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uncertainty in alberta and what that could mean for British Columbia
Alberta’s oil and gas industry is cautiously optimistic after the New Democratic Party soundly ousted the Progressive Conservative government. Some in British Columbia are ecstatic, while others caution that the upset could have an impact on both provinces’ economies.
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MAY 15, 2015
3rd Annual Senior Oilmen’s Golf Tournament July 6th, 7th & 8th, 2015
Registration: Monday July 6th @ 6:30 After Practice Round/Wine & Cheese Social Breakfast: Bun, Coffee & Spirits, on 1st Tee BBQ: Lakepoint Golf & Country Club – Wed. @ 4:00PM Guaranteed 45 Holes: Match Play & Better Ball Entry Inquiries: Darwin Pimm 250-261-0700 Cancellations: John Bookham 250-787-3965 Donations: Bruce Craig 250-793-0000
SEE PG.16-17 FOR INFO ON THE 53RD ANNUAL FSJ OILMEN’S GOLF TOURNAMENT
The next Fort St. John Petroleum Association meeting is on June 4, 2015 – See you there! R003152861
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MAY 15, 2015
Fort St. John, B.C.
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PNN
NUMBERS
The following figures were taken from the stories in this issue of Pipeline News North.
$14 million: The amount that Alberta’s oil and gas land tender pulled in on Dec. 3. Chart on Page 5.
40: The number of years LNG export licenses will be valid for according to Canada’s 2015 Federal budget. Story on Page 5.
$200,000: The amount that B.C.’s oil and gas land tender pulled in on Dec. 3. Chart on Page 5.
1,600: The number of workers that a camp for Site C will hold. It will be built by Two Rivers Lodging Group. Story on Page 12
$64.15: The price Brent crude was trading at on May 12. It has been cut in half over the past 12 months. Chart on Page 5.
US$854 million: What Australia’s Woodside Petroleum paid for the Apache’s interest in the Kitimat LNG project. Story on Page 14
April 27: The date the EA process officially began for the proposed West Coast Canada (WCC) LNG liquefied natural gas export facility. Story on Page 10
8,900: The number of people at the Dawson Creek Kiwanis Club Trade Show, down from an average of 12,000 over the past few years. Story on Page 18
$60 million: The amount of money the cost of the Site C dam could jump if B.C. isn’t exempt from a tariff on rebar imports, an industry group says. Story on Page 13 $696 million: What Fair Share would have paid to communities in Northeast B.C. had the B.C. Liberals not reneged on their election promise to extend it. Story on Page 26 192%: That’s how much more Germans pay than their European counterparts for electricity because of the country’s reliance on renewable energy. Story on Page 30
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PNN The Alberta-B.C. LNG 5 discount (chart)
11 ‘BUY LOCAL’ CENTRE STAGE AT MEETING
U.S. gas price 5 (chart) B.C. land auction 5 (chart) Japan gas 5 price (chart) Alberta petroleum 5 land auction (chart)
12 Hotel-like’ Site C worker camp to boast theatre, gym, licensed lounge
11
13 Rebar battle could add $60 million to Site C costs 14 Woodside closes purchase of Kitimat LNG 15 Zimmer hosts business roundtable
Looking for FIDs, Canada 5 sweetens its LNG
18 Turnout low, spirits high at trade show
Uncertainty 6 in Alberta ...
15
... and what that means for 7 British Columbia 7 North Montney 8 pipeline approved
26 Fair share: Dawson mum as FSJ gets combative 26 FORT ST. JOHN EMBARKS ON FAIR SHARE NEGOTIATIONS
PRGT pipeline 9 permits issued 9
30 Renewables: all pain, little gain
Environmental assessment 10 begins on WCC LNG project Look for PNN on FB: pipelinenewsnorth
22 NDP WIN PAVES WAY FOR NORTH WEST UPGRADING PROJECT: CEO
22
Look for PNN on Twitter @PipelineNN
Published monthly by Glacier Ventures International Corp. Pipeline News North is politically independent and a member of the B.C. Press Council. The Pipeline News North retains sole copyright of advertising, news stories and photography produced by staff. Reproduction is prohibited without written consent of the editor.
MAY 15, 2015
PIPELINE NEWS NORTH •
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THE CHARTS
#oilsands
alberta o&g land auction Alberta’s oil and gas land tender on April 29 pulled in $14 million. The next tenders will be held May 13 and May 27. Source: Alberta
Energy Regulator
Canada sweetens
the LNG pot
Licenses to export LNG to be extended from 25 years to a maximum of 40 Jonny Wakefield
Pipeline News North
December 2013 to May 2015
the alberta-b.c. lng discount The Alberta-B.C. Natural Gas Discount — the difference in price a BTU of gas costs in Tokyo compared to Alberta — increased about $1 to 11.68. (C$) December 2013 to May 2015
alberta gas price The AECO “C” spot price, the Alberta gas trading price declined to about $2.65. (C$) Source: Natural Gas Exchange
December 2013 to May 2015
The federal government is extending the lifespan of liquefied natural gas export licenses, the latest rollback in its quest to convince one of nearly 20 LNG proponents to put down roots in B.C. The 2015 budget extends LNG export licenses from a maximum of 25 years to 40. The government hopes extending the life of a licenses will “improve regulatory certainty” for companies considering LNG plants on B.C.’s west coast. The National Energy Board (NEB) makes a decision whether to issue export permits for oil and gas projects after a regulatory review before the federal government makes the final call. It’s the latest pot sweetener from the federal Conservatives, which in Febru-
ary rolled out a capital cost allowance aimed at making it cheaper to build LNG facilities. The B.C. LNG Alliance, a trade association aimed at promoting the industry in Canada and abroad, is pleased with the move. The group — made up of seven companies and partnerships with export proposals on the West Coast — said it “further encourages the development of an LNG industry and ensures it can compete globally over the long term.” Malaysian energy company Petronas, the majority owner of Pacific Northwest LNG, is expected to make a decision whether to invest in its LNG plant in the next few months. Last fall, the company successfully lobbied both the provincial and federal government for tax breaks. reporter@dcdn.ca
b.c. o&g land auction
japan lng price Japan LNG Import Price is at a current level of $14.68, up slightly from last month and down from $16.55 one year ago. (US$). Source: World Bank
The BC Oil and Gas Commission’s monthly land tender pulled in $220,000 in April. The next sales will be held May 20. Source: BC Oil & Gas Commission December 2013 to May 2015
December 2013 to May 2015
Oil price brent crude price
u.s. gas price
The price of Brent crude has bounced around the $50-$65 range after halving from one year ago. Source: U.S. Energy Information Agency
Left, the Henry Hub Natural Gas Spot Price (US dollars per Million Btu). Source: U.S. Energy Information Agency December 2013 to May 2015
May 2010-May 2015
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ALBERTA
PNN Uncertainty
in Alberta ...
WILLIAM JULIAN REGIONAL MANAGER 250-785-5631 wjulian at pipelinenewsnorth.ca
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www.pipelinenewsnorth.ca BILLING: Lisa Smith - Accounting Manager 250-562-2441 ext 352 Fax:250-960-2762 accounting@ pipelinenewsnorth.ca
Paul Wells
Daily Oil Bulletin
The Alberta oil and gas industry is digesting the seismic shift in provincial politics as the Alberta New Democratic Party proved pre-election polls right by soundly ousting the Jim Prentice-led Progressive Conservative government in the’s election. The left-leaning NDP and Premierelect Rachel Notley ended a 44-year run in office by the Tories, sweeping to victory with a promise to review oversight of the oil and gas sector in the country’s energy heartland. “Friends, I think that change has finally come to Alberta. New people, new ideas and a fresh start for our great province,” Notley said during her acceptance speech. “I want to say to Alberta’s job creators, great and small, in the energy sector and in every other sector, our government will be a good partner and we will work with you to grow our economy and to secure a more prosperous future for every Albertan in every community,” she added. “Together, we need to start now to grow a diversified and resilient economy. “We need finally to end the boomand-bust roller-coaster that we have been riding on for too long. It won’t happen overnight but we must start and we will.” The NDP victory sparked the immediate resignation of PC Premier Jim Prentice as party leader. He also quit his legislative seat. “My contribution to public life is now at an end,” he told supporters following the stunning defeat. The Conservatives had won 12 straight elections in Alberta, but support for the rookie premier plunged during the campaign and right-wing voters split support between the Conservatives and the younger, more conservative Wildrose Party, which will be the official opposition. Prentice, who left investment
banking to become party leader in September, had a 75 per cent approval rating at the beginning of March. A poll showed his approval rating had dropped to 31 per cent. Dissatisfaction over Prentice’s taxraising budget, the expense of the early election call when the province faces a $5 billion budget deficit and a series of gaffes by the conservatives squandered the party’s lead. “This will go down as one of the biggest miscalculations in Canadian political history. He did not have to go early,” pollster Bruce Cameron told CBC television. Official results showed the NDP appeared set to win 54 seats while the Progressive Conservatives were likely to take just 10, behind the even more staunchly conservative Wildrose Party, which was on course for 21. While on the campaign trail, Notley proposed a review of oil and gas royalties and reduced support for some pipeline projects, such as TransCanada Corporation’s controversial Keystone XL project. The NDP had also promised to hike corporate tax rates by two percentage points to 12 per cent. She also said Canada needed a national approach to address environmental issues. All of this leads to the creation of more uncertain and choppy waters for the province’s oil and gas sector, as it struggles to deal with the current fallout of low commodity prices and weak market conditions. Reaction from industry leaders Gary Leach, president of the Explorers and Producers Association of Canada (EPAC), said that while Notley made “reassuring statements that they will be ‘good partners’ with the business community,” concerns remain. More on Page 20
MAY 15, 2015
PIPELINE NEWS NORTH •
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... and what that means for British Columbia Jen St. Denis
Business in Vancouver
They’re calling it the orange crush. Alberta NDP leader Rachel Notley handily defeated Progressive Conservative Jim Prentice on May 5. Her party won the majority of seats in the province’s legislature, ending a 44-year political dynasty. Some in British Columbia are ecstatic about the win. Others are cautioning that the upset could have implications for both Alberta’s and B.C.’s economies. “We’re just elated, to be honest with you,” said Art Sterritt, director of Coastal First Nations. The group has been fighting Enbridge’s proposed Northern Gateway pipeline project, which would carry bitumen from Alberta’s oil sands across northern B.C. and terminate in Kitimat. Notley has said she will not push for Northern Gateway project or the proposed Keystone XL pipeline, but will focus on Kinder Morgan’s plan to twin its existing Trans Mountain pipeline and the proposed Energy East pipeline. “The importance of that [stance] is that we don’t have an Alberta premier coming out here and trying to get our premier off the fence in terms of supporting Northern Gateway,” Sterritt said. “That’s a big deal, because there was a lot of that going on.” Greg D’Avignon, president and CEO of the Business Council of British Columbia, is concerned that Notley’s promise to raise corporate income tax as well as taxes on high income earners will dampen Alberta’s already-shaky economy. “Companies, when they make investment decisions, look at a myriad of things and corporate tax is one of them,” he said. “When you’re bringing in top talent and their job is to create wealth, [higher income taxes] can be a headwind against attracting that talent.” Of special concern to D’Avignon is the impact this big change will have on provincial government initiatives. Many of the MLAs elected are new to the job and have never held office before. More on Page 24
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North Montney pipeline approved $1.7 billion, 300 km pipeline awaits positive final investment decision on Pacific NorthWest LNG before construction begins — a decision that is expected sometime this year William Stodalka
Pipeline News North kahta section starts
Canada’s National Energy Board (NEB) recommended approval of the $1.7 billion North Montney Mainline Project, the latest domino to fall on the way to a final investment decision for Petronas' Pacific NorthWest LNG. Progress Energy CEO Michael Cuthbert described it as “a key component” of a natural gas pipeline to the coast. Progress is owned by Petronas and will produce the natural gas for the Pacific NorthWest LNG project if it moves ahead. The North Montney Mainline — to be built by Nova Gas Transmission Ltd. (NGTL) — will be part of a network of pipelines that transports natural gas to the West Coast, where it would be liquefied and exported. The other key part of that network is the Prince Rupert Gas Transmission Line. TransCanada, which owns NGTL, would construct the latter pipeline. The North Montney Mainline project would commence from an area 100 kilometres northwest of Fort St. John and travel about 300 kilometres to connect to the Nova Gas Transmission System. This would feed into the Prince Rupert Gas Transmission Line. A 2013 estimate put the cost of the North Montney Mainline project at about $1.7 billion, including about $876 million of construction contracts and employment benefits. “The majority of these we see happening in B.C,” said Blaine Trout, TransCanada’s manager of pipeline projects. “We look to meet most of that with a regional workforce, but a portion of these will opportunities will be filled from other parts of B.C. or outside of B.C.” The project is expected to create 2,000 to 2,500 direct jobs. The National Energy Board, a Federal oversight body, was asked to review NGTL’s proposal. The Federal government now has to review that recommendation, but that's usually considered a formality.
north montney mainline this is what it is proponents: NOVA Gas Transmission associated LNG project: pacific northwest lng, other producers length: 305 kilometres where: Peace region price tag: $1.5 billion
aitken section starts
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PIPELINE NEWS NORTH •
PIPELINES
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PRGT pipeline permits issued Construction work, which includes right-of-way clearing, will not begin on these two sections before conditions of the permits are met and a final investment decision has been made by Pacific NorthWest LNG TransCanada Corporation says it has received the first two permits from the British Columbia Oil & Gas Commission approving construction for two sections of the Prince Rupert Gas Transmission project (PRGT) along approximately 250 kilometres of the route. The pipeline approvals are for sections that extend from 20 kilometres northwest of Hudson’s Hope to approximately 50 kilometres north of Fort St. James. “Receiving these first two permits is very good news and represents another key milestone for our project,” Dean Patry, president of PRGT, said in a news release. “Combined with our recently announced project agreements with certain First Nations communities that highlighted the economic benefits they would receive, the issuance of these permits demonstrates that TransCanada is listening and remains committed to participating in the development of the province’s liquefied natural gas export industry in a safe and environmentally responsible manner.” PRGT has applied for 11 OGC pipeline and facilities permits for the project. Along with the Environmental Assessment Certificate, issued to PRGT by the B.C. Environmental Assessment Office in November 2014, these permits provide the project with the authority to proceed with construction of the pipeline and related facilities. However, construction work, which includes
right-of-way clearing, will not begin on these two sections before conditions of the permits are met and a final investment decision has been made by Pacific NorthWest LNG. The permits for these two sections include approximately 70 conditions, which will govern implementation of the project, related to notification and reporting, heritage conservation, First Nations, land clearing, wildlife, terrain stability, stream crossings and engineering. TransCanada is advancing the development of approximately $13 billion in natural gas projects in B.C., which will generate significant construction spending in the province plus taxation, jobs and other benefits. PRGT is engaging with Aboriginal groups across the pipeline right-ofway and to date has announced three long-term
project agreements, with others expected to be announced in due course. R0011041491
Daily Oil Bulletin
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Environmental assessment officially begins on WCC LNG project Export facility would produce up to 30 million tonnes of liquefied natural gas per year, and would cost upwards of $25 billion Mike Carter
Pipeline News North
The environmental assessment process has officially begun as of April 27 for the proposed West Coast Canada (WCC) LNG liquefied natural gas export facility and associated marine terminal. If approved, the project would be built in the community of Tuck Inlet, east of Prince Rupert. WCC LNG is a project being proposed by Exxon/Mobile and its Canadian subsidiary, Imperial Oil. The export facility would produce up to 30 million tonnes of liquefied natural gas (LNG) per year, and would cost upwards of $25 billion, according to Exxon. The United States-based energy giant is positioning itself to compete with Malysian stateowned Petronas, widely viewed as the front runner among the 18 companies in a race to export LNG to Asia from the B.C. coast. A project description has been submitted to both the British Columbia Environmental Assessment Office (EAO) and the Canadian Environmental Assessment Authority (CEAA). In January, the EAO notified WCC LNG that the project would need an environmental assessment certificate. In March, following approval by federal Environment Minister Leona Aglukkaq, the EAO and the CEAA signed a Memorandum of Understanding on a substitution of environmental assessment, giving the B.C. EAO the lead on the project. WCC LNG was granted an export licence on Dec. 16, 2013 for a term of 25 years. The permit was approved by the federal government in March 2014. There have been ongoing talks between First Nations and the proponent since 2011. Exxon says it hopes to secure a provincial environmental certificate by 2016. According to the project description, WCC LNG forecasts the production and export facility could generate up to 6,000 construction jobs at its peak, 250 plant workers once built and a further 150 contract workers including tug operators, boat pilots, cleaning and catering services, local transportation services, safety, audit and monitoring services. Capital costs for the first phase could reach
WCC LNG Final investment decision: 2017 Partners: Imperial Oil/Exxon Mobil Price tag: $25 billion in first phase Location: Floating or on shore facilities, Tuck Inlet, Prince Rupert EA: In pre-application stage of BC EAO; hopes to secure provincial EA certificate by the end of 2016. Export license: Approved by NEB for 30 MTA Pipeline: N/A
Exxon, the world’s largest energy company, and its Canadian subsidiary, Imperial Oil, have proposed to develop an LNG project under a venture known as WCC LNG Ltd. Judging by the export permit and regulatory filings, this is a massive project. Much about the project came to light in a report filed by Exxon in January 2015 with the B.C. Environmental Assessment Office that shed light on the first phase of the project. On Dec. 16, 2013, WCC LNG was granted a license to export 30 million tonnes of LNG per year for a term of 25 years. Latest In July 2014 WCC LNG hosted an open house for North Coast residents, in which they provided a brief outline of their project, and disclosed the location for the facility, just north of Prince Rupert. At the beginning of December 2014 the City of Prince Rupert rezoned District Lot 444 for the LNG facility, and incorporated it into the Official Community Plan. On Jan. 7, BC EAO announced that WCC LNG had entered the pre-application phase of their assessment. Three days later, Exxon’s report filed with the B.C. Environmental Assessment Office shed light on the first phase of the project, particularly on the number of jobs, capital cost estimates and First Nations consultations. EAO has submitted a request to conduct a substituted environmental assessment on behalf of the federal government for the proposed WCC LNG Project, on Jan. 13, 2015. Final Investment Decision In January 2015 Exxon came out with a rough estimate for a final investment decision: 2017.
between $15 — $25 billion, making it one of the largest investments in B.C.’s fledgling LNG industry. The project will draw natural gas from northeast B.C. and northwestern Alberta. Two pipeline projects, TransCanada's Prince Rupert Gas Transmission (PRGT) and Spectra Energy's West Coast Connector are competing
to deliver gas to the proposed export facility. Both were granted an environmental certificate by the B.C. EAO on the same day Nov. 25, 2014. "Both proposed pipeline projects are considered viable alternatives for WCC LNG's gas supply," the project description states. dcreporter@dcdn.ca
MAY 15, 2015
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PIPELINE NEWS NORTH •
DAWSON CREEK
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‘Buy local’ center stage at meeting TransCanada/Coastal GasLink pipeline information session in Dawson Creek largely aimed at local businesses, informing them about project and how they can get involved, should it pass environmental review Mike Carter
Pipeline News North
Local spending was the focus at a recent TransCanada Corp./Coastal GasLink pipeline open house in Dawson Creek. A range of local business representatives turned up at the Calvin Kruk Centre for the Arts. Some expressed concern that promises made by the pipeline company might amount to lip service, and not as much local investments would be borne out if and when construction begins. The information session was largely aimed at local businesses, informing them about the proposed Coastal GasLink pipeline project and how they can get involved, should it pass the environmental assessment. Mayor Dale Bumstead encouraged TransCanada to find a way to ensure "local means local." "One of the things for me is, these major companies come in and they build these mega-projects and they rely on our community for core infrastructure needs. Water, sewer, [and] police," he said. "I don't think [we've been] necessarily burned before, but there's been situations where you see these companies come in and they've got a [local] telephone number, but red and white Alberta plates. How is that local?" Businesses in Dawson Creek have been encouraged to sign up for the company's online database to ensure that they would get fair consideration for the contracting opportunities that go along with the project. Doug Dunsire of Northern Metallic Sales in Dawson Creek said he found the open house useful. "You get to learn what's coming to the community which helps," he said. "We know the contractors are coming, the opportunities are there. If they need stuff, we'll supply it." Coastal GasLink is a proposed 670 kilometre
Attendees review a map for the proposed Coastal GasLink pipeline project at a TransCanda Corp. open house at the Calvin Kruk Centre for the Arts. MIKE CARTER PHOTO pipeline that will carry natural gas from the Groundbirch area — between Chetwynd and Dawson Creek — to the proposed LNG Canada export terminal near Kitimat. LNG Canada is a partnership of Shell Canada Ltd., Korea Gas Corp., PetroChina Ltd. and Mitsubishi Corp. The project description was submitted to the British Columbia Environmental Assessment Office in January 2014. It was granted an Environmental Certificate in October 2014. The project is dependent on a final investment from the LNG Canada Partnership, which is expected in mid-2016. TransCanada representative Scott Bone said the company is currently reviewing contract bids from the multinational corporations that will do the main construction work.
The Coastal GasLink pipeline is also dependent on other projects, like the North Montney Mainline and Prince Rupert Gas Transmission that will carry gas south and then west from the North Peace. The North Montney project was recently granted approval from the National Energy Board. The Prince Rupert Gas Transmission project was granted an Environmental Assessment certificate last November. The Coastal GasLink project has completed a Socio-Economic Environmental Management Plan (SEEMP), required by the Ministry of Community, Sport and Cultural Development, which lays out specific actions to address engagement with area First Nations, local governments and provincial service delivery agencies regarding effects to community level infrastructure and services like water, waste (solid and liquid), health and social services. dcreporter@dcdn.ca
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SITE C
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‘Hotel-like’ Site C worker camp to boast theatre, gym, licensed lounge William Stodalka
Pipeline News North
SUBMITTED PHOTO
An artist's rendition of worker accommodations for the Site C dam.
SUBMITTED PHOTO
An artist's rendition of an exercise facility for the Site C dam project. local and regional businesses and job-seekers with Two Rivers Lodging Group and respondents to other Site C contracts. Construction is expected to begin this year. The first phase, planned for completion in early 2016, will accommodate 300 people. The sec-
ond phase will house 900 people, followed by a third phase for a further 400 people. According to Alisa Charkova, ATCO Structures senior advisor for external communications, the accommodations will provide room for 1,600 to 2,200 workers when
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The proponent chosen by BC Hydro to build lodging for Site C dam workers says the facility will include a movie theatre, gym, licensed lounge, multifaith centre and single bedrooms with TVs and Wi-Fi. The utility recently announced that Two Rivers Lodging Group was selected to build the facility for 1,600 workers over two other short-listed proponents — Peace River Housing Partners and Plenary Living. “We’re pleased that — after a rigorous evaluation process — we have selected an experienced and qualified preferred proponent for Site C worker accommodation, within the budget established for this contract,” wrote David Conway, a BC Hydro Site C spokesperson. BC Hydro expects to award the official contract late this summer. Conway said at that time, the company will say how much Two Rivers will receive for the work. Two Rivers Lodging Group is part of ATCO Structures, an Alberta-based company that provides temporary worker housing for industrial projects. “The preferred proponent is contractually obligated to provide a specified amount of contracting opportunities to identified First Nations,” wrote Conway. While BC Hydro has promised opportunities would be available for local contractors, Conway could not provide further detail. Conway could not give an estimate as to how many people would be employed to construct the Site C accommodations. Conway wrote that sessions are planned for this fall that will connect
completed. A three-story building will include single bedrooms equipped with TVs and Wi-Fi. “The lodge will feature a central lobby that will give the building an open, hotel-like feel as well as a multi-faith centre, 100-person movie theatre and licensed lounge, and a stand-alone gymnasium that will include a running track and separate weight training area,” ATCO’s website states. “To further enhance remote working conditions, services such as physiotherapy, massage and hairdressing will also be available at the lodge.” It will also include a wastewater treatment plant. Workers will not be required to reside in the camp, but BC Hydro is hoping that the camps amenities will lure people into staying there. The contractor will remove the camp upon completion of the project. “We have had discussions with worker accommodation manufacturers and operators and their advice has been that the infrastructure is unlikely to be in appropriate condition to convert into permanent housing and that the costs associated with dismantling, repurposing and re-constructing the units can be prohibitive,” wrote Conway. “In addition to the on-site worker accommodation, BC Hydro is building a total of 50 new rental housing units in Fort St. John,” Conway added. “Forty units will be used by construction workers and their families during project construction, and 10 units will be available for immediate use by the community. At the completion of construction, all 50 units will remain for use as affordable rental housing for community use.” reporter@ahnfsj.ca
MAY 15, 2015
PIPELINE NEWS NORTH •
SITE C
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Rebar battle could add $60 million to Site C costs
Piles of rebar in a Dawson Creek work yard. The province and an industry group worry a federal tariff on rebar imports will put B.C. at a disadvantage and add to the cost of the Site C dam. JONNY WAKEFIELD PHOTO
Pipeline News North
The cost of the Site C dam could jump between $15-$60 million if B.C. isn't exempt from a tariff on rebar imports, an industry group says. Duties on rebar, a steel rod used to reinforce concrete, have been the focus of an ongoing trade dispute between B.C. and the federal government. The federal government is looking to apply a rate of between 10 and 40 percent on rebar imports to protect manufacturing jobs, said Philip Hochstein, president of the Independent Contractors and Businesses Association of B.C. (ICBA). That would be unfair to B.C., which gets the majority of its rebar from South Korea and
China, he said. The provincial government and ICBA filed jointly with the Canadian International Trade Tribunal for an exemption. While the tribunal declined to exempt B.C., it will hold hearings on the issue this summer. "We become collateral damage in a battle that's Eastern Canada-based," Hochstein said. "We asked for the exemption because the foreign-owned steel mills in Eastern Canada don't really service us in B.C." According to a release from the B.C. Ministry of International Trade, few construction companies in B.C. use rebar from Eastern Canada in the first place, due to the high cost of shipping it by rail through the mountains. That means a tariff would not protect existing Canadian jobs, the province argues.
"This issue should be a concern to every British Columbian, as these costs get passed along to consumers and taxpayers," Minister Teresa Wat said in a release. If the tariff stands, it could be bad news for Site C, which is expected to use around 40,000 tonnes of rebar. Depending on where the rebar is sourced, that could mean between $15-$60 million added to the dam's $8.8 billion price tag, Hochstein said. A liquefied natural gas plant, meanwhile, is expected to need at least 12,000 tonnes of rebar. That's another concern for the government, Hochstein said. "I think what the government is worried about is these kinds of added costs make B.C. less competitive, not only for LNG plants but all kinds of investment," he said. reporter@dcdn.ca
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Woodside closes purchase of Kitimat LNG Included in the deal is the approximately 320,000 acres in the Horn River Basin and Liard Basin Woodside says it is continuing 'activities required to meet its obligations' for its planned LNG plant at Grassy Point David Dyck
Backgrounder: Kitimat LNG
Pipeline News North
Final investment decision: H2 2016 Partners: Chevron/Woodside Petroleum 50/50 equity Location: Land-based facility, Bish Cove, Kitimat Export license: Approved by NEB for 10 MTA Pipeline: Pacific Trails Pipeline BC EA: Certificate issued June 2008 Source of gas: Chevron/ Woodside’s holdings in Horn River, Liard basins
Basin, a natural gas resource currently in appraisal mode, which is planned to supply the Kitimat LNG facility. Under its previous 50/50 arrangement with Apache Canada Ltd., Chevron was the operator of the LNG plant while Apache was operator of the upstream resource, including assets in the Liard. Chevron to take over as Woodside is listed as operator of the upstream operator of Liard; Liard wells from April 10 to June 1, 2015, Woodside outlines wells and an agreement is in place with Apache to provide operator services in that peChevron Canada will become riod. Operatorship will then transfer to operator of the upstream Liard Chevron Canada by June 1.
Woodside outlined plans for seven appraisal wells to begin in the second quarter of 2015 in the LiardBasin in northeast B.C. Grassy Point Woodside continues “activities required to meet its obligations” under the Sole Proponent Agreement for a planned LNG plant at Grassy Point. This includes progressing the environmental assessment process for a proposed LNG facility. This is a separate project from Kitimat LNG.
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Kitimat LNG is currently in the Front End Engineering and Design (FEED) phase. In January 2014, JGC/ Fluor was awarded the engineering, procurement and construction contract. The project has all major provincial and federal environmental approvals in place. Fifteen First Nations had signed on to the project as of April 2014. The proposed facility would be built on land leased from the Haisla Nation. The facility will include two liquefaction trains to cool gas to a liquid state. Final Investment Decision: The companies say an FID will require firm LNG sales contracts and more agreements with First Nations. No off-take agreements have been announced, which currently is this project’s biggest hurdle.
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Australia’s Woodside Petroleum Limited has closed the acquisition of Apache Corporation’s interest in the Kitimat LNG project for a purchase price of US$854 million. The total includes US$354 million in adjustments for reimbursement of net expenditures on the project, changes in working capital and other customary adjustments for the period between the effective date, July 1 2014, and closing. Woodside picked up a 50 per cent interest in the Kitimat LNG project, including approximately 320,000 net acres in the Horn River and Liard Basin near the Northern Rockies Regional Municipality. The deal was first announced in December. Apache completed the previously disclosed sale of the Wheatstone LNG project and accompanying upstream oil and gas reserves to for total proceeds of $2.82 billion. Woodside holds 50 per cent equity in the Liard and Horn River Basins and 50 per cent equity in downstream Kitimat LNG.
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Zimmer hosts business roundtable David Dyck
Pipeline News North
Prince George-Peace River MP Bob Zimmer hosted Minister of National Revenue Kerry-Lynne Findlay at his Fort St. John office, inviting local business owners to take part in a roundtable discussion on small business. Although media were not invited to attend, there was a press conference immediately following the session in which the Conservative minister said the discussion centred around cutting red tape of government bureaucracy and challenges associated with workforce retention. “Some of the paperwork and requirements — not just federally, but from all levels of government — can be very onerous for small business,” said Findlay. “They basically have to fill out the same amount of paperwork as a business that may have 90 em-
MP Bob Zimmer and Minister of National Revenue Kerry-Lynne Findlay meet dozens of Peace Region business owners to discuss cutting red tape and workforce retention
ployees and some are dedicated to [paperwork], so we had some discussion on that, ways that we may be able to simplify things for small business,” she added. On the training side, she said some local business owners expressed frustration that employees they’ve invested in find it easy to get jobs elsewhere. “With the competitive wage here, a lot of the businesses are doing very well here in Fort St. John,” said Findlay. Prince George-Peace River MP Bob Zimmer (left) hosted the Minister of Na“But the workforce is aware they tional Revenue, Kerry-Lynne Findlay at his Fort St. John office. They invited locan move to other businesses, may- cal business owners to take part in a roundtable discussion. DAVID DYCK PHOTO be bigger businesses, better paid eryone’s really concerned about, businesses, and how to work with away the local workforce. Other than that, some of the ‘Can we streamline? Can we make that. We chatted about that quite a problems that businesses have here it simpler? Can we get more forms bit.” More unique to the Peace Re- are similar across the country, she that we can download? How do we access things online? Are our comgion, said Findlay, was it’s location. said. “I do these roundtable discus- munications with the CRA secure?’” A relatively close proximity to cenpeacereporter@ahnfsj.ca tres like Fort McMurray can draw sions across the country, and ev-
CAPP visits Northeast B.C. to talk state of industry Mike Carter
Pipeline News North
The Canadian Association of Petroleum Producers (CAPP) was invited by the Dawson Creek Chamber of Commerce to provide a market outlook presentation at a luncheon at the Calvin Kruk Centre April 28. Chris Montgomery, manager of natural gas communication and outreach, explained the reasons behind the current downturn for attendees. "You are seeing a slowdown in this area for two reasons really," he explained. "First, it's what we call spring breakup and the ground is really soft right now. It's hard to move equipment out to where the resource is. So at this time of the year there is a bit of a slowdown. Combined with that you are seeing prices go down." The federal budget provided some good news for the current climate, Montgomery added, with announcements that allow liquefied natural gas proponents to defer capital costs. "This helps them during the development phase when they're not making any money," he explained. "It was a demand of basically all the
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MIKE CARTER PHOTO
Chris Montgomery, manager of natural gas communication and outreach for the Canadian Association of Petroleum Producers, provides a market update for attendees of a Dawson Creek Chamber of Commerce luncheon April 28. LNG proponents, so that will help." The federal government also announced that LNG export licenses will be extended from a maximum of 25 years to 40 years. dcreporter@dcdn.ca
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53 Annual Oilmen’s rd
SCHEDULE Wednesday, June 3, 2015 • Afternoon practice round • Registration • Thursday, June 4, 2015 • Spirited breakfast at 5am to 10:30am (ticket required) • Golf all day • Stag at Curling Club • Bar opens at 5:30pm with meal from 7:30pm - 9pm - Meal catered by Curling Club Concession • Entertainment • Pre drawn prizes must be picked up by Stag Night close • Door Prizes
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MAY 15, 2015
DAWSON CREEK
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Turnout low, spirits high at trade show Vendors hit capacity, but visitors down 25% Mike Carter
Pipeline News North
Despite packing two arenas with vendors, the Dawson Creek Kiwanis Club Trade Show's attendance dropped below 10,000 for the first time in recent memory. Organizers estimated that around 8,900 people paid the price of admission, down from an average of 12,000 over the past few years. "We went up against a monster truck show," Trade Show Organizing Chair Kristina Van De Walle said. "We're too small a town to have two big events [on the same weekend]. We're not Grande Prairie. "Everything in us curled up when we saw that [there was] another big event on the same weekend, because it directly impacts our show," she added. But while the number of people attending may have dropped slightly, the number of vendors at the show remained high. Too high, in fact, for organizers to fit them all in. Van De Walle explained that for the sixth consecutive year, all vendor booths were booked. But that didn’t stop vendors from waiting in
Crowds packed both the Memorial and Kin arenas in Dawson Creek for the 40th annual Dawson Creek Kiwanis Club trade show. Over 250 vendors were in attendance. Above: Both young and old loved hoping in the Northern Lights
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College chopper to check out the cockpit.
PIPELINE NEWS NORTH •
DAWSON CREEK
MIKE CARTER PHOTOS
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the wings for any no shows. “Unfortunately we did have to turn them away. We ran a full show,” Van De Walle said. Vendors like Abbotsford’s Vern Henderson of Goodies by Thelma said he was glad to get a spot. Henderson sees a real benefit from the Dawson Creek trade show. Henderson logs about 100,000 kms a year, hitting shows and rodeos in B.C. and Alberta. “It’s the only way to do it,” Henderson said. “Just from doing this show alone, the Dawson Creek Co-Op carries my products here locally in the deli area. People are always looking for more and more local products, local meaning B.C. or Canada made versus international.” The trade show is also the club's biggest fundraiser of the year, supporting initiatives such as the Kiwanis Early Learning Hub, the Kiwanis bands, scholarships and the "books and bears" program at the hospital — which gives sick children a "get better bear" and books for waiting room. It was the first time in recent memory that another event impacted the show. “You always want the numbers to be strong for the exhibitors so they can be successful,” Van De Walle explained. “For us, we want the numbers to be strong because Kiwanis runs so many programs for the community and without that money, we only do one fundraiser a year, so all of our eggs are in one basket.” With the 2016 trade show dates already set, Van De Walle says the Kiwanis Club will try and work with the city and events staff at Encana Events Centre to to prevent a reoccurance. “We have to protect that weekend,” she said. “I think there is a way it can be win-win all the way around.” dcreporter@dcdn.ca
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‘The energy business is in the midst of major disruptions and now we have a major government disruption. [Notley] has already said that she’s going to work with the industry, which is very positive. My advice to the industry is to work with this new government positively and with some cre ative ideas on how to position the industry for the future realities.’
From Page 6
“However they also have an electoral base that will push the party to act on key campaign pledges, including raising corporate taxes and royalty rates. The party leader’s statements on selective or qualified support for some pipeline projects is also troubling,” he said. Leach noted that there is a long list of issues the oil and gas industry was working on with the previous provincial government, from royalty incentive extensions, aboriginal consultation policy, pipeline access, caribou habitat, regulatory approvals processes, municipal taxation, GHG emissions and more. According to Leach, the direction of these discussions is now unclear. “The uncertainty the election brings is not favourable for investor confidence in the Alberta oil and gas sector and is already being portrayed in U.S. business media as a victory for a ‘left leaning’ government that plans to raise royalties and raise corporate taxes,” he said. “EPAC will be looking to establish a level of trust and understanding with the new government while making it clear that we oppose government policies that will negatively impact a recovery in the oil and gas sector. Alberta’s economic recovery, and future prosperity, will require a clear road ahead in terms of fiscal, royalty and regulatory policy and we will be urging the government to clarify its intentions in these areas as soon as possible.” While the Canadian Association for Petroleum Producers (CAPP) has made it clear that it does not think now is the time for a royalty review that will add uncertainty at a time when jobs and capital investment are very much at stake, spokesman Jeff Gaulin said the association is hopeful positive dialogue with the new government will occur. “First and foremost, Albertans have spoken loud and clear. Secondly, it’s important to recognize that we work with governments of all political stripes … so we’re confident that we will be able to work with Miss Notley and her administration in the days ahead to chart a path forward that does two things: that protects jobs and grows investment in the oil and gas industry,” he said. “I think her administration, the Alberta government and the people of Alberta recognize the importance of the oil and gas industry to our economy and to our prosperity and to what it means to keeping people working. And that should be our primary focus right now,” Gaulin added. “I think there’s a big job whenever there’s a change in government … [and] there’s much to focus on in these very volatile times in our industry, and the province as a whole.” Gaulin said that when CAPP sits down with Notley and her leadership team in the coming days discussions will focus on jobs and attracting investment into the Alberta oilpatch. “And the two policies that we think can achieve that are increased market access … and how do we keep the industry competitive,” he said. “We compete globally for technology, for capital and for talent. So how do we keep Alberta attractive for that type of investment because it’s that investment that will put Albertans back to work?” Mark Salkeld, president and CEO of the Petroleum Services Association of Canada, said that while he doesn’t know “what’s in store for Alberta with the change in government,” he’s confident that the NDP recognizes the importance of the oil and natural gas industry to all Albertans. “A robust industry means jobs and it means money for infrastructure, health care and education. To that end, we welcome the opportunity to work with Rachel Notley and her team to ensure a smooth transition and continued prosperity for Alberta going forward,” he said. Other views “I think the business community is going to be awfully worried here,” said Jeremy McCrea, analyst at AltaCorp Capital Inc. “There are going to be a lot of worried executives on what royalty rates are going to be here
going forward.” In a note, McCrea added that near-term, AltaCorp is cautioning investors that with the NDP win and the likelihood of a royalty review, the uncertainty will have an impact for Alberta-based oil and gas producers. “Based on our analysis of the 2007 ‘Our Fair Share’ royalty report, capital markets clearly favoured U.S. energy stocks. “Longer term, we also caution investors that royalty rates may potentially change and although no specific details have been released by the NDP, we note that the party was previously critical of the original ‘Our Fair Share’ report,” he said. “Overall, investors will likely weigh investment decisions on the party’s historical messaging that suggests royalty rates should be materially higher, which ultimately will be negative for energy share prices.” Peter Tertzakian, managing director and chief energy economist at ARC Financial Corp., doesn’t believe the election of a NDP government “is as bad as people think.” Rather, it could be an opportunity to start “thinking about the future with a blank piece of paper.” “The energy business is in the midst of major disruptions and now we have a major government disruption. [Notley] has already said that she’s going to work with the industry, which is very positive. My advice to the industry is to work with this new government positively and with some creative ideas on how to position the industry for the future realities,” he said. “The industry needs to have more than just an open mind — I think you have to go with forward thinking and that this is an opportunity to get away from business as usual,” Tertzakian added. “The notion out there was when oil prices go back up, then it’s business as usual. I’m saying that when oil prices go back up it wasn’t going to be business as usual anyway. So we need to be thinking about creative ways of repositioning this industry in the context of the new realities.” Tertzakian said it’s vital that government and industry find a way to work together in a proactive manner. “I hope the industry approaches the government in a positive manner and I hope the government listens, because I think the new government, as well, has the potential to fall back into old-school thinking about how the business operates.” Michal Moore, an energy economics professor with the University of Calgary’s School of Public Policy, agreed that it’s not all doom and gloom. “I know that there are other economists in the province who suggested that a tax increase was death for the industry. I’m not one of them,” he said. “In my opinion, Mr. Prentice made a pretty large tactical error by not acknowledging that the pain that is pretty wide-spread was going to have to be shared by everybody if we are going to, in one way or another, survive this downturn in prices, which of course is currently recovering somewhat, and have a stable industry going forward,” Moore added. “My guess is one of the new realities that will be acknowledged is that there will be some tax increases, there will likely be a review of the way royalties are assigned and if I had to guess, I would say that one of the higher priorities of the NDP will be to look at the structure — the skeleton — of the royalty scheme.” Ed Whittingham, executive director of the Pembina Institute, said Albertans voted for change — and that change includes improving Alberta’s environmental record and its approach to climate change. “We support the Alberta NDP’s commitments to invest in energy efficiency, and to phase out coal-fired electricity and replace it with cleaner sources,” he said in a statement. “We also applaud their commitment to take leadership on the issue of climate change — and that includes coming up with a credible plan to manage the growth in greenhouse gas pollution from the oilsands, and meet Alberta’s 2020 climate target.”
MAY 15, 2015
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MAY 15, 2015
ALBERTA
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NDP win paves way for North West Upgrading Project: CEO
Paul Wells
Daily Oil Bulletin
The chief executive of the company building the first phase of an oilsands upgrader and refinery northeast of Edmonton says the election of an NDP government in Alberta likely paves the way for the next two phases of the project to go ahead. “I think the environment is better now [for the next two phases],” Ian MacGregor, president, chief executive and chairman of the board of Calgarybased North West Upgrading Inc. (NWU), said in an interview.“I have not talked to anyone in the government yet, but I believe we’re aligned [with] the same objectives.” During the recent provincial election campaign, the NDP pledged to rebalance the tax and royalty system to reward resource processing in Alberta and reduce what it described as the province’s over-dependence on raw bitumen exports. Party leader and now Premier-elect Rachel Notley argued that shipping raw bitumen to existing upgraders in the United States robbed the province of the value-added jobs upgraders and refineries bring with them. Former NDP leader Brian Mason, who is expected to play a key role in the new government, said that upgrading and refining should be linked to companies obtaining oilsands leases. AFL support The Alberta Federation of Labour (AFL), which backs the NDP, also argues that upgrading within Alberta should be strongly promoted by government.
Last October it released a study, Upgrading Our Future: The Economics of In-Province Upgrading, which argued that, even without government subsidies, an upgrader would produce a rate of return of 19 to 22.6 per cent with oil prices of between $80 and $120 a bbl WTI. The study’s author, Ed Osterwald, a senior partner with United Kingdom-based Competition Economists Group (CEG), has since updated his assumptions, based on lower crude prices. The economics “become pretty marginal, to essentially uneconomic” at WTI prices below $50 a bbl, he recently wrote to the AFL. However, Osterwald also wrote that, based on the current oil and gas industry downtown, construction costs could decline by 20 per cent to 30 per cent, meaning “there is a good possibility that an oilsands upgrading project may actually still be viable.” MacGregor said the NWU upgrader, being built in Sturgeon County, northeast of Edmonton, will definitely be profitable and his company, a partnership that includes 50 per cent owner Canadian Natural Resources Limited (CNRL), is ready to build all three phases, which would ultimately upgrade 237,000 bbls of bitumen per day. “I came to build all three phases,” said MacGregor, an engineer with over 30 years of energy related business creation and development experience, including oilfield engineering and construction company Abax Energy Services and White Pass Capital Inc., a private investment and advisory firm.
Morton critique Although construction costs for the project, now about 25 per cent complete, ballooned to $8.5 billion when construction started last year from an estimated cost of $5.7 billion when it was announced in 2012, MacGregor said recent criticisms of the project by Ted Morton, former provincial finance and energy minister, “are based on errors in arithmetic.” Morton, now with the University of Calgary’s School of Public Policy, maintained that the project was a questionable investment when construction costs were lower and oil prices higher and the government is “on the hook” for as much as $26 billion in bitumen processing payments. “Falling oil prices are further undermining the prospects for the investment to break even,” Morton told the Daily Oil Bulletin after his report was released in mid-April. He added that the project has “morphed into a multibillion-dollar boondoggle with high risks for Alberta taxpayers.” According to Morton, the Conservative government’s original bitumen royalty-in-kind (BRIK) program in which the government would collect bitumen in lieu of royalties and then sell it to encourage upgrading in Alberta has been compromised and turned into an ongoing subsidy for the NWU. He argued that under a new “take or pay” arrangement the government has assumed liabilities that could grow to $19 billion over the 30year contract with NWU. More on Page 28
MAY 15, 2015
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“When you then start layering on a royalty review and other issues, that creates uncertainty and starts to have capital hesitation around whether that should be spent in the province.” From Page 7 “That learning on the job could lead to mistakes and delays and that could be a consequence for Alberta and B.C.,” D’Avignon warned. As well as planning to hike taxes, Notley has promised to review the province’s royalty structure for the oil and gas industry. “When you then start layering on a royalty review and other issues, that creates uncertainty and starts to have capital hesitation around whether that should be spent in the province,” D’Avignon said. Many observers are scratching their heads over how such a stalwartly conservative province could have leaned left so suddenly. David Moscrop, a Ph.D candidate in political science at the University of British Columbia, said the combination of a united
left running against a divided right was a key factor. The socially conservative Wildrose Party won more seats that the PC party, making them the official opposition. Meanwhile, the NDP faced no serious competitors on the left. “Where did all these lefties come from? Well, they were always there,” Moscrop said, noting that around 45 per cent of Alberta’s electorate usually votes either NDP or Liberal. Moscrop doesn’t believe the outcome in Alberta will have a big impact on the upcoming federal election, but it will “light a bit of a fire” under the federal NDP as they ramp up campaigning, he said. As for the economic impact, the Alberta NDP is still a “pipeline party,” Moscrop said. “I don’t think you’re going to get a revolution. You’re going to get some new ideas,” he said.
MAY 15, 2015
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FAIR SHARE
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Dawson mum as FSJ gets combative Jonny Wakefield
Pipeline News North
While Fort St. John and Taylor shout from the rooftops their displeasure with the province's plan to renegotiate the multimillion dollar Fair Share deal, Dawson Creek is giving a no comment. Dawson Creek Mayor Dale Bumstead is mum on the status of Fair Share negotiations, in stark contrast to Fort St. John and Taylor. In April, those towns released a statement "calling on the premier to immediately halt the current process to impose a new Fair Share agreement on municipalities in Northeast B.C." A second release declared that the province's "exploitation of the North has begun." Fair Share gives local governments in Northeast B.C. tax revenue for industrial activity that takes place outside city boundaries, but draws
Fort St. John embarks on Fair Share negotiations William Stodalka
Pipeline News North
The City of Fort St. John officially began negotiations with the province in May for a new Fair Share deal, after months of disagreement
Fort St. John & Taylor maintain province is trying to impose a deal on Northeast
heavily on their municipal resources. It makes up over 20 per cent of Fort St. John’s budget and about one-third of Dawson Creek’s revenue. In place since 1994, the deal is expected to pay out a total of $696 million by 2019. It is effectively the region's only access to industrial tax . Fair Share was thrust onto centre stage in late February, when local government minister Coralee Oakes informed leaders that the province would like a new agreement signed by April 30. Now, Fort St. John and Taylor maintain the province is not negotiating, but trying to impose a deal on Northeast B.C. It's a deal they say would cost the region $70 million between now
over what would be on the table at the talks. While the province characterized the talks that had taken place up until then as negotiations, Fort St. John said it was given a take it or leave it offer. “The Province has provided a new framework [to negotiate], which is broad enough to allow the advancement of the criteria outlined in the City of Fort St. John and District of Taylor Resource Municipalities position paper,” said the city in a release. In February, the B.C. Liberals said they planned to scrap the current Fair Share arrangement, which was supposed to run until 2020. Fort St. John had said it did not want to renegotiate the deal, be-
and 2019. "If [the province is] prepared to tear up our existing [agreement], whose agreement is safe? Obviously no one's," Taylor Mayor Rob Fraser wrote in a statement. “The province is demanding ‘give us your industrial tax base.’ When that happens we will have no way to expand our services and facilities to support Site C and all of the LNG development the province is promoting.” The attempt to renegotiate the existing deal appears to go against Premier Christy Clark’s campaign promise to “extend [the] Fair Share agreement to 2030.” When asked if that was the case, Dawson Creek Mayor Dale Bumstead said it would be “unfair” to the city’s negotiating team — which includes former mayor and MLA Blair Lekstrom and the legal firm Lidstone and Company — to comment. reporter@dcdn.ca
cause doing so would result in foregoing millions of dollars in revenue. Fort St. John and Taylor are negotiating as one block with the province. The province wants a new agreement to run from 2016 through 2030. Mayor Lori Ackerman told Alaska Highway News that she could not elaborate on the framework, as it was part of the negotiations. Fair Share gives local governments in Northeast B.C. tax revenue for industrial activity that takes place outside city boundaries, but draws heavily on their municipal resources. It makes up over 20 per cent of Fort St. John’s budget and about one-third of Dawson Creek’s revenue. “What we can tell you is that what
they’ve come back to is a framework we feel we can work with,” she said. “When [the other councillors and I] went to Victoria, we had some conversations and you believe they heard us … we’re going to go the negotiating tables in good faith.” Based on these developments, the City of Fort St. John said it was willing to begin negotiations. The city said the province has committed to working with the communities of the Northeast to ensure that future growth is not a burden to taxpayers. Ackerman could not elaborate on the commitments. Ackerman said she had “no idea” about when these negotiations might conclude. reporter@ahnfsj.ca
MAY 15, 2015
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ALBERTA
From Page 22 Morton findings challenged MacGregor said Morton’s paper was wrong in a number of areas. To begin with, its calculations were based on processing the wrong volumes of raw bitumen, which led to a miscalculation of the processing fee. Morton’s paper determined the costs per bbl based on 50,000 bbls per day of raw bitumen, when, in fact, the plant will process about 79,000 bbls daily, said MacGregor. By using the wrong feedstock quantity the paper overstated processing fees by 55 per cent. The paper also confused future inflation costs with current costs. As a result, the Morton paper estimated processing costs would be $63 a bbl or higher while, in fact, in today’s dollars they are less than $35 per bbl for the diluted bitumen processed. If the North West Upgrader, expected to go into operation in the fall of 2017, had already been in operation in the last year — even at low oil prices — the government would have made a profit on its investment in the plant, which comes through a cost-of-service fee it will pay to NWU (75 per cent of the volumes to be processed, with CNRL paying 25 per cent), said MacGregor. “Even at the low prices of the last few months the government would have made $150 million,” he said. “If it had been in operation when they [oil prices] were higher they would have made $200 million.” Furthermore, he said, those profits will increase in the future as NWU pays off the debt it has had to raise to build the project. “Every year we’re paying off three per cent of the debt and the processing fee goes down.” MacGregor pointed out that CNRL, a company known as an astute investor, continues to be committed to the project, suggesting it makes economic sense. “Murray (Edwards, CNRL’s chairman) is famous for doing the math,” he joked. MacGregor said the tolling approach being taken to help finance the project and pay off its debt is a standard formula used widely in the energy industry, particularly by pipeline and midstream companies. He believes that even if former Conservative Premier Jim Prentice had won re-election the next two phases of the NWU project, which will be of equal size, would have had a good chance of going ahead.
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“I think Prentice was a conservative guy, but he said they [the government] would live up to the contracts [with NWU],” he said. Project expansion prospects But now that the NDP has been elected MacGregor said the prospects for the project to expand are very good. “I think it’s clear that Premier-elect Notley understands the refining business,” he said. “I’m convinced Albertans were right [in electing her and her party]. We have a smart leader. The sky isn’t falling.” In fact, echoing what Notley herself has said, likening the election of the NDP to the election of a reform-minded and progressive government under former Conservative Premier Peter Lougheed in the 1970s, he said he believes the same kind of change is afoot in the province. MacGregor went on to point out that the NWU is actually more of a refinery than an upgrader. “We’re engineers [the original planners of the project] and we misnamed it,” he said. That’s also a flaw in Morton’s analysis, as well as on the part of other critics of the project, MacGregor said. “More than an upgrader” He said it needs to be understood that the company really isn’t building just an upgrader, deploying conventional coking technology to convert Alberta bitumen into lighter crude ready to be refined into gasoline, lubricants and other petroleum products. Instead the plant will produce 40,000 bbls daily of diesel from each phase. Diesel is an industrial fuel that is in high demand in Western Canada, the U.S. and worldwide. “All the developing world runs on diesel.” While oilsands producers might continue to have difficulty transporting their bitumen to the West Coast, for export from there, “diesel is going there now” and exports can grow without huge export barriers coming in the way, said MacGregor. The other aspect of the design that gives it an economic advantage, as well as appealing to a new NDP government concerned about Alberta’s environmental image, is that it will use gasification technology, rather than the more conventional hydrocracking approach. Environmental/EOR benefits The advantage of that approach is that the refinery/upgrader won’t need to rely on natural gas
as a source of hydrogen for the process. Instead of producing dry coke as a byproduct, North West will transform hot liquid bottom ends into hydrogen, oxygen and pure carbon dioxide (CO2). “It produces 99.5 per cent pure CO2,” he said. Most CO2 from conventional upgraders is mixed with nitrogen and other elements, rendering it unsuitable for enhanced oil recovery (EOR). But the CO2 produced by NWU will have a market potential worth billions of dollars, by unlocking crude from pools in central Alberta, while allowing the CO2 to be sequestered in the process. The CO2 will be sold to Enhance Energy Inc., which is developing a complementary project (MacGregor is a chairman of its board) that will include the 240-kilometre, 16-inch diameter Alberta Carbon Trunk Line. The line will eventually transport CO2 from the Agrium Inc. fertilizer plant near Redwater and from North West to be used in EOR in oil reservoirs in central Alberta. Enhance has received a commitment of $495 million from the Alberta government’s $2-billion CCS (carbon capture and sequestration) fund for the project, expected to cost more than $1.3 billion. (The NDP, though, in its platform promised to cancel the CCS project and reinvest the 2015/16 component into construction of public transit.) The first phase of the refinery will spit out 1.5 million tonnes a year of CO2, which will not be released into the atmosphere, thanks to the integration with the CO2 pipeline and EOR. “That’s equivalent to [removing emissions from] 300,000 cars,” he said. Furthermore, there are huge oil reserves of light crude oil that are otherwise being left in the ground. “We think there’s one billion barrels [that can be produced by using EOR] in central Alberta,” said MacGregor. Another important aspect of the gasifier-based technology North West will deploy is that in addition to producing ultra-low-sulphur diesel it will produce significant volumes of diluent, used in the oilsands industry to prepare bitumen for pipelining, along with ethane, a key petrochemical feedstock, as well as naphtha, butane and propane, all petrochemical feedstock. He said the fact that the NWU “will be the cleanest refinery in the world” should appeal to the newly-elected government. In addition, the related CO2 pipeline and plans for EOR that will unlock otherwise trapped oil reserves are projects that should help improve Alberta’s image as an energy producer. “I believe we’re aligned with the same objectives [as the new government],” said MacGregor.”
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CLOSING ARGUMENT
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Renewables: all pain, little gain If national and international experiences can teach us anything about renewable energy, it’s that so far, more renewable generation leads to one thing — higher prices
Kenneth P. Green, Taylor Jackson Fraser institute
BC Hydro’s planned project for a hydroelectric dam on the Peace River — known as the Site C dam — is proving to be controversial, with some industry groups panning the plan while touting renewable energy sources such as wind. One wind energy champion recently claimed “it would be a breeze for $10-billion worth of wind-energy projects to inflate B.C.’s economy.” In the debate over how electricity should be provided, we often hear such lofty and optimistic projections. But if national and international experiences can teach us anything, it’s that so far, more renewable generation leads to one thing — higher prices. For example, Germany’s Energiewende program. Since 2000, German producers of renewable energy have received fixed contracts at above-market prices, and preferential access to the grid. The result? Unreliable and intermittent electricity from wind and solar sources has caused service failures to increase by 31 per cent since 2009. At certain times, when Germany’s renewables are not producing, high energy-use businesses have been asked to stop production. And who’s on the hook for compensating businesses that lose profits? Your everyday, average electricity customer. In 2001, German electricity prices were 12 cents (US) per kilowatt-hour. According to OECD data, by 2011, electricity prices had skyrocketed to 35 cents per kWh in 2011— an
increase of 192 per cent and far above the average European cost of about 25 cents. Prices for Canada in 2010 came in at nine cents per kWh, making the cost of electricity for German households almost four times higher than in Canada. While switching to renewable electric generation is always cast against the backdrop of protecting the environment and reducing CO2 emissions, the policies that stimulate renewables have undercut relatively clean sources of electricity like natural gas. In fact, Germany actually increased its consumption of lignite coal in 2013 to levels not seen since 1990. Although this is not entirely shocking; something has to keep the lights on when it’s not sunny or windy, and coal happens to be the cheapest option. Most troubling, though, is that energy in Germany is becoming a luxury good, as those at lower income levels simply can’t afford to power their lights, refrigerators and other energy-powered household comforts that we take for granted. According to one estimate, more than 300,000 German households have their power cut off every year because of an inability to pay electricity bills. But Canadians need to look no further than Ontario to see how renewables can affect electricity prices. In 2009, Ontario launched its Green Energy Act, which subsidises the use of renewable energy by providing long-term guarantees at above market prices for renewable producers (wind farms, for example) through its Feed-in-Tariff system. The results? Since 2004, the total annual power cost in Ontario has risen by more than 50 per cent. And while wind and solar energy
provide just under four per cent of Ontario’s power, they account for 20 per cent of the average commodity cost. These higher prices also impact business and industry. A study by economist Ross McKitrick found that a 50 per cent increase in the price of electricity would reduce the return on investment for the mining industry by 13 per cent and manufacturing by 29 per cent. Like in Germany, green energy policies have produced little, if any, environmental benefits. Indeed, one analysis found that if only four of the 12 coal-fired power units at Lambton and Naticoke, which could have been outfitted with advanced technology to mitigate pollution before the Ontario government shut them down, remained in operation, similar environmental results could have been achieved at one-tenth of what was spent on green energy. Canadians need access to affordable and reliable energy to help grow the economy and enjoy the comforts of modern life. Based on recent experience, the consequences are clear. Renewables all but guarantee higher electricity bills. Kenneth P. Green is Senior Director, Centre for Natural Resources at the Fraser Institute. He has studied environmental, energy, and natural resource policy for more than 20 years at thinktanks across North America Taylor Jackson is a Policy Analyst at the Fraser Institute. He holds a BA in Political Science and is currently a MA candidate at Simon Fraser University. He’s coauthor of The Effect of Wait Times on Mortality in Canada.
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