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Kitimat, B.C.: Ground zero in the race to fuel Asia Add to ...

Two kilometres beyond an old logging road, workers are building the foundation of the future of Canada’s ailing natural gas business.

Since the summer, crews have blasted the hard rock at Bish Cove on the Douglas Channel, the deepest and widest fjord on the rugged north coast of British Columbia. More than 40,000 cubic metres have already been excavated to reform the land, in preparation for a $5-billion-plus project that would for the first time ship Canadian natural gas to buyers in Asia.

The earth-churning work at Bish Cove is a demarcation point in the history of the Canadian energy business. For the country’s natural gas producers, a door to Asia is a desperately needed lifeline. The industry has been battered by the emergence of abundant shale gas in the United States. Prices and profits have collapsed, and shipments to the U.S., Canada’s only export customer, have been halved. Without an export route to Asia, there is a risk that the major discoveries of shale gas in British Columbia, as well as reserves in Alberta, will be left in the ground.

There is urgency: Serious competition looms on the other side of the world in Australia, where there are some $200-billion of plans to build numerous plants that would triple exports to the same customers Canada is courting. But Canada has an advantage. Shipping times from Kitimat to buyers in Japan, South Korea and northern China are shorter, providing savings on transportation costs, industry officials say.

At a time when battles over environmental concerns threaten to slow down or derail major Canadian oil sands export projects such as TransCanada’s Keystone XL pipeline and Enbridge’s Northern Gateway pipeline, the vision to ship liquefied natural gas to Asia is quietly speeding toward reality.

The gas export plan could mean higher domestic energy prices for residential and industrial customers in the future and would crank up Canada’s greenhouse gas emissions. Yet there has been barely a ripple of protest and nobody risking arrest on Parliament Hill or on the doorstep of the White House.

In fact, the idea enjoys broad support, from politicians of all stripes to the local first nation and other aboriginal groups along a pipeline route that would bring the gas to Kitimat on the B.C. coast, where it would set out for Asia.

The Kitimat LNG project is a three-way joint venture between U.S. energy companies Apache Corp. and EOG Resources Inc. , along with Canadian gas giant Encana Corp. They are expecting to receive a crucial export permit from the National Energy Board within days. A decision to proceed is expected by early next year. Gas could be on ships by 2015.

A green light for the Kitimat LNG project could see the rapid establishment of a regional export hub, one that major global energy players are keen to join. By the end of this decade, three billion cubic feet a day of gas could flow through Kitimat – equal to all of B.C.’s current production and close to 20 per cent of Canada’s current output.

“This is huge. We embrace it. A lot of people are working,” says Ellis Ross, chief councillor of the Haisla Nation in Kitimaat Village across the channel from Bish Cove. “It’s going to be life-changing for us.”

The coming global LNG shortage

Exports of Canadian gas to the U.S. began in earnest in the late 1950s, after the completion of the Trans-Canada Mainline, but by 1970 growth plateaued and was flat through the mid-1980s. After deregulation under Brian Mulroney, the industry boomed and exports to the U.S. quintupled by the early 2000s, bringing vast wealth to Calgary. Indeed, despite oil’s higher profile, gas has long been Alberta’s economic bedrock. It has also bolstered Ottawa’s coffers.

Amid high natural gas prices during the past decade and uncertain future supply, experts throughout the gas industry were convinced the U.S. needed terminals to import gas and several multibillion-dollar facilities were built. They now sit mostly idle. One struggling importer, Cheniere Energy Inc. on the Gulf Coast in Louisiana, received approval in May to export gas, which it hopes to do by 2015.

Underlying the gamble Apache, EOG and Encana are making on LNG are the major positions those companies hold in the Horn River shale gas play in remote northeastern B.C. The resource is among the most promising in North America but remains stymied by its distance from U.S. markets and broad weakness in gas markets, which has already forced Encana to pull back on drilling this year. The company this week said it will drill fewer wells in 2012, even though it’s been tapping huge pools of gas.

As it increasingly draws from prolific domestic natural gas reserves, the U.S. is meeting more and more of its own gas needs, and some speculate that the country will eventually not need any gas at all from Canada. But in Asia the need is great, and the strong demand means prices are much higher.

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