Canada’s North seeks a seat at the LNG table [NGW Magazine]

Canada’s north is sitting on 10 trillion ft³ of known natural gas reserves, and another untold trillions of undiscovered potential, both conventional and unconventional.

The most realistic hope of bringing some of that gas to market – and secure the economic future of the north – was permanently dashed in late 2017 when the backers of the C$16bn Mackenzie Gas Project (MGP) dissolved their joint venture after more than 15 years.

MGP was to have taken gas from three fields in the Mackenzie Delta – Taglu, Parsons Lake and Niglintgak – and delivered it by pipeline to Alberta, where it would have entered TC Energy’s system for marketing throughout North America.

MGP was designed to transport between 820mn ft³/day and 1.2bn ft³/day of gas from fields in the Mackenzie Delta, providing a major boost to a region that hadn’t seen any real resource development since the National Energy Program – which spurred exploratory drilling in the early 1980s – was finally abandoned in 1985.

And it would have dramatically boosted gas production from northern Canada, which by 2016 had fallen to less than 8mn ft³/day from about 95mn ft³/day in 2003, according to National Energy Board (NEB) statistics.

But a combination of regulatory inertia – the project languished before the NEB for six years – and the shale gale that swept through Canada and the US finally forced project proponents Imperial Oil (an affiliate of US super-major ExxonMobil), ExxonMobil itself, ConocoPhillips and Anglo-Dutch major Shell to abandon the project in December 2017.

While MGP died a slow death, the hopes of the government of the Northwest Territories (GNWT) to develop its vast natural gas reserves lived on, according to GNWT industry, tourism and investment minister Wally Schumann.

“There is tremendous potential for oil and gas development in Canada’s Northwest Territories,” Schumann told the Canada Gas & LNG Conference in Vancouver May 22. “With it will come an opportunity to position Canada’s north to further contribute significantly to our nation’s economy, and tremendous returns for those who choose to partner with us and invest in our future.”

As the MGP experience has proven, moving Delta gas to markets in North America through a pipeline is no longer a viable option, Schumann said. LNG, however, is.

“It’s time to chart a new direction to get our gas to market – both figuratively and literally,” he said. “The shale boom has flooded the North American gas market – and a pipeline route south is not currently viable. So instead, we are looking in a new direction – west from the Arctic coast to Asia.”

Tokyo is a little over 3,800 nautical miles from the Delta – a shorter sail even than from LNG Canada’s Kitimat terminal now under construction, and 1,300 nautical miles closer to Japan than existing export terminals on Russia’s Yamal Peninsula that are already delivering LNG through ice-strengthened tankers to Asia.

“We could hit the Asia-Pacific market with billions of tons of LNG two days earlier – and without the hassle of laying thousands of kilometres of pipe,” he said.

The rest of Canada, Schumann said, is locked in a debate over getting gas from landlocked Alberta to tidewater by crossing through the traditional territories of dozens of First Nations and navigating the shifting shoals of regulatory policy. Meanwhile, the potential to develop LNG liquefaction and export capacity on Canada’s northern coast awaits, without any of the baggage that weighs on projects in the south.

“Our plan for exporting gas involves just one settled land claim – the Inuvialuit Final Agreement (IFA) – and less than a couple of hundred kilometres of pipe [for a gathering system to collect gas from the three MGP fields],” Schumann said. “And when you consider the enormous cost of remote pipeline construction, this fact alone is a game-changer.”

The IFA was concluded in 1984 after a decade of negotiations, and encompasses the Inuvialuit Settlement Region, 35,000 square miles of Arctic coastline from the border with Alaska in the west to Victoria Island in the east and from Banks Island in the north to much of the Mackenzie Delta region in the south.

The concept that the GNWT envisions is a floating LNG facility in deep water about 20 miles offshore Tuktoyaktuk, a tiny Inuvialuit settlement on the shores of the Beaufort Sea some 150 km north of Inuvik and accessible by a new all-weather road. The FLNG concept is required since the harbour at Tuktoyaktuk is too shallow to accommodate LNG tankers.

GNWT officials have already met the original MGP proponents, Schumann told NGW in Calgary ahead of his address to the Vancouver conference, and while none of them committed outright to supporting LNG development in the Arctic, neither did they reject the concept.

“They were cautiously optimistic about having a look at it,” he said. “I also met with several Japanese interests in Calgary and pitched the idea to them, and we’ll talk to as many people as we can at the Vancouver conference.”

The NWT also has support from the Inuvialuit and other indigenous groups in the north, Schumann said, the result of 50 years of working together to develop a successful diamond mining industry, two pipeline pushes – one of them, the Norman Wells oil pipeline, was a success – and managing an offshore exploration boom that uncovered the oil and gas riches of the Mackenzie Delta and Beaufort Sea in the 1970s and early 1980s.

“In the NWT, perhaps more than anywhere, we understand the relationship between resource development and socio-economic well-being,” he told his audience. “It’s a degree of social licence that is not common in Canada.”

Others in the north, meanwhile, are pursuing domestic gas opportunities, such as an earlier project that delivered natural gas from two small wells in the Ikhil field north of Inuvik to that town, where it was used to heat homes and generate power between 1999 and 2011, when one of the two wells ran dry.

“The Ikhil project is still delivering gas from the second well, but it’s being supplemented by propane,” Schumann told NGW. “What others are looking to do is develop some kind of liquefaction project – an investment in the $30mn to $50mn range – that could potentially provide LNG to Inuvik, to Tuktoyaktuk, perhaps even to Fort McPherson.”

The Inuvialuit Regional Corporation, created to represent the interests of the northern Inuvialuit indigenous population, is pursuing projects to access local gas reserves throughout the north, to reduce the cost of living, displace diesel and synthetic gas (propane and air) used to heat homes and generate electricity, and to create long-term jobs.

But like the larger FLNG opportunity, help is needed, Schumann told the Vancouver conference, from the federal government and from industry. The infrastructure deficit in the north is large, he said, while the tax base to address that deficit is small.

“We’re looking for partners that can help us get our gas to markets that need it, serve our local populations, and revolutionise our territory’s economy,” he said. “Market conditions, our changing Arctic, and advancing technologies mean that, with the right partners, our gas can play an important role in global energy.”