In a surprising turn of events, the U.S. Federal Energy Regulatory Commission (FERC) issued an order denying Veresen Inc.’s proposed Jordan Cove LNG project near Coos Bay, Ore., through denial of the pro- posed plant’s vital Pacific Connector Gas Pipeline.

The ruling had a major impact because it further complicates the ability of inland Canadian natural gas pro- ducers to reach the Pacific and export LNG to Asia. It also hurt the ability of western U.S. gas producers—who have dealt with low gas prices for years due to limited regional demand—to tap the same market.

“We find the generalized allegations of need proffered by Pacific Connector do not outweigh the potential for adverse impact on landowners and communities. We find that without a pipeline connecting it to a source of gas to be liquefied and exported, the proposed Jordan Cove LNG terminal can provide no benefit to the public to counterbalance any of the impacts which would be associated with its construction,” the agency said in its March order.

In other words: no pipeline, no project. Bloomberg noted in a report this was the first FERC denial of an LNG export project since the run-up in domestic gas production began with the shale revolution.

Eminent Domain

“The landowners contend that the pipeline will have negative economic impacts, such as land devaluation, loss of tax revenue and economic harm to business operations [e.g., oyster and timber harvesting and farming],” the order added. “While we cannot predict the outcome of the eventual negotia- tions, it currently appears that at least some portion of the necessary property rights will need to be obtained through the exercise of eminent domain.”

According to FERC, the Pacific Connector project had received only 3% of the easements through private prop- erty that it needed for rights of way by the time of the decision.

“The commission’s issuance of a cer- tificate would allow Pacific Connector to proceed with eminent domain proceedings in what we find to be the absence of a demonstrated need for the pipeline,” the commission ruled. “Because the record does not support a finding that the public benefits of the Pacific Connector Pipeline outweigh the adverse effects on landowners, we deny Pacific Connector’s request for certifi- cate authority to construct and operate its project, as well as the related blanket construction and transportation certifi- cate applications.”

Without Prejudice

While FERC’s decision will stop the project from moving forward, the agency said it is not opposed to reassess- ing the project in the future.

“Our actions here are without prej- udice to Jordan Cove and/or Pacific Connector submitting a new application to construct and/or operate LNG export facilities or natural gas transportation facilities should the companies show a market need for these services in the future,” the commission said.

“Clearly, we are extremely surprised and disappointed by the FERC deci- sion,” said Don Althoff, president and CEO of Calgary-based Veresen. “The FERC appears to be concerned that we have not yet demonstrated sufficient commercial support for the projects. We will continue to advance negotiations with customers to address this concern.”

Jordan Cove is a subsidiary of Veresen Inc. Pacific Connector is a limited partnership between Williams Partners Operating LLC, a unit of The Williams Cos. Inc., and Jordan Cove.

Pacific Connector is a proposed 232-mile, 36-inch diameter pipeline designed to transport up to 1 billion cubic feet of gas per day (Bcf/d) from interconnects with the Grants Pass lateral of Williams’ Northwest Pipeline Corp. near Malin, Ore., and the pro- posed liquefaction plant and terminal. Canadian producers would move gas to the interconnect through TransCanada’s Gas Transmission Northwest line that crosses the border at Kingsgate, British Columbia, on the Idaho border. Also, Northwest Pipeline interconnects with Canada’s gas pipeline grid at Sumas, near Bellingham, Wash.

The line would receive gas from western U.S. producers via Northwest and the Ruby Pipeline, owned by Kinder Morgan Inc.

"Challenging Economics"

“In essence, the FERC is saying the project doesn’t have sufficient enough decade,” the report cautioned.

Separately, Leucadia National Corp. announced withdrawal of financing for the proposed Oregon LNG project to be built at the mouth of the Columbia River. An 87-mile pipeline would have con- nected the plant to Northwest Pipeline.

Despite trillions of cubic feet in proved reserves, North America is a miniscule player in the trans-Pacific LNG trade. The U.S. has 0.25 Bcf/d of Pacific-focused liquefaction capacity through ConocoPhillips’ plant at Kenai, Alaska, which dates from 1969. That gas goes to a pair of Japanese utilities.

Beginning this year, the picture changed as Cheniere brought onstream the first train at its Sabine Pass facility in Cameron Parish, La. Sabine Pass shipped its initial loads in the first quarter. Its gas, and LNG from Gulf of Mexico plants in planning or under construction, could enter the Pacific market upon completion of the long-delayed Panama Canal expansion.

North America's Share

While North America has been the second-smallest liquefaction market (its 1.91% market share is greater only than Europe’s 1.26%), Stratas Advisors projected that North America’s share of the LNG export pie will jump to 15.35% of global liquefaction capacity by 2025. The 9.2 Bcf/d of capacity supporting this share will come from a total of six projects, several of which are already under construction, Stratas estimated.

Scheduled to start up in 2021, the greenfield Jordan Cove project would have been the first large-scale LNG export operation on North America’s Pacific coast. The four-train plant was designed for a capacity of 1.2 Bcf/d, or 6 million tonnes per annum (mtpa).

Canada’s role in the worldwide LNG business has been stymied. While west- ern Canada has generated a tremendous amount of attention as a potential
gas export hub, Canadian projects have been slowed by a combination of extravagant costs due to the region’s challenging topography, limited infra- structure, strong political opposition and the recent fall in LNG prices. Some industry observers have speculated TransCanada’s recent bid for Columbia Gas Pipeline is intended to create a new market for Canadian gas—as well as to provide an entry into the Marcellus and Utica plays.

An alternative to British Columbia ports was to move Canadian production south across the border, using existing pipeline infrastructure coupled with the Pacific Connector.

With several projects already announcing plans to postpone final investment decisions, Tom Campbell, director of LNG and gasification for Stratas Advisors, told Midstream Business western Canada may not see any liquefaction facilities start opera- tions prior to 2030.

Election Fallout

The 2015 Canadian elections didn’t help. Voters installed a Liberal Party majority in Parliament that has pro- posed stricter environmental regula- tions, further complicating proposed all-Canadian pipeline and LNG proj- ects. But the president of the Petronas- led Pacific NorthWest LNG Terminal at Prince Rupert, British Columbia, recently denied reports that the com- pany would walk away from the proj- ect if the federal government did not approve it by the end of the first quarter.

Pacific NorthWest LNG President Mike Culbert said in a statement the firm remains committed to Canada’s environmental review process, includ- ing new measures on upstream greenhouse-gas (GHG) emissions. Environmental reviews have continued for more than two years.

The company has been frustrated by new climate change measures the fed- eral government introduced in January, which include measuring the impact
of oil and gas production on GHG emissions, according to press reports. Catherine McKenna, Canada’s federal environment minister, is expected to release a final decision on Pacific NorthWest soon.

Porpoise Population

A draft environmental assessment released in February found that the Prince Rupert project would not cause major ecological damage to the region, but would likely harm the harbor’s porpoise population and impact climate change. Pacific NorthWest partners are Petronas, Sinopec, Japex, Indian Oil Corp. and Petroleum Brunei.

Meanwhile, LNG Canada Development Inc.’s application for a 40-year natural gas export license for a plant at Kitimat, with a maximum term quantity of 1,494 billion cubic meters, received National Energy Board (NEB) approval early this year.

The NEB determined that the quan- tity of gas LNG Canada would export will be surplus to domestic needs, and added that the country’s gas resource base—and the overall North American gas resource base—would be large enough to accommodate reasonably foreseeable Canadian demand.

Partners in the project are Shell, KOGAS, Mitsubishi and PetroChina.

Neither of these projects will move ahead without a pipeline link to the east, however. Aboriginal groups have opposed all pipeline projects, although there have been some agreements recently related to TransCanada’s Coastal GasLink Pipeline project, which signed long-term arrangements with the Nadleh Whut’en and West Moberly First Nations earlier this year.

The Calgary-based firm’s proposal is to construct and operate a 670-kilo- meter (415-mile) gas pipeline from the Groundbirch area near Dawson Creek, British Columbia, to LNG Canada’s Kitimat facility.

The CA$4.8 billion (US$3.67 bil- lion) project is a key component of TransCanada’s capital growth plan, which includes more than CA$13 bil- lion (US$9.95 billion) in proposed gas pipeline projects.

"Bigger Than We Thought"

The push to market Canadian gas may have just become an even big- ger issue. A recently released NEB study found the lightly drilled Liard Basin, which underlies northern British Columbia and portions of Yukon and Northwest Territories, holds some 219 trillion cubic feet of “marketable” gas. Those reserves are in addition to Canada’s big Montney gas play that lies along the British Columbia-Alberta border.

Mike Johnson, the NEB’s technical leader of hydrocarbon resources, said the Liard study was the first detailed look at the formation and he was taken aback by its size.

“We expected it to be big; it was big- ger than we thought it was going to be,” he said in a statement.

Despite the numerous obstacles, work moves ahead on multiple Pacific Coast LNG projects. Only one LNG export proposal, Bradwood Landing at Astoria, Ore., has been officially scrapped to date.

At Jordan Cove, Veresen recently announced final commercial terms with JERA Co. Inc. on long-term provisions for LNG to be supplied by the plant. The agreement covers purchase by JERA of at least 1.5 mtpa of liquefaction capacity for an initial term of 20 years. The agreement is subject to customary conditions, including execution of a detailed liquefaction tolling agreement, which Veresen and JERA will work to conclude—and the project’s obtaining all regulatory approvals.

JERA is a joint venture by Tokyo Electric Power Co. Inc. (Tepco) and Chubu Electric Power Co. Inc.

It was created to implement a com- prehensive alliance covering the entire energy supply chain, from upstream investments and fuel procurement to power generation. When the fuel pro- curement businesses are integrated into JERA, expected in July, the venture will be the world’s largest purchaser of LNG by volume.

Veresen early in the second quarter announced a preliminary agreement with Japan’s ITOCHU Corp. to supply 1.5 mtpa.

Elsewhere, engineering and con- struction company KBR said it had been awarded a contract to design the Woodfibre LNG project, proposed for a site on the British Columbia coast north of Vancouver.

Woodfibre LNG Ltd. is a subsidiary of Pacific Oil & Gas Ltd., part of Singapore’s Royal Golden Eagle International.