Canada’s domestic LNG opportunities abound, meeting told

Image: Ferus Inc.

While Canadian LNG projects have focused on large-scale exports, there is also a tremendous opportunity in Canada for LNG that could replace diesel in remote areas and provide cost savings and lower emissions in oil and gas operations, an LNG conference heard Wednesday.

Canada burns approximately 6.3 million gallons of LNG a year to fuel its remote communities compared to the 340 million gallons of diesel a year burned on a continuous basis for the same purpose, said Thomas Elwell, chief executive officer and director of KATE Energy Inc. The company provides power solutions to remote Indigenous communities and remote large industrial users such as mines.

“If you take CO2 as the leading initiative at the federal level, we are throwing 7.7 billion tonnes into the air as a result of this diesel burn whereas if it were LNG … we’d be cutting that burn by 2.2 billion tonnes/year,” he said in a panel discussion.

The session on Wednesday was held to discuss lessons learned from recent London and Tokyo conferences on LNG investment. The events were organized on behalf of the Government of Alberta by Glacier Media (the parent company of JWN Energy) and the Canadian Society for Unconventional Resources (CSUR).

Facilities in operation today produce about 330,000 gallons/d of LNG inland Canada and a project or two currently on the table would increase total production in B.C by about 250,000 gallons/d to 400,000 gallons/d, Elwell said later. “We have reached a point in Western Canada where we have sold out of all available inland liquids so from an investment standpoint we can now tackle the next phase in our collective growth and increase production.”

In western and northern Canada, the primary markets for domestic LNG are for oil and gas and remote power in communities and mines, said Blaire Lancaster, vice-president of business development at Ferus Natural Gas Fuels. While most natural gas is transported by pipelines, “we can now get gas to customers and market regions that wouldn’t otherwise be able to access it.”

The business model for diesel replacement is predicated on the difference between the price of oil and natural gas in addition to the environmental benefits, she said.

Ferus operates a 50,000-gallons/d LNG facility adjacent to the ConocoPhillips deepcut gas plant at Elmworth near Grande Prairie and is currently expanding the LNG facility to 150,000 gallons/d. Following liquefaction, LNG is transported in a specialized truck to the site where there are storage and gasification facilities.

On the drilling side, there are more than 100 bi-fuel (diesel and natural gas) rigs in Western Canada and depending on what the rig is doing it can consume from 1,500 gallons/d up to 7,000 gallons/d.

The company’s customers, she said, are realizing cost savings of between 25 per cent and 50 per cent relative to diesel although actual savings depend on factors such as the distance of the job from the plant, the size of the job and whether there’s a contract. In the 2018-2019 drilling season, Paramount Resources Ltd. reported savings of $485,000 in fuel costs and reduced their CO2 emissions by about 800 tonnes on two pads.

Completions operations can provide significant diesel displacement opportunities for LNG that can fuel frack pumpers and frack water hearing, consuming upwards of 10,000 gallons/d to 15,000 gallons/d of LNG, said Lancaster. A report on a recent two-month frack job by a Ferus customer found it consumed just over 200,000 litres of LNG, saved $85,000 in fuel costs and reduced CO2 emissions by 220 tonnes, she said.

An opportunity for LNG is in remote camps, the conference heard. “Any camp that does not have access to pipeline or facility gas or does not have access to highline power, there’s an opportunity to displace the diesel and propane that would be used for power and heat with liquefied natural gas,” said Lancaster. “Anything less than one megawatt of power, the economics fall down because of the high cost of LNG storage.”

Ferus’s largest customer is Yukon Power whose major source of power is hydro but which uses natural gas as a back-up when water levels are low and the grid demand is increasing, which is the case today. “This is a really good example of natural gas and power working well together,” she said.

Yukon Power is taking two to four truckloads per day of LNG and the volumes have increased to about 35 million litres of natural gas by the end of this year from 1.7 million litres in 2016, an average growth rate of 170 per cent.

Ferus also has a memorandum of understanding with a new gold/copper mine in the Yukon in which it would be the exclusive supplier of LNG once it makes a final investment decision, said Lancaster. The cost savings relative to diesel would be $100 million per year at the 100-megawatt mine. “That’s the only thing that makes the mine economic and that will get them the FID.”

The energy used also will have an effect on the federal carbon tax, said Elwell, noting that an 8.4 megawatt project he is working on that will burn natural gas or LNG will save the company a little more than $1 million a year in carbon tax alone.

Government policies can either help or hinder the use of domestic LNG, the conference heard. For example, Canada’s Climate Change Action Plan has set aside $1.5 billion for clean energy initiatives but “none of that contemplates natural gas,” he said. The Emissions Reduction Alberta program is one of only two programs in Canada which support natural gas “even in the slightest,” said Elwell.

Interviewed later, he said the federal government needs to include natural gas in diesel displacement or greener power solutions. “They trip over a dime to pick up a nickel, as far as I am concerned.”

At present, “there’s really no added value or incentive for communities to remote industries to convert to natural gas; the subsidies are broad and large,” Elwell told the conference. In the Northwest Territories, subsidies to support diesel are costing Canadian taxpayers about $1.4 million a day. “If those dollars were converted to infrastructure investment, it might pave the way for companies like Ferus and KATE to provide cleaner solutions.”

The federal government announced a $20 million initiative to fund diesel displacement among Indigenous communities in the North but as there are more than 250 communities it works out to about $80,000 of investment potential for each community.

Elwell said Indigenous communities where his company is working are no longer willing to accept assistance from Ottawa in order for it to validate their efforts. “They are suggesting that they step away from the traditional model and start taking the initiative themselves.”

There currently are 152 projects across Canada where Indigenous groups have done just that and are now operating these facilities themselves, he said. “They are now seeking meaningful partnerships, and meaningful partnerships come with an opportunity to invest, to be employed, to be trained and to be a meaningful part of every project moving forward.”

KATE Energy has launched two initiatives, one a collaboration of First Nations and private industry in northeastern B.C.to invest in and operate liquefaction facilities and the other a power company that will operate in northwestern B.C. and southwestern Yukon to support diesel conversion in the North.

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