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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.

"Tens of millions dollars are being forfeited each day," economist Peter Tertzakian of ARC Financial said in a recent report. "Canadians are leaving a lot of coin on the table. ... It is disconcerting that it has taken a steep loss in sales to begin acting on market diversification but at least the industry buzz is now all about tapping into a new era of growth."

A slowdown in the nuclear industry after Japan's disaster this year has added to the need for more gas in Asia. Buoyed by the region, global demand is predicted to double in the next decade, according to independent research firm Sanford C. Bernstein & Co. It expects the excess of LNG to decline and sees demand sopping up all available gas by 2020.

"While a year ago some market commentators talked of the global glut of LNG, we believe the focus for investors should be on the impending global LNG shortage," analyst Neil Beveridge of Bernstein said in a recent report.

Royal Dutch Shell PLC , which is pushing gas over oil around the world, feels the pressure to move quickly, too. In 2008, at the top of the continental gas market, it overpaid in its $5-billion purchase of Duvernay Oil, which has large holdings in the Montney shale play in northeastern B.C. The company, chatter in Kitimat suggests, may soon unveil its own LNG plans.

Lorraine Mitchelmore, Shell Canada president, is coy. She concedes that without LNG, the gas Shell bought from Duvernay could be "stranded." She points to growth in Asian demand, triple the rate of other importing regions, and cites the need to move quickly, noting the competing supply in Australia. Shell is among the players there, moving forward on a floating LNG terminal, which would be the world's largest ship.

"For [Shell Canada], it's about Asia. We're sitting on the doorstep of a great market," Ms. Mitchelmore said in an interview in Vancouver. "It's an obvious market for Western Canada gas."

Apart from its abundant supply, Canada has another advantage. LNG tankers burn some of their product to keep the liquefied gas supercooled at -160 C while in transit. Because of this, the quickest path across the globe is also the cheapest – and ships sailing from Kitimat can get to key Asian markets faster than competitors in Australia and Middle Eastern gas exporters like Qatar, the world's No 1 in LNG.

"We've got it hands down. We've got a lot shorter transport time," Tim Wall, the president of Apache Canada, said in an interview in Calgary. "We can deliver to markets cheaper."

Apache's decision to invest in LNG in Canada came after it took a minority stake in Wheatstone LNG, which was approved in September. It's a giant Chevron Corp. project under construction in Australia. The scale of Wheatstone – $30-billion for everything from gas field development to the LNG plant – speaks to the scope of Canada's competition. The first gas is to hit the oceans in 2016.

Apache has never built an LNG plant but its Wheatstone position has paid dividends in Kitimat. The company already has marketing teams based in Australia and they have begun the work of selling Canadian gas. Apache has inked deals with two major Japanese power producers and its consortium for Kitimat LNG is in talks with six customers.

The efforts make clear the economic underpinnings for exporting LNG. Sales contracts will span a full 20 years – several lifetimes in the natural gas business – and they bear no relationship to the North American supply and demand dynamics that have so thoroughly depressed prices on this continent. They are instead tied to the price of oil, which has been far stronger in recent years.

That's not to say a LNG plant will rain profit. Apache initially pegged the Kitimat LNG price at $4.7-billion, with hundreds of millions already spent by the end of this year. But Mr. Wall acknowledges that detailed engineering under way will drive that price up – it's not clear how much – and suggests margins may be slim.

"There is an economic case," he says. "But it's a huge investment – and the payout is going to be somewhat longer. You're trying to open up markets. There's a huge prize for Canada, to become a major supplier of energy across the world."

Competition also looms. Tom Tatham, who runs BC LNG Export Co-operative LLC, has established a 50-50 deal with the Haisla and is proposing a mini-LNG plant. The idea, which would be a world first, is to build a LNG facility on a barge and float it to Kitimat before setting it down against the shore. First gas is targeted to move in 2014.

Widespread support

After the Second World War, the B.C. government wanted to stoke development in the province's wild and vast northwest. It brought in what is now Rio Tinto Alcan to look at potential hydroelectricity to fuel what became the world's largest smelter. Kitimat was carved from the wilderness to house workers and the remote town was the Fort McMurray of its time, with some of the highest wages in Canada. "A huge number of men came to work in the pot lines and make a fortune," says Kieran Leblanc, who was one of the first children born in town, in a makeshift hospital.

For the people of B.C.'s North Coast, the idea of exporting natural gas is not new. In March of 1982, Dome Petroleum signed an agreement to sell liquefied gas to a Japanese company. The company set out to build a major export port just north of Prince Rupert, but the project died when Dome crumpled under a huge debt load. Those who worked on the Dome dream always held hope that, one day, such a project would get built.

"Is now the time? Well, it's probably closer to the time than when we were doing it," said J.R. Van Der Linden, who led the LNG project for Dome. He kept a picture of its design on his home wall for nearly two decades, only recently taken down to make room for pictures of grandchildren.

Electrical power will be a big question for Kitimat. Existing BC Hydro infrastructure is inadequate, especially if Shell follows Apache. A third serious name is also looking at Kitimat – Malaysia's state-owned Petronas, a top LNG exporter. This year Petronas paid $1.1-billion for a 50-per-cent stake in Montney shale gas fields in northeastern B.C. that are controlled by Calgary-based Progress Energy Resources Corp.

Pipelines are yet another issue. To feed gas to Kitimat LNG, a $1-billion, 465-kilometre pipeline, Pacific Trails, is required to link to existing pipelines near Prince George in the province's northeast, the home of the gas. Owned by the Apache-EOG-Encana venture, it would traverse a route roughly similar to the proposed Northern Gateway oil sands pipeline, which is vehemently opposed by almost every single first nation along its sketched path.

But for gas, first nations have taken a pragmatic position. Fifteen first nations, using $35-million provided by the province, will take an equity stake and are set to receive roughly $550-million over 25 years from the pipeline profits, an average of $1.5-million annually for each nation.

"It's not the default position of first nations to oppose," said David Luggi, chief of the Carrier Sekani Tribal Council. "We want to participate in the economy but there are limits. Oil will spill. It'll end up on the water, whether on the coast, or our rivers, our lakes. I'm not saying gas is completely safe but it won't pollute like oil would."

There are hints support could be fragile. Around the northeast BC gas fields, some concerns among first nations have percolated. The fear is controversial fracturing technology – the explosive technique that unleashes shale gas below ground. It has sparked wide public concern and has led to temporary development halts, from France to Quebec and New York state. Any shift in B.C.'s openness to shale gas could have severe consequences for LNG plans.

"We're certainly not going to promote something that's harming any of our neighbours," says Art Sterritt, director of Coastal First Nations, an alliance of groups on the B.C. coast.

For now, however, the support for gas drilling and exports is expansive. Nathan Cullen, NDP MP for the Kitimat region and a leadership candidate to succeed Jack Layton, backs LNG, as does John Horgan, an MLA on Vancouver Island and provincial NDP energy critic.

"The geology's night and day. We're drilling three kilometres in to the ground before we're doing the fracking," Mr. Horgan said. He's concerned about water use but his greater worry is global competition. "We need to get going," Mr. Horgan said. "We're not the only people who are awash in gas."

Kitimat was whipped by the global recession. Rio Tinto Alcan halted a $2.5-billion modernization of its smelter and West Fraser Timber, the country's largest forestry company, shuttered an aging pulp and paper in early 2010. Thom Meier, general manager at 101 Industries Ltd., remembers when a hydroelectric expansion was suddenly halted in the 1990s. A four-line fax bore the news. " 'Cease all operations,' " Mr. Meier said. "We know the tap can turn off quickly."

But these days, a burgeoning confidence pervades the town. 101 Industries recently built an aluminum dock that floats on the water at Bish Cove, where workers disembark to ready the gas export site.

With the Kitimat LNG project on the doorstep, and Alcan's modernization now moving ahead, Kitimat's three-decade decline could radically reverse. If Shell joins the action, the region could see its population of about 7,000 double as workers arrive to build the facilities.

Joanne Monaghan, the mayor, jokes that her mantle has become "mayor of boom" – a welcome change from "mayor of doom."

"When I came 40 years ago, I said, 'This is a giant that will some day wake.' It's waking."

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