BC’s Port Edward LNG Project Working to Quickly Move Canadian Natural Gas to Asia

May 20, 2022

Port Edward LNG Ltd. President Chris Hilliard, who is leading development of a small-scale liquefied natural gas (LNG) facility on the west coast of Canada, believes the project has unique advantages to become one of the country’s first LNG export terminals.

Hilliard said the 300,000 metric tons/year project could be in service by 2024. Considering development started in 2020, that would be a lightning timeline. However, the project is fully permitted by the British Columbia (BC) Utilities Commission and BC Oil and Gas Commission. It would also be supplied by the Pacific Northern Gas pipeline and electrified by nearby hydropower, leaving little infrastructure to be built.

Canada’s oil and gas industry has struggled to get LNG export projects off the ground in the face of regulatory hurdles and prolonged negotiations with Indigenous First Nations. 

According to the government, 18 larger LNG export facilities have been proposed in Canada, mostly in British Columbia. The massive Shell plc-led LNG Canada project north of Vancouver is the only one under construction. It’s about 60% complete, but it’s not expected to come online until 2025 at the earliest. 

Hilliard’s $300 million project would have about 1% the capacity of a larger export facility. The plant would be built on a 37-acre site in Port Edward near the city of Prince Rupert, more than 600 miles north of Vancouver. Vessels could reach Asia about a week faster than those carrying LNG from the Gulf Coast, Hilliard said. 

Under the plans, Port Edward would load 40 ISO, i.e. International Organization for Standardization, containers each day, which would then be trucked to port for shipment overseas.

On the sidelines of the Canada Gas & LNG Exhibition and Conference in BC last week, Hilliard told NGI that those containers could be shipped to any container dock in Asia. That flexibility is one of Port Edward LNG’s strengths, he said. 

The time to start moving Canadian natural gas to Asia is now, he added, as the market is likely to be constrained for the next decade. The company is now working to sign offtakers so it can move ahead with the project.

NGI: Why did the company decide to pursue a small-scale LNG project on BC’s north coast given the challenges facing infrastructure projects in the province?

Hilliard: The regulatory timelines are more predictable. The capital costs are more predictable. Understanding everything that’s going on in the world today, the nature of the equipment and the timelines of purchasing it – all those elements –  provide greater cost certainty. 

Beyond that, we are not building a new pipeline. We are not building a lot of new infrastructure. We don’t require specialist marine infrastructure downstream. All of those things reduce our costs. 

While we do have some higher operating costs, those are more than offset by two elements. First, are our capital cost savings. And second, the customers in Asia who have traditionally purchased from large-scale LNG infrastructure pay quite a premium. These would be companies purchasing anywhere from 100,000 to 200,000 metric tons annually. 

We are able to deliver directly to them. In a sense, we are cutting out that middleman. We are able to attract some margin based on the premiums that they’ve historically paid. 

NGI: Who will your customers be in Asia?

Hilliard: There’s a wide range. They are city gas providers who are looking for peak shaving that don’t have sufficient access to pipeline infrastructure to support very large cities. In the case of China, this would likely be a city we’ve never heard of that has seven million people. 

There are transportation companies, those with barges that move up and down the major rivers in China like the Yangtze or Pearl. Those barges were historically driven by diesel or heavy fuel oil. You can place an ISO container full of LNG on those barges and utilize it as a fuel tank. 

We also have distributors that serve industry. There are parties that want our entire production base. I’m not sure that makes a lot of economic sense. It would be putting a lot of eggs in one basket. 

ISO containers do offer an interesting solution for inland China, though. Most of the country’s population is on the coast, and as you move farther inland, there is not enough infrastructure to support energy consumption. That’s true in Japan as well. They actually truck LNG from southern Japan to northern Japan. In that context, our competition is the cost of that trucking. 

NGI: How will you contract to sell your LNG?

Hilliard: We’re having discussions to sell LNG for terms of three years to 10 years. They are for take-or-pay annual volumes. The structure of these deals would be very standard even though the nature of delivery is very different. The terms are quite flexible too. 

NGI: Does Port Edward LNG plan to sell any volumes on the spot market?

Hilliard: Selling on a spot basis is not something we have baked into our model. I think it’s rational to think there will be some spot trade. There might also be some opportunity domestically for small volumes that we might pursue, but it’s not a core part of the business model. 

We’re not a global energy firm. We’re a small private company. Our view is to stitch together the elements that support this project, which includes long-term contracts. Once we get this one built, we would then consider next steps. 

NGI: Is an expansion or similar small-scale project likely?

Hilliard: Now that we’ve proven the model with the regulator, there is a strong basis for our team to move forward with a project of this size in other locations.  

NGI: Has the company signed any contracts to supply LNG?

Hilliard: No, we do not have a contract in place yet. I will be in South Korea soon, so stay tuned.

NGI: Do you see domestic growth opportunities in BC as well?

Hilliard: I think it will form part of the discussion, but I think it might be better addressed with a second or third facility not in the same location. There are coastal communities that would benefit from LNG, and our ability to move up and down the coast from the Port of Prince Rupert is quite strong. 

NGI: How will your facility be supplied with natural gas?

Hilliard: There are a few dozen natural gas producers in northeastern BC, whether it be in the Liard Basin, Horn River Basin or the Montney Shale, that have the ability to get gas to the Station 2 hub. And we have access to get gas from Station 2. 

By gaining pipeline capacity all the way to Station 2, we’ve really solved the riddle of how to get the molecules to the coast. We can receive gas from any producer who can get their molecules to Station 2. 

NGI: How did your project obtain regulatory approval given some of the challenges others have faced in the country?

Hilliard: There are certain thresholds that demand a full environmental assessment, rather than an environmental assessment overview. That’s where our scale factors in. The overall permitting requirements are the same, but the approach is slightly different and that has enabled us to move more quickly. 

The regulator had not seen a project of this type. It doesn’t exist in Canada. This is not the norm, it’s a little confusing for a regulator. 

Regulators have certain boxes they have to check to determine if a project complies with code. But when the project design doesn’t fit into those boxes, they’re now in a position where they have to interpret the code rather than reference it. Things took longer than expected, but now that they understand it, we would expect things to be easier if we do it again.

NGI: It’s clear that cooperation from Indigenous communities is vital to project success in Canada. Can you share your experience and explain how important these relationships have been to Port Edward LNG?

Hilliard: There are historical and legal reasons for the importance of these relationships, certainly in BC. In all cases, it starts with, “Hi, my name is Chris.” This is a relationship-driven process as most good businesses are. 

Prince Rupert is a town of some 12,000 people. More than half of the population is Indigenous. Should half of the local population have a say in what’s going on in their community? If you forget all the politics and all the other bits and pieces, if we believe in the power of the majority to make decisions for their own betterment, I would say that there is a reason why we should address First Nation interests in that community. 

This has been integral to the success of our project. I don’t view these relationships as a separate requirement. They’re just common sense. 

Editor’s Note: This segment is one in a regular series by NGI’s LNG Insight. Conversations with experts explore news and issues throughout the global LNG market that matter most to the industry in North America and beyond. Excerpts have been edited for brevity and clarity.

Source link