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Climate takes back seat as fledgling B.C. LNG industry courts China

The Jiangsu liquefied natural gas terminal constitutes a yawning open door for Canadian energy to come to China.


The causeway extends 11 kilometres into the Yellow Sea, a horizon-bending energy bridge to China situated not far up the coast from Shanghai. Seven or eight times a month, a giant ship filled with liquefied natural gas docks here, and gas from Qatar, Yemen, Nigeria or Russia flows into the mainland.

One day, Christy Clark hopes, Canadian gas will arrive here, too – delivering, in turn, new jobs and plentiful government revenues to the West Coast. China is, by the numbers, an odd place for the Premier of British Columbia to come. Last year, Japan and South Korea imported more than half the world's LNG. They together bought nearly 10 times more gas than China.

But as Ms. Clark dons a bright red safety overcoat for a blustery tour of the Jiangsu LNG Terminal, it's clear that for B.C., China also holds promise. This is the first gas import terminal built by state-owned giant China National Petroleum Corp. With three LNG storage tanks and a fourth under construction, it is capable of importing 6.5 million tonnes a year, which already makes it a large facility. But it is growing toward 10 million tonnes of capacity by 2020. The site has room for 18 LNG tanks, which if all built would make it the world's largest.

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Those windblown tanks in the Yellow Sea, in other words, constitute a yawning open door for Canadian energy to come to China. In the first seven months of 2013 alone, after all, China's LNG imports rose 21 per cent.

"My being here makes me think that LNG could be a bigger business in B.C. than even I had imagined," Ms. Clark said on the weekend, after touring the terminal, which is located on a reclaimed island.

"When you look at what's happening here, they are going to need [B.C. gas]. They need it, we've got it. It's a perfect marriage."

B.C. doesn't yet have a single LNG export facility under construction, and the government's own long process of formulating a tax regime – not yet complete – has raised concern among companies contemplating giant investments. Skeptics have also suggested the province is unlikely to see more than two or three LNG plants, given the tremendous cost and complexity of building them.

But on the other side of the Pacific, the Jiangsu tanks stand as a sort of goalpost for the province's LNG ambitions.

Among Jiangsu's minority partners is Pacific Oil & Gas, which has chartered the private jet that flew Ms. Clark here. The Singapore-based company has secured an old pulp mill site near Squamish, B.C., through a subsidiary, Woodfibre LNG. In Canada, it is formulating plans for a modest-sized $1-billion export terminal capable of shipping two million tonnes a year; an initial investment decision could be made by next fall. In China, it is not only looking for gas to bring to Jiangsu, but also has a gas-fired power plant nearby that could burn the product.

"In the natural resources business, it is location, location, location," said Ratnesh Bedi, president of Woodfibre LNG. "The B.C. location vis-à-vis northeast Asia, it's a perfect match to bring those resources across the Pacific Ocean to Asia." Besides, as a buyer of LNG, he wants "to diversify my purchase of LNG, and I think getting Canadian gas into my portfolio would be very important."

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So long as the gas can be sold at North American Henry Hub prices "there is a huge market to receive all these natural resources," he said.

That optimism holds true for one of China's largest energy investors as well. CNPC, through its PetroChina Co. Ltd. subsidiary, holds a 20-per-cent stake in the Royal Dutch Shell PLC-led LNG Canada project. In Ms. Clark's visit, the Chinese company saw a chance to make clear its interest.

"We believe this [Jiangsu] LNG project is a showcase for CNPC's capability and our partner's capabilities," Pei Ying, deputy director-general of the international department at CNPC, told the Premier. "Maybe in the future we can find more opportunities to co-operate with each other."

The uncertainty surrounding the B.C. LNG tax regime remains an important question, however. "The volumes can be huge, but the price has to be competitive. And therefore the LNG tax is an issue," Mr. Bedi said.

Ms. Clark, for her part, said B.C. is "moving as fast as humanly possible" to get the new tax rules written – and said industry itself "asked for a little more time. They said, 'look, we want to make sure that you get it right.' So we're in the process of doing that."

The Premier has also attempted to pluck one of the thornier political issues that potential LNG exports present for her at home. The enormous energy required to load LNG on ships will cause B.C. to trample its own greenhouse-gas reduction targets. Ms. Clark has taken to insisting instead that selling gas to China, which is today reliant on coal for some two-thirds of its energy, "is the single biggest opportunity that our province has ever had to reduce greenhouse gas emissions in the world."

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Yet the gas that flows into Jiangsu isn't being used to replace coal-fired electricity so much as augment it during peak demand periods. And gas sold to Japan will increase the size of that country's carbon footprint, as it moves away from nuclear energy.

To her Chinese hosts, however, Ms. Clark was less worried about emissions, more about money. Sitting across a table from the executives in charge of Jiangsu, she said: "We know that in British Columbia we have the resources that you need to fuel the breathtaking change in the economy in your country here."

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About the Author
Asia Bureau Chief

Nathan VanderKlippe is the Asia correspondent for The Globe and Mail. He was previously a print and television correspondent in Western Canada based in Calgary, Vancouver and Yellowknife, where he covered the energy industry, aboriginal issues and Canada’s north.He is the recipient of a National Magazine Award and a Best in Business award from the Society of American Business Editors and Writers. More


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