LNG Canada 70% complete

Photo: Nelson Bennett.

LNG Canada CEO Jason Klein gives progress update on massive LNG terminal project in Kitimat.

Western Canada has an abundance of natural gas, and Europe, especially Germany, could really use some right now.

But the only major liquefied natural gas export terminal under construction in Canada right now -- LNG Canada in Kitimat – is still two or three years away from shipping LNG, and it faces West and Asia, not East and Europe.

With an energy crisis threatening to plunge Europe into energy poverty and recession, Canadians are naturally inclined to want to help.

But the reality is that the only natural gas produced in Western Canada likely to make it to Europe will be through the U.S., which has seven operating LNG export terminals and another five under construction, though any LNG shipped from B.C. to Asia could free up volumes from other producers to go to Europe.

During a media site tour in Kitimat Wednesday, LNG Canada CEO Jason Klein provided a progress update on the $40 billion project, and fielded questions from reporters.

He was asked if the Kitimat terminal project is on budget and on schedule, whether there is any way the project could be sped up, and when a final investment decision might be made on phase 2, which would double export volumes from 14 million tonnes a year to 28 million.

Phase 1 of the project in Kitimat is now 70% complete, and the associated Coastal GasLink (CGL) pipeline is 75% complete, though over budget.

Earlier this year, TC Energy (TSX:TRP), which is building the natural gas pipeline from northeastern B.C. to Kitimat, announced the cost of building the pipeline has nearly doubled, from $6.6 billion to $11.2 billion.

The total budget for the LNG Canada project has been estimated at $40 billion, including the terminal in Kitimat, CGL and upstream natural gas assets. The cost of the terminal project in Kitimat has been widely reported to be $17 billion to $18 billion – a figure LNG Canada has never confirmed or corrected.

Asked if the terminal project itself is on time and on schedule, Klein suggested it was.

“All in all, our partners are happy with where we’re at,” Klein said. “We had contingencies to manage uncertainties. Overall, we’re comfortable with where we’re at.”

He said the project is on track to begin exporting LNG from B.C. my mid-decade -- 2025.

LNG Canada's partners are Royal Dutch Shell, which owns a 40% stake in the project, Petronas (25%), PetroChina (15%), Mitsubishi (15%) and Korea Gas Corp. (5%).

The prime contractor on the project is JGC Fluor. To date, $3.8 billion has been spent through local suppliers and contractors.

A total of 5,500 workers are currently employed at the site. Only 1% of the workforce are from outside of Canada, LNG Canada officials said. They are housed in Cedar Valley Lodge, which can accommodate up 4,500 workers and has a complex with all the amenities of a town, including a Starbucks (the only one in Kitimat), a convenience store, basketball and squash courts, golf simulators, a 200-metre running track, fitness centres, a pub, a yoga studio, and even therapy dogs.

Over the past few months, eight- and 10-storey high processing modules built in China have been arriving by ship and are now in place. It takes several of these processing modules, which clean impurities from natural gas, for each "train," of which there will be two for phase 1.

By the middle of 2023, all the processing modules should be in place, and the workforce in Kitimat will ramp up to 7,500.

A massive LNG storage tank that’s 52-metres high, 92 metres in diameter and lined with a special nickel-steel alloy capable of withstanding minus 160 degrees Celsius temperatures is still being completed. It will store up to 225,000 cubic metres of liquefied natural gas. It is the second largest LNG export storage tank in the world.

All of this – the massive processing modules and LNG storage tank – would have to be doubled, if the LNG Canada partners decide to sanction phase 2 of the project.

What’s being built now is a two-train project with an annual production and export capacity of 14 million tonnes of LNG per year. But the project from the outset was designed to go to four trains.

“We’ve substantially de-risked phase 2 by doing phase 1,” Klein said. “We’ve actually pre-invested a lot on phase 2.

"Provided it remains competitive, and it fits with our JV (joint venture) partners portfolios and we make the right choices on technology, phase 2 looks very compelling.”

Asked when the LNG Canada partners might decide to sanction phase 2 with a final investment decision (FID), Klein said that depends on markets, the joint venture partners and government policymakers and regulators.

“It’s going to take all those people being aligned to get to phase 2 FID,” Klein said.

One barrier could be CleanBC, which places limits on emissions from industry. Phase 1 is accounted for in the CleanBC plan, Klein said, which suggests phase 2 isn’t.

Compared to all other LNG projects in the world, the LNG Canada project is expected to produce some of the lowest-carbon LNG in the world, partly due to the electrification of upstream natural gas production in B.C.

Other, smaller projects that use electric drive will surpass LNG Canada, with even lower emissions intensities, which will move the benchmark that the B.C. government uses in its application of the carbon tax to LNG producers even lower.

Asked if it is possible that phase 2 could be built using electric-drive – in other words a hybrid in which two trains are natural gas powered and two powered by clean hydro power – Klein said it’s technically feasible.

The problem with going electric is not the capital cost, Klein said, but the operating costs, due to the massive amounts of electricity that would be needed.

The power demand of the LNG Canada terminal is already 600 megawatts (MW), and going to e-drive might require another 600 MW. In other words, it could take the entire capacity of Site C dam.

“It’s more of an operating cost question and that’s something we will evaluate,” Klein said.