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Woodfibre LNG seeks to cut construction costs to offset gas-price drop in China

December 14, 2015

By: Vancouver Sun

Woodfibre LNG hopes to cut the cost of its proposed $1.8-billion liquefied natural gas project near Squamish to offset a drop in prices for natural gas in China.

That would allow the export facility to remain as a leading contender for the first proposed LNG project in B.C. to make a final investment decision, possibly sometime in 2016.

The company is trying to take advantage of the fact there is less work for industrial contractors and engineering firms in the aftermath of the global oil price collapse, which has shelved or cancelled major industrial projects, especially in the Alberta oilsands.

Any project cost-reduction would help offset a nearly one-third price drop in natural gas set recently by China’s National Development and Reform Commission.

Proposed LNG export projects in B.C. wanted to take advantage of the price differential between North America and Asia. However, prices in Asia have fallen off their highs since 2012, a result of falling demand and increased supply.

“It’s hard, no question, but that really hasn’t stopped us,” Woodfibre LNG vice-president corporate affairs Byng Giraud said of the recent gas price decease in China.

“The upside is there are a lot more sharp pencils out there and contractors, EPC (engineering, procurement and construction) firms and shipyards are being much more aggressive in their pricing. … So, we are looking to lower the capital spending right now,” said Giraud.

Two key items — obtaining gas sales agreements and lowering the capital spending — will get the company to a final investment decision in 2016, he said.

The company — whose parent is Pacific Oil and Gas Ltd., owned by Indonesian billionaire Sukanto Tanoto — recently inked a preliminary gas purchase deal with Beijing Gas.

“It’s challenging now, but it hasn’t deterred us because this is a long-term project. We are still proceeding,” said Giraud.

The Woodfibre LNG project already has approval from the B.C. government and support from the Squamish First Nation. Its remaining regulatory hurdle is a decision from the federal government.

The company does not expect there to be a problem receiving approval from the federal government. The Canadian Environmental Assessment Agency is reviewing the B.C. assessment, which it agreed to substitute for its own process, and is also consulting with First Nations.

After its consultations, the agency will provide a report and potential conditions for review by the federal minister of environment and climate change, Catherine McKenna, said agency official Karen Fish said in an email.

Under legislated timelines, Ottawa has until February to make a decision.

The Woodfibre LNG project is about one-tenth the size of major projects proposed in northwest B.C. led by global energy giants such as Shell, Chevron and Malaysian state-controlled Petronas.

Planned to be built on a former pulp mill site adjacent to Squamish, the project has been subject to some opposition within First Nations and from the community of Squamish, as well as from environmental groups.

Opponents are largely concerned the industrial project is not compatible with the tourism- and recreation-based economy that is evolving in the Howe Sound area.

 

By: Vancouver Sun

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