Near the tiny seaside fishing town of Kitimat on the coast of British Columbia, a colossal project is taking place that will profoundly alter the global liquefied natural gas market.
Billed as the largest private-sector construction project in Canada’s history, the estimated $40 billion development includes a liquefaction plant, pipeline and gas drilling. Even after four years of construction, and with 9,000-ton LNG modules now rearing up amid the cloudy, forested landscape, completion isn’t scheduled until the middle of the decade.
Yet amid a global energy crunch, and with Europe on the brink of the worst energy crisis in half a century, the operation of the LNG Canada project can’t come soon enough.
Its first phase is expected to produce 14 million tons of chilled, liquefied natural gas per year for export by ship, almost equal the amount of gas used by Poland. An as-yet-unconfirmed second phase would double the plant’s capacity. The business case for that “looks very compelling,” said Jason Klein, chief executive officer of LNG Canada Development Inc., the global consortium led by Shell Plc that’s behind the project. “We have substantially de-risked Phase Two by building Phase One.”
Most of the gas will be sent to Asia but the added supply is expected to help Europe by displacing gas from other regions. The project has major advantages over production from the US Gulf Coast because it’s so much closer to Asia and doesn’t need to ship through the congested Panama Canal.
The partial use of hydropower to run the plant will help make it the lowest carbon-emitting LNG facility in the world, Klein said, a key attribute as Canada struggles to reconcile its climate ambitions with a world suddenly craving its fossil fuels.
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Last month, Prime Minister Justin Trudeau told German Chancellor Olaf Scholz that he’ll consider easing regulations to allow new natural gas export facilities to be built on Canada’s east coast to ship LNG to Europe -- but stressed that the business case for first moving that gas from the west of the country, where it’s produced, may be difficult. During the same visit, the two leaders signed an agreement for green Canadian hydrogen, with a similar 2025 timeline for export, that will be produced and shipped from the east coast.
Work on the 1,000-acre LNG Canada site in British Columbia is a global endeavor. In addition to Shell, the consortium includes Mitsubishi Corp., PetroChina Co. Ltd., Korea Gas Corp. and Petroliam Nasional Bhd.
Massive steel machinery, shipped from China, Indonesia and Europe, is being offloaded from ships and slowly rolled into position. A 50-meter (164 foot) high steel-and-concrete tank -- the second-largest in the world -- will store the super-chilled LNG until tankers ship it away.
The project has weathered a number of hurdles in a country where dozens of LNG projects have been proposed and many canceled. The start of construction, in 2018, followed years of regulatory delays. In July, TC Energy Corp. raised the price tag of the pipeline that will supply the plant by 70 per cent to C$11.2 billion ($8.2 billion) after Covid-19-related delays and indigenous protests slowed construction.
Although the pipeline won’t achieve the returns it initially expected, TC Energy said discussions with LNG Canada for a second phase are “well advanced” and will allow the project to generate a “competitive” return.
LNG Canada and TC Energy quarreled over the rising costs but the dispute has been resolved. Klein declined to say how much LNG Canada’s own share of the costs has gone up.