Written by: Harald Wolf
In the summer of 2015, residents of southern Vancouver Island were stunned to hear of a new proposal to build a gas liquefaction facility at Bamberton on the west side of Saanich Inlet. Those of us that love the Inlet, or live near it's shores, simply couldn't believe this could be under consideration - it would utterly destroy the nature of this precious waterway! Not only that, but simply by reaching the approval state, it would set a precedent that would make it difficult to stop anything else from moving into the area.
For those not familiar with the Steelhead LNG Malahat project, I've provided links below.
Anybody that knows anything about LNG, or was prepared to delve into the details of the proposal, was initially inclined to dismiss the proposal as unrealistic or unfeasible; I heard many people say things like "don't worry about it - it isn't going to happen".
Clearly, however, the proponents are taking this project very seriously! They've ramped up their team, engaged in a faux public consultation, "contracted" out a study of the pipeline route, and obtained NEB authorisation for the export of the natural gas - all within a couple months of signing a memorandum of understanding with the Malahat First Nation that had just acquired the land. Though at first denied, it quickly became apparent that this deal had been in the works for a long time, and there remain many outstanding questions on tactics used.
However, for me and quite a few other people, the fundamental problem is that this project simply does not make sense financially or technically, when it is examined at face value. LNG markets have crashed because of a leveling off of demand and a huge oversupply - not just in the short term, but projected far into the future, possibly never to recover. Other projects, larger and smaller, that had not reached the final decision stage were cancelled or deferred. Who are the people with such deep pockets that the risks with the Steelhead project are immaterial?
And then there's the technical angle: virtually every other floating liquefied natural gas (FLNG) facility under development or under consideration (there are none operational as yet - anywhere!), a chief consideration is to avoid building pipelines! Building a pipeline from a coastline capable of having a deep-sea terminal to an island where energy and labour costs are greater, simply is mindboggling. So, clearly, something else is at play.
And, who exactly are the players? While most of the dozens of LNG proposals at various stages of discussion for British Columbia are fronted or backed by a major corporation (Shell, Petronas, etc.), Steelhead has emerged out of the blue. They may claim to be "a Vancouver-based company focused on LNG project development in BC ... with experience guiding some of the world’s leading energy companies and projects, with commercial and technical expertise that spans the entire LNG value chain" - but that applies to the collective experience of the management, employees and consultants, not to the company, which has never done anything before. The rest of the motherhood statements on their web site are all designed to give you the warm and fuzzies.
So, who is funding this ambitious project, with little prospect of a return on investment in the foreseeable future? The only entity they will admit to is a venture capitalist group in Calgary: Azimuth Capital Management (until recently, Kern Partners). This organization clearly has raised money for all kinds of investments and acquisitions, but for nothing approaching the ambitious plans of Steelhead. President Ojeda has stated that they are looking for additional funding, but that sounds like a tough sell in the prevailing market. Have they already got something lined up - a company involved from the start, with a lot to gain?
So who might be a hidden partner in this deal? I've lined up a few of candidates:
- Gazprom is the worlds largest producer and exporter of natural gas, and majority-owned by the Russian state; their market in Asia could be perceived as a target for Steelhead. The reason they are on my radar, however, is that Steelhead CEO Nigel Kuzemko was their global director of LNG development until a few years ago. My sense, though, is that if they wanted a share of North American production, they would buy into the reserves - as the Chinese and Malaysians have - rather than a refrigeration company dependant on purchasing product from upstream producers.
- Shell has made huge investments in LNG, not least of which is in one of the first FLNG facilities: the Prelude - the largest vessel ever built, packed with a complete NG refinery, storage, etc., designed to be parked in typhoon alley north of Australia for 25 years. They were counting on recovering some of their investment with the sale of similar facilities to others, or at least the technology. Again, they show up on the radar pretty quickly when a scan of Steelhead's board and technical people shows significant past employment by Shell. But Shell has admitted there is not much of a medium term future for LNG, and has significantly rolled back its plans. Why would they be going full tilt on Steelhead?
- Williams Companies. If this company is the "hidden partner", then they are hiding in plain sight. I'm going to spend the next few paragraphs conjecturing that that is exactly what they are doing.
Williams is a huge Fortune 500 company, largely focused on processing of and moving natural gas to markets, via its massive pipeline network stretching some 22,000km, mostly in the US. It was recently in an acquisition battle where the even bigger ETE had offered US$33 billion Williams, and then got cold feet when energy prices crashed. A judge allowed ETE to walk away from the deal in a ruling at the end of June 1016 (Williams is appealing).
Note in the map below that its western US network primarily ties the producing areas of the US Midwest to markets in the Pacific Northwest. Yes, it has a tie to the Spectra pipeline running south through British Columbia, but all these networks are cross connected to allow transfers at times when supplies are tight in one area, or pricing opportunities allow for greater profit.
If Steelhead's prime objective was to get BC gas to market, why did they not engage Spectra to build the short extension? Spectra is another huge American corporation, but with much greater motivation to increase the flow of BC gas in their pipes.
Williams clearly has its sights set on providing more gas both into the domestic market and for LNG export markets, as show in the slide below, from a presentation they made a couple of years ago. Note that LNG export is at the top of their list. However, the three LNG facilities they were involved in - one in Oregon and two in Washington - have been rejected by American regulators. Not a single LNG export facility has been approved on the Pacific coast of the US, and coal and oil facilities have been meeting similar resistance.
Now, lets have a look at the proposed pipeline to feed Steelhead operation on Vancouver Island. The company maps try to imply the pipeline is a direct connection to Spectra - IT IS NOT! When I overlaid their route over a map of existing pipelines on the Whatcom County GIS, it is clear they are connecting to the Northwest Pipeline LLC - owned by Williams - several kilometers south of the border. Taking this back up to the figure above, and it is clear (or at least highly suspect) that Williams is using this opportunity to finally bring its network to tidewater in the Pacific.
So, why would they want to suppress their real intentions?
In effect, Williams is thumbing its nose at American regulators - but it doesn't want to do that publicly. Apart from the regulators, the activists that have been fighting fossil fuel terminals on the US coast - gas, coal and oil - might become active on this project as well.
But first and foremost, Williams wants to take advantage of the unprecedented LNG cheerleading by the Christie Clark government, which is so anxious to see some progress - any progress - on their much ballyhooed economic windfall from LNG that they are not actually looking closely at the projects. They are taking the word of the proponents and believing this is about BC natural gas.
Williams is not the first to do this. There's the fine example of how the US coal industry is bypassing rejection of coal ports in the US and is hauling coal by train to Delta Port, beside the Tsawwassen Ferry Terminal.
There's also a huge advantage of shipping out of Canada: their investment and even future profits are protected by NAFTA (and maybe the TPP, if that ever gets ratified). If Canada and BC issue permits to build this pipeline and the LNG plants, our governments will never be able to tighten regulations on the amount of gas that is shipped through that system, nor dictate where the gas comes from, in an attempt to tackle climate change. The Clark government had to write such assurances into the deals it made with Petronas and Woodfibre, but with this project, such assurances are built in to the Investor-State protection clauses of current and future "trade" agreements. Canada is already the most sued state under these agreements, and most if not all rulings have been against us; there is no appeal!
The Malahat LNG project proposed by unkown Steelhead LNG makes no sense if evaluated at face value.
However, I hope I've given you enough information to suggest that this project makes absolute sense from the perspective of Williams Companies. It fits their clearly defined objective to export LNG through a Pacific coast port, yet all their efforts to get approval for a facility on the American coast have failed. Doing an end-run around American regulators, and seeking the blessing of an LNG-obsessed government in neighbouring British Columbia not only achieves the same goals, it also gives them the protection of NAFTA.
They don't have to act on any acquired permits right away, and they certainly won't until it makes economic sense, but going through the exercise now, before international climate action makes it more difficult, is a very small gamble for a company the size of Williams.
We cannot let this project proceed! Every step they take closer to attaining the permits needed, makes it more difficult to stop them (watch Adam Olsen's video, linked below). Once they achieve the permits to go ahead, they will have sounded the death knell for our Inlet! Any other projects that come forward will be able to point to this approved project and claim that the future of Saanich Inlet is a heavy industrial zone - and we better get used to it!
Comments, corrections, additional information welcomed at email@example.com
Adam Olsen is one of the eloquent spokespeople for the W̱SÁNEĆ First Nations on the Saanich Peninsula, who are very much opposed to this project. He's written an article outlining their reasons in Island Tides. If you have 30 minutes, he lays it out further in this video.
Harald Wolf has had a diverse series of carriers in construction, mineral exploration, as a government geologist, IT, and renovations, but he's happiest in his canoe - especially in Saanich Inlet.