Grinding ahead [Gas in Transition]

At the head of the Douglas Channel on BC’s northern coast, some 655 air km north of Vancouver, Canada’s lone LNG export terminal – LNG Canada – is taking shape.

After more than two years of restrictions imposed by the Covid pandemic, the first phase of the project, consisting of two trains and 14mn metric tons/year of liquefaction capacity, is now about 70% complete, LNG Canada CEO Jason Klein told reporters during a recent media tour of the project.

“By the first half of next year we should have most of the modules here, but then it is a very intense programme of hooking up those modules, testing everything and then commissioning it system by system,” he said. That is why we will hit our peak workforce here in Kitimat next year.”

With nearly 200 modules on site next year, the LNG Canada workforce will peak at about 7,500, with about 4,500 working at any one time. Most of them will be housed at the on-site Cedar Valley Lodge, a state-of-the-art workforce accommodation centre boasting restaurants, pubs and a full range of fitness and recreation facilities, including a climbing wall, multiple gyms, a running track, golf simulators and yoga studios.

Pandemic lock down

Underground services work at the 400-hectare LNG Canada site was only just nicely underway in November 2019, the last time media were invited to tour the project. A few months later, the Covid pandemic hit, and the project essentially withdrew into itself: no visitors (not even project partners), restricted interaction with locals, daily Covid tests.

Over the past summer, as the pandemic has eased – it’s considered in many unofficial circles to be at the ‘endemic’ stage – tours of the project have ramped up, with local, provincial, national and foreign visitors taken on tight tours, highlighted by a climb up the 10-storey inlet facilities module, the first major piece of kit to be delivered to the site earlier this year.

Executives of LNG Canada’s joint venture partners – Shell, Malaysia’s Petronas, PetroChina, Japan’s Mitsubishi and Korea Gas – have been among those visiting the site. At the end of those tours, Klein said, those executives almost universally express their admiration at the progress made and urge completion “as quickly as possible.”

Now, with construction work expected to ramp up towards the middle of next year, so too will discussions amongst the joint venture partners surrounding the possible sanctioning of a second phase, which would add two more trains to the liquefaction terminal, bringing it to 28mn mt/yr of capacity, and increase the capacity of the Coastal GasLink pipeline, which will deliver feed gas to LNG Canada and, ultimately, to Haisla Nation’s planned Cedar LNG facility, to 5bn ft³/day.

Getting to FID

The joint venture partners have been coy about the timing of a final investment decision (FID) on phase 2 ever since the first phase was sanctioned in October 2018. Outside observers are convinced a FID will be taken before phase 1 is commissioned, in order to ensure a stable workforce; others are more precise – one pundit even suggested recently that FID will be announced when Shell releases its Q2 results on October 27.

But Klein – despite repeated prodding from reporters during a question-and-answer session after the site tour – refused to be drawn into the debate over whether phase 2 would be sanctioned ahead of phase 1 completion.

“We have not tied those two together,” he said. “When our partners are ready and we have a competitive, viable, ready to sanction case for phase 2, we’ll take a decision on phase 2. If that is before or after start-up (of phase 1), that is an outcome, not an input.”

Still, it’s difficult to see a future in which the JV partners don’t move ahead with a second phase, Klein said.

“We always designed this as a four-train facility – that was always the intent,” he said. “Provided it remains competitive and it fits with our JV partners’ portfolios and we make the right choices on technology, phase 2 looks very compelling.”

Phase 2 is “compelling” for the same reasons that phase 1 was sanctioned: the LNG Canada site is 50% closer to key Asian gas markets than export terminals on the US Gulf Coast; BC is “blessed” with an abundant resources of low-cost, relatively low-carbon natural gas from the Montney fields in the northeast corner of the province; and the Canadian natural gas industry in its entirety is well-regulated and produces in a responsible manner.

“LNG Canada does have this advantage of low-cost abundant resource, proximity to Asia and lower shipping costs,” Klein said. “If we can maintain those things into phase 2 and phase 2 can continue to be competitive against the US Gulf Coast, then it will be a compelling storyline.”

And phase 2, by virtue of phase 1 work completed and underway, has been substantially de-risked, he added. The CGL pipeline is about 75% complete and much of the sub-surface infrastructure for phase 2 is in place. “All we need to do is insert the piles, build the modules and bring them in.”

There are, however, a variety of roadblocks that the LNG Canada partners must navigate before giving the go-ahead for phase 2. Topping the list is ensuring that a second phase fits within the BC government’s aggressive greenhouse gas (GHG) emission reduction targets, including a 40% reduction by 2030 and reaching net zero by 2050.

Keep it clean

When the first phase at LNG Canada is completed, it will be the lowest carbon-emitting liquefaction project of its size in the world, delivering a carbon intensity of just 0.15 mt of CO₂-equivalent (mtCO₂e)/mt of LNG, well below the global average of 0.26-0.35 mtCO₂e/mt of LNG and just below BC’s own target of 0.16 mtCO2_e/mt.

Much of that is down to the low carbon content of the gas itself – Montney gas contains only about 1% CO₂ by volume; by comparison, gas from the Horn River basin to the north of the Montney is about 12% CO₂ by volume.

Processing facilities in the Montney – from well-pad actuators to processing plants – have largely been electrified, contributing to much lower methane emissions in the field.

And at the liquefaction terminal itself, 125 MW of the facility’s 500 MW of power demand comes from BC Hydro’s renewable electricity supply; most of the facility’s CO₂ emissions will come from two gas-fired liquefaction compressors in each train, with each compressor expected to operate at a maximum load of about 93 MW.

Using e-drive compressors in phase 2 is being examined, Klein said, but while the change wouldn’t result in a significant capital cost increase, operating costs would rise dramatically due to the increased costs of purchasing power from the grid – assuming that power is even available and infrastructure exists to move it to the terminal.

“We are looking at options for phase 2 and how do we make it competitive and affordable and how do we make it low-carbon,” Klein said. “The design we have now is great, and if we can improve on it we will.”

Whichever technology improvements are made, Klein said, LNG Canada will retain its status as one of the cleanest LNG facilities in the world – and that will continue to be a key selling point as its partners consider sanctioning a second phase.

But since Russia’s invasion of Ukraine, the world has woken to the fact that it needs not only clean, reliable and affordable energy – it needs secure energy. Canada, and LNG Canada, Klein said, checks all the boxes for a global market looking for clean, reliable, affordable and secure energy.

“Canada is a partner that a lot of people would like to work with – we are a credible, reliable nation,” he said. “I’m confident that the world needs more Canadian LNG and wants more Canadian LNG.”

Last molecule standing

Under virtually every scenario mapping out the global energy transition, he said, natural gas and LNG will play a significant role, and in light of global climate change ambitions, the cleaner the LNG, the better.

“The cleanest molecule is going to be the last molecule standing and that is one of the reasons I feel so good about LNG Canada – we are that clean molecule, and when people start getting really picky, whether driven by carbon price or otherwise, the cleanest LNG will be the last LNG produced and right now, in the world, that’s right here in Kitimat.”