While Canadian Natural is reviewing autonomous haulers as a potential opportunity to improve efficiency, McKay said its approach would be different than its

competitor. Suncor reported operating costs of $26.06/bbl for synthetic crude oil from its Base Plant in 2017, while Canadian Natural reported $21.46/ bbl operating costs for Horizon SCO and $26.34/bbl for upgraded products from the Athabasca Oil Sands Project. “Obviously with our cost metrics we have a different view on where and how [autonomous haulers] would be utilized, as well as we have our pilot of the in-pit extraction process where we are looking at trying to do stackable tailings, which could impact that decision in the future. We’re actually doing two different views of that to try to see how we can do things more efficiently, and that relates to both sites,” McKay said. —JWN Energy

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MARCH 16, 2018

TRANS MOUNTAIN

ALAN YU PHOTOS

Hundreds showed up to a pro-pipeline rally in Vancouver on March 10 in support of the Trans Mountain Expansion. Among the speakers was researcher and writer Vivian Krause, above right, who has written extensively about the foreign influence and funding of environmental organizations protesting Canadian resource development. Krause will be a special guest speaker at a Fort St. John for LNG Rally being planned for April 21. For more details, visit facebook.com/groups/FSJ4LNG.

Investment falling in oil and gas in Canada, rising in U.S. NELSON BENNETT Despite the growth of renewable energy around the world, oil and gas will be needed for transportation for decades to come, especially in newly industrialized countries, thanks to population growth, energy forecasters like the International Energy Agency predict. But despite a natural abundance of both oil and gas, Canada has been eclipsed, in terms of investment, by the U.S., which saw a 38% increase in investment in the oil and gas sector in 2017 – a total of $140 billion – while investment in Canada’s oil and gas sectors fell 19% in 2017 – down to $46 billion. That is according to a report published Monday February 26 by the Canadian Association of Petroleum Producers (CAPP), which is warning the Canadian government that it needs an energy strategy to protect Canada’s energy sector, which generated $19 billion in government revenue in 2015 and 533,000 jobs in 2017. The report will be the first in a series to be published between now and October 2018. “We are committing today to bring out a series of reports all this year that grounds the discussion so

that governments can’t avoid the tough decisions by looking at something else,” said CAPP CEO Tim McMillan. Pipeline constraints, slow regulatory processes, environmental activism, and low oil prices have all contributed to a decline in investment in Canada’s oil and gas sectors, according to CAPP’s new report, A Global Vision for Canadian Oil and Gas. “Canada is falling behind other countries in attracting oil and natural gas investment to create jobs and national prosperity for Canadians,” McMillan warns. “Today Canada’s No. 1 energy customer – the U.S. – has become our No. 1 energy competitor.” In the last two years, investment in Alberta’s oil and gas sector fell off sharply, due largely to low oil prices, and major energy companies like Shell and ConocoPhillips (NYSE:COP) have been divesting their oil sands holdings. Two major oil pipeline projects were rejected or cancelled (Northern Gateway and Energy East), and in B.C., multibillion dollar liquefied natural gas (LNG) projects were shelved. Meanwhile, refineries in Eastern Canada import 600,000 barrels of oil per day from the U.S., Middle East and Africa, Eastern Canada imports about 2.4

billion cubic feet per day of natural gas from the U.S., and new LNG plants have been built on the U.S. Gulf Coast, fed in part by Canadian gas. In terms of investment in natural gas, B.C. is the one region in Canada where investment has continued to be fairly strong, thanks to the productivity of the Montney formation in northeastern B.C., which is rich in natural gas liquids such as condensate. The recent provincial budget notes that royalties from natural gas are expected to increase 57.9% in 2018-2019, then begin to drop off at an annual rate of 2.4%. Although one of the biggest obstacles to investment in Canadian energy has been federal and provincial regulatory inertia, McMillan also said environmental activism, backed in no small way by American organizations like the Tides Foundation and 350.org, has also succeeded in deterring investment. “That is what’s driving a lot of the challenges we see today – activists, many of which aren’t even from Canada, that are pushing agendas which aren’t in Canada’s favour,” McMillan said. —Business in Vancouver

MARCH 16, 2018

PIPELINE NEWS NORTH •

LNG

Shell predicts LNG shortage by mid-2020s NELSON BENNETT Asian countries, particularly China, want more liquefied gas. They just don’t want to pay for it – not up front, at least. That is the quandary faced by companies like Royal Dutch Shell, which hopes to invest in new LNG plants, including the LNG Canada project, in which is it the lead partner in a consortium that includes PetroChina, KOGAS and Mitsubishi. In its recent LNG Outlook 2018, Shell points out that the demand for LNG is growing faster than expected and forecasts a supply shortage by the mid-2020s. The report follows on the heels of a new Energy Information Administration (EIA) brief that confirms China surpassed South Korea last year to become the world’s second largest LNG importer, behind Japan. Its appetite for LNG is only expected to grow. LNG projects around the world were put on the back burner in recent years thanks to a sharp drop in oil prices, and new supplies of LNG coming onto the market, mainly from Australia and, more recently, the U.S. Analysts predicted that new LNG supplies coming online would create a temporary glut. But Shell’s latest outlook suggests Asian buyers are absorbing new supplies of LNG as soon as they come onto the market. “Based on current demand projections, Shell sees potential for a supply shortage developing in mid2020s, unless new LNG production project commitments are made soon,” the company said in a press release February 26. So what’s the holdup? If Shell thinks the market is ripe for new LNG supplies, why is the company and its

partners taking so long to make a final investment decision on its LNG Canada project in Kitimat? As the Shell outlook points out, the attitude of Asian buyers have changed. Whereas they used to be prepared to sign long-term contracts – usually indexed to oil prices – more and more Asian buyers now want more flexibility, both in the length of their contracts and in the prices they pay. They look to cheap North American gas prices and expect to pay lower prices than they have in the past. But without long-term commitments at fixed prices, companies are not prepared to borrow the billions necessary to build new LNG projects. “Most suppliers still seek longterm LNG sales to secure financing,”

Shell says in its recent outlook. “But LNG buyers increasingly want shorter, smaller and more flexible contracts so they can better compete in their own downstream power and gas markets. “This mismatch needs to be resolved to enable LNG project developers to make final investment decisions that are needed to ensure there is enough future supply of this cleaner-burning fuel for the world economy.” “Importers want to decouple themselves and delink themselves from the long-term contracts, particularly those ones tied to oil,” said Jihad Traya manager of natural gas consulting at Solomon Associates. “And LNG sellers are saying, ‘Hey wait – it takes me 25 years to pay this damned thing off. I need some certainty.’”

Under pressure to deliver LNG at lower prices tied more to spot prices, the only option for would-be LNG developers is to try to get their costs down, and in B.C. the single largest outstanding issue now is getting assurances from government that it won’t face unreasonable changes on things like taxation. “If you have appropriate fiscal certainty that is competitive with the rest of the world, then you have a project,” Traya said. Shell has stated it hopes to make a final investment decision on the LNG Canada project sometime this year, and the NDP government has stated it supports the project. Green Party Leader Andrew Weaver has vowed to bring the government down if it continues to court an LNG industry. — Business in Vancouver

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MARCH 16, 2018

LNG

Booming China imports could bode well for Canadian LNG DEBORAH JAREMKO The balance of global LNG supply and demand is shifting, and Canada might finally benefit. Chinese LNG imports have hit alltime records in the past few months, and analysts with GMP FirstEnergy expect that China will reach new monthly records for the next several years. The demand growth is driven by China’s focus on further emphasizing the use of natural gas

in the national energy mix going forward, primarily as part of a drive to shift away from coal and improve air quality in many cities, analysts said in a research note. “With import capacity that is expected to increase substantially in the next few years, there could be a doubling of Chinese LNG imports from 2017 levels by 2020.” With significant demand growth coming at the market, the peaking out of LNG liquefaction capacity adds after 2018 will result in LNG

demand starting to bump up against global LNG supply capacity by late 2020 or early 2021, analysts wrote. “This is likely to spur another wave of announcements to build additional LNG liquefaction capacity this year, with Canada being a potential entrant to this market. We think it very possible that the Shell-led LNG Canada project will undertake a positive final investment decision this year and bring forth 2 bcf/d of additional LNG supply by 2023.

“With a location on the British Columbia coastline, Western Canada’s ample economic supplies of natural gas, and relatively short sailing distances to the major natural gas demand centres of Asia, the looming prospect of much tighter market conditions presents a unique and potentially once-in-a-decade opportunity to move forward with developing an LNG export project on Canada’s west coast.” —JWN Energy

Randy Jespersen joins Steelhead LNG Steelhead LNG’s development of a natural gas pipeline and ongoing gas supply discussions to support the Kwispaa LNG facility will benefit from the strategic and relationship leadership of former Terasen CEO R.L (Randy) Jespersen who has been appointed Executive Chairman, Pipeline. Mr. Jespersen joins Steelhead LNG’s Leadership Team and will sit on its Board of Directors. “I am very impressed by the calibre of the Steelhead LNG team and by the company’s lowcost pathway to developing the Kwispaa LNG project and pipeline that is competitive in the current market, creates an attractive pricing opportunity for British Columbia and Alberta producers, and benefits all British Columbians, including our First Nations partners,” said Jespersen. Mr. Jespersen’s career began with Dome Petroleum followed by Amoco in Calgary and Houston, Texas. In 1996, he joined Terasen Inc. (now FortisBC), where he held various senior roles including Vice President, Gas Supply. Mr. Jespersen assumed the role of President and CEO of Terasen Gas in 2002 until his retirement in 2010. During this period, the British Columbiabased gas distribution company achieved an unprecedented level of growth through corporate

acquisitions and major project developments, including construction of the Southern Crossing pipeline, Whistler natural gas extension and the Mt. Hayes liquefied natural gas storage project on Vancouver Island, British Columbia. In addition to his executive appointments, Mr. Jespersen also previously served as Chair of both the Canadian Gas Association and the Western Energy Institute, as well as on the Campaign Cabinet of the United Way of the Lower Mainland and Executive Committee of the Business Council of British Columbia. “As a respected leader in the North American energy sector, who has contributed greatly to the economic and environmental framework of Western Canada, Randy Jespersen will play a significant role in the company as we continue our quest to connect clean, low-cost Canadian natural gas with energy hungry global markets,” said Steelhead LNG CEO Nigel Kuzemko. “Randy’s Canadian energy sector and experience delivering major natural gas pipeline projects in British Columbia complements the already strong community and LNG skill base of our Leadership Team.” Steelhead LNG will source Canadian natural gas feedstock for the Kwispaa LNG facility from various producers in northeastern British

Columbia and northwestern Alberta. Steelhead LNG is currently assessing a proposed pipeline corridor that would extend from the Chetwynd area to Williams Lake area, southwest to Powell River, across the Strait of Georgia, terminating at the Kwispaa LNG site. Steelhead LNG anticipates making a route decision in mid-2018, following early discussions with potentially affected Indigenous communities to integrate feedback into the design.

MARCH 16, 2018

PIPELINE NEWS NORTH •

MARKETS

Natgas engineering firm says B.C. location gives it an edge NELSON BENNETT Five years ago, Solaris Management Consultants Inc. was getting set up to double its workforce in Surrey, B.C. One of the only independent natural gas engineering firms based in B.C., Solaris expected a major boom in business from a new LNG industry. Then in 2014, oil prices tanked, multibilliondollar LNG projects got shelved or cancelled and Alberta’s oil and gas sector suffered a withering downturn. Solaris saw its business and head count fall by about 17%, but it was even worse for many Alberta companies. “Most of the industry experienced a contraction of 60% to 70%,” said Solaris founder and president Avi Salh. The company was well positioned to weather the storm, since one of the few regions that continued to attract investment in new natural gas plants, gathering systems and new wells was Northeast B.C., where Solaris does much of its business. But Salh also said that being located in B.C., rather than Alberta, turned out to be an advantage. The company’s location has been good for employee retention, he said, adding that about 50% of Solaris’ workers have been with the company for eight to 10 years. “If you want to work in the upstream oil and gas space in B.C., then you work here, or you go to Calgary,” Salh said. “There’s not many people in town who do this kind of work. “The clients know that this team has almost been insulated from the hire-fire [cycle]. Alberta, when it gets busy, the people become very transient. That has a huge impact on some of the companies and their ability to provide a quality service. Here we’ve never had that.” As everyone in the business community knows, Vancouver is the centre for mining companies, whereas Calgary is the hub for serving the oil and gas sector. So when Salh was starting out as an independent oil and gas

engineering consultant in 1993, Surrey was an odd place to hang out a shingle. A chemical engineer who worked in the North Sea offshore oil industry, Salh immigrated to Canada from the U.K. in 1992. When he decided to set up shop as an independent engineering consultant, he planned to go to Calgary, but his wife, Mindy Salh, who is from B.C., urged him to stay here. It was tough for an independent engineer from B.C. to get his foot in the door. “Nobody would give me a contract because I’m a kid, right?” Salh said. “I used to fly up north to Fort St. John. I used to work on the oilfields and do free work for them. People in Fort St. John used to give me local orders for $5,000, $10,000. “I did that for many, many years. It took almost 15, 17 years to break that mould.” Solaris works exclusively in natural gas upstream engineering, procurement and construction management. The company designs the well pads, pipelines and compression and gas treatment facilities for natural gas development, and manages their

construction. Solaris is also working on one of the two propane export terminals proposed for Prince Rupert, and is focused on designing small LNG plants for domestic use, like bulk fuelling for transportation. Salh also sees opportunities for companies like his in new federal and provincial regulations that will require the natural gas sector to reduce fugitive methane emissions by 45%, since that will be accomplished through engineering. When Solaris first started in the 1990s, natural gas extraction in Western Canada was carried out through conventional drilling. Today, it is done through unconventional extraction such as horizontal drilling and hydraulic fracturing. Thanks to the growth in natural gas activity in B.C., Solaris’ head count has quintupled in 10 years – from 60 or 70 employees to 320 today. Since about 2012, northeastern B.C. has increasingly drawn investment from the natural gas sector. Some Alberta companies have come to focus almost exclusively on northeastern B.C. While part of that boom has been driven by big companies like Shell, Chevron (NYSE:CVX) and Petronas developing upstream assets in preparation for an LNG industry, others have invested there because of the abundance of natural gas liquids, which include light oil, propane and condensates that are used to dilute the bitumen produced in Alberta. “In 2012, 2013, we were working with Apache Canada and Chevron, and we were doing all the upstream work to feed Chevron’s Kitimat LNG plant,” Salh said. “In addition to that, we were also doing all the work for Nexen for Aurora LNG. And we had set up this company for an infrastructure of 650 people, which we easily would have hit. “Had those projects gone ahead, we probably would have been one of the largest companies in town [Surrey]. It was a huge missed opportunity.” —Business in Vancouver

Tourmaline swings 1,185% increase in net earnings in 2017 Tourmaline Oil Corp.’s 2017 results are strikingly different from its results for 2016. The company issued its annual financials this week, including a massive 1,185 percent increase in its net earnings to $346.77 million in 2017, compared to a net loss of $31.97 million in 2016. Like many other players Tourmaline, which has operations in the Montney and Deep Basin oil and gas plays, is increasingly targeting higher value “liquids,” or oil, condensate and NGLs and natural gas prices remain weak. “Over the past two years, Tourmaline has increased its focus on the liquids opportunities throughout

the exploration and production portfolio, growing overall liquids production by over 100 percent in the past 18 months to 50,000 bbls/d currently,” the company said. Even so, Tourmaline remains highly weighted to natural gas, which represented 84 percent of its total volumes in 2017 compared to 87 percent in 2016. The company produced an average of 242,325 boe/d in 2017, up from 185,672 boe/d in 2016. The increase contributed to higher cash flow of $1.21 billion in 2017 compared to $731.80 million in 2016. Contributing to Tourmaline’s strong results in 2017 were its gas

diversification and hedging strategies, which the company said provided a 42 percent price premium over the AECO benchmark. Among the stars in Tourmaline’s asset portfolio are liquids-rich Montney wells at Sunrise-Dawson in northeast B.C., an area where Tourmaline has accelerated drilling and supporting infrastructure. On average it costs $2.86 million to drill, complete and equip these 1,500-meter laterals, Tourmaline said, which yields an average 197 percent internal rate of return. “These wells are amongst the most profitable subsurface targets in the Western Canadian Sedimentary

Basin,” the company said. Tourmaline has 18 of these Montney wells shut-in awaiting facility capacity. The company is working on a sweetening and debottlenecking facility project at Sunrise-Dawson that will add 3,500 bbls/d of condensate production during the fourth quarter of 2018. Overall the company said it has approximately 37 wells to tie-in and bring on-production during March and early April 2018. Current production is 270,000 to 275,000 boe/d and Tourmaline expects it to average 270,000 to 280,000 boe/d for the full year 2018. —JWN Energy

• PIPELINE NEWS NORTH

MARCH 16, 2018

IN BRIEF

Tourmaline accelerating Montney oil production Tourmaline Oil says it is moving forward with an accelerated plan to increase oil production from its Montney leases. The company plans to spend $35 million on the work in the second half of this year, comprised of a $20 million facility project and $15 million on drilling six additional horizontal oil wells. The project is expected to add approximately 3,000 bbls/d and 5 mmcf/d of associated gas prior to year-end 2018, Tourmaline said. The accelerated Peace River High facility project and associated drilling program is anticipated to further increase the company’s average liquids production profile for 2019 up to 63,000 bbls/d from 60,000 bbls/d currently forecasted, with liquids production expected

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Pembina to proceed with $120M NGL expansion Fresh off what GMP FirstEnergy described as an “outstanding” fourth quarter, Pembina Pipeline Corporation has announced a new major capital investment in Alberta. The company said it will spend approximately $120 million on construction of new fractionation and terminalling facilities at its Empress extraction plant, located north of Medicine Hat. It’s of note that Pembina has

H S NORT

Tervita to go public in merger with Newalta Two prominent environmental service firms supporting Canada’s oil and gas industry have announced their agreement to merge.

Publicly traded Newalta Corporation and privately held Tervita will join together to be publicly traded under the Tervita name, the companies announced. The new joint company will provide waste processing, treating, recycling and disposal services, with 115 operating locations, approximately 2,000 employees and approximately 1,000 customers. The new Tervita expects approximately $40 million to $45 million in annual synergies within two years, with associated onetime costs of $15 million to $20 million. The combined new Tervita would have had net revenue of $751 million in 2017 compared to what would have been $662 million in 2016. The current outlook for customer spending and activity in 2018 is expected to be at least as strong as 2017, Tervita said.

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placed over $5 billion of assets into service since the beginning of 2015, according to GMP FirstEnergy analysts. The new facilities, which are expected to be in service in 2020, will add approximately 30,000 bbls/d of propane-plus fractionation capacity to the company’s Empress East NGL system. Pembina beat fourth quarter investor expectations with EBIDTA of $674 million; this compares to GMP FirstEnergy’s forecast of $579 million and the Street at $569 million.

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to reach 75,000 bbls/d by the end of 2019. During the second quarter Tourmaline said it will decide if this project will be funded via a reallocation from the current gas development budget, or if the 2018 capital program will be increased by $35.0 million.

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• Distributed to the community in general through these ﬁne publications, Alaska Highway News, Dawson Creek Daily and Fort Nelson News. • Distribution by mail and direct drop-off to Oil & Gas companies,and related businesses and organizations, in the following communities: BRITISH COLUMBIA – Arras, Baldonnel, Cecil Lake, Charlie Lake, CHETWYND, Clayhurst, DAWSON CREEK, Farmington, FORT NELSON, FORT ST. JOHN, Goodlow, Groundbirch, HUDSON HOPE, Moberley Lake, Pink Mountain, Pouce Coupe, Progress, Rolla, Rose Prairie, Sunset Prairie, Taylor, Tomslake, TUMBLER RIDGE, and Wonowon. ALBERTA – Baytree, Bear Canyon, BEAVERLODGE, Berwyn, Bezanson, Bonanza, CLAIRMONT, Eaglesham, FAIRVIEW, Falher, Girouxville, GRANDE PRAIRIE, Grimshaw, Grovedale, HIGH PRAIRIE, Hines Creek, Hythe, LaGlace, MANNING, McLennan, PEACE RIVER, Rycroft, SEXSMITH, Silver Valley, Spirit River, VALLEYVIEW, Wembley, and Worsley, Zama City.

MARCH 16, 2018

PIPELINE NEWS NORTH •

FIRST NATIONS

Fort McKay recognized with national aboriginal business award DEBORAH JAREMKO The Canadian Council for Aboriginal Business (CCAB) has announced Fort McKay First Nation as the recipient of the CCAB 2018 Aboriginal Economic Development Corporation of the Year Award. Surrounded by oilsands development, Fort McKay and its Fort McKay Group of Companies have been involved in industrial development for more than 30 years. This includes closing last year the largest business investment to date by a First Nations entity in Canada, jointly securing along with the Mikisew Cree band a 49 percent interest valued at $503 million in Suncor’s East Tank Farm, part of the new Fort Hills oilsands mining project. “Given its geographic location, Fort McKay has championed many opportunities to work with the forestry, oilsands and pipeline industries in Alberta. Over time, they became known for their commitment to establishing and maintaining positive partnerships with surrounding industry while still preserving their cultural values,” CCAB said in a statement. “It is this progressive collaboration that continues to contribute to a legacy of pride and promises a brighter future for generations to come. By forming constructive partnerships,

JOEY PODLUBNY/JWN

Fort McKay First Nation chief Jim Boucher.

Fort McKay First Nation is able to implement the necessary framework to support progressive economic, industrial, and social developments in the region.” Fort McKay chief Jim Boucher said it “an honour and a privilege” to receive the award. “I am grateful to the Canadian Council for Aboriginal Business and Sodexo Canada for understanding the importance of Indigenous

collaboration on industry projects. It is collaboration, as well as the work of our staff and management, that has led to nearly zero unemployment and unprecedented economic success in our community,” he said in the statement. The award will be presented at an event in Calgary sponsored by Sodexo Canada in May. —JWN Energy

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