Should we subsidise LNG?

Last week we ran an exclusive story about the Coastal First Nations - Great Bear Initiative being opposed ...

Last week we ran an exclusive story about the Coastal First Nations – Great Bear Initiative being opposed to LNG plants here solving a potential power supply problem by using natural gas to produce their own.

A couple of days later I was reading a blog by Jim Quail.

Quail is a Vancouver lawyer who has regularly taken part in BC Utilities Commission hearings over many years, including those on PNG rate applications and on the BC Hydro-Alcan (now RTA) electricity purchase agreements.

He did so on behalf of the BC Old Age Pensioners Organization and other groups on fixed or low incomes, his job being to try to minimize the adverse impact of any deal on people in those groups.

The reason he weighed in on the KM LNG project was the fact that the provincial government and BC Hydro had committed to supplying power to run the plant.

And he said that commitment would translate into subsidizing KM LNG.

Now, I have to say right off that one number that Quail uses in making his argument – that the KM LNG would use 1,600 megawatts of power –  is incorrect.

Apache boss Tim Wall told me a couple of months back that the first phase of the plant would use 250 MW.

Therefore it follows that even when they go to the second phase, power consumption would not be more than 500 MW, less than a third of the number Quail uses.

And Art Sterritt, executive director of the CFN which has taken a good hard look at power requirements in formulating its own energy plan, used the same 500 MW number.

However, although Quail may have been over the top with his figure, his basic argument still holds water.

And that is there will come a point when the demand for power from LNG plants will require BC Hydro to find new sources of power to meet that demand.

Premier Christy Clark recognised the problem in a September interview.

“We are confident, absolutely confident that phase one will be powered up – no question – with existing resources,” she said.

But as for the second train, “I am confident about that, although there is still work to be done.”

 

In other words, that second 250MW will likely require new power sources. And the more

LNG plants, the deeper the power supply hole becomes.

Quail’s point is this: BC Hydro would sell power to the LNG plants at around $35 per megawatt hour – the current industrial rate.

But that would be less than it cost to produce that extra power.

For example, he says, if the Site C hydro project on the Peace River went through, it would cost BC Hydro “at least $80/MWh” to produce that power.

And Quail warns it would be even worse if BC Hydro turns to independent power producers (IPPs) where it would be paying about $129/MWh for what they produce.

(These numbers, by the way, look about right based on what I have read previously).

“And who would pick up that loss?” he asks.

Well none other than BC Hydro users like you and me.

The solution?

Quail notes “almost universally, around the world, LNG plants use a portion of their own natural gas supply to provide (the power they need).”

Which is a parallel to what Pacific Northern Gas does, using a portion of the gas it transports to the Northwest to run its compressors to get the gas here.

So there we have it, tell the LNG plants they will have to produce their own power.

They’ll still make a bundle of money and we don’t get dinged with ever higher hydro bills to subsidize the multi-billion dollar companies that run those plants.

But the CFN says no way.

Sterritt said the CFN had told Shell, “You’re not going to come into the region and start pumping out greenhouse gases all over the place.”

That position would make sense if not for the fact that the modernisation of the RTA aluminum smelter will reduce green house gas emissions in the Kitimat airshed by about 50 per cent.

Since I doubt that the GHG emissions from a few LNG plants will be more than the reduction modernisation is going to bring about, I don’t see the problem.

Okay, I do.

LNG plants producing their own power translates into zero value to the Coastal First Nations.

Whereas if the plants are fired by renewable energy – run-of-river and wind farms for example – produced in those first nations’ territories, they get a slice of the pie.

Their position is easy to understand.

I suspect the solution will be anything but easy.

 

Malcolm Baxter

 

 

 

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