Malahat First Nation the final piece of Steelhead LNG puzzle

Vancouver-based Steelhead LNG has announced the signing of a Mutual Benefits Agreement and Long-Term Lease with Malahat First Nation to export natural gas fracked in Northeastern B.C.

The proposed FLNG (floating liquefied natural gas) terminal would have a capacity to transship up to six million tonnes (mpta) of LNG annually, and would be located at the existing deep-water port formerly known as Bamberton, located on the Saanich Peninsula.

For Steelhead, the Malahat Agreement completes a five-lease package on Vancouver Island. The company previously signed four separate six-mtpa agreements with Huu-ahy-aht First Nation to build a shore-based LNG facility in their traditional territory on Sarita Bay.

On Aug. 21, Malahat CEO Lawrence Lewis said both parties were subject to a confidentiality agreement that kept the location of the fifth lease secret until the signing announcement Aug. 20.

“We’ve spent the better part of a year working with Steelhead, to ensure that these are folks we want to do business with. We wanted to understand a little bit about them and what they are up to. We spent 13 months doing that,” Lewis said. “What we announced yesterday was the first box in a thousand boxes that have to be checked around this process.”

“We hope to be able to run the regulatory process – which is a very arduous and detailed process in B.C. – over the next two years, and after then, we will be able to make an investment decision,” Steelhead CEO Nigel Kuzemko said Friday.

Steelhead LNG already has a $30-million contract in place with WorleyParsons Canada to conduct the Huu-ay-aht/Sarita Bay study. Kuzemko said WorleyParsons is one of several “technical partners” in the project, and they would also conduct the Malahat LNG study.

“No price tag on this one yet,” he added.

“The best case scenario would see us get operational in five years, but that’s only if all the stars fall in line,” Lewis said.

When it was suggested that five years would be “an extremely ambitious” target, Lawrence said planning for a long, protracted process serves no one.

“It’s never been done before, but you’ve got to be bold; you’ve got to set some timelines and you have to be aggressive and you’ve got to take some action. We’re going to work hard.”

Because they do not extract the gas from the ground, Malahat First Nation does not receive royalties; their revenue is derived from the service provided: chilling, liquefying and loading the product onto a ship. Lewis would not say whether future Malahat revenue would be based on the volume of LNG shipped.

“I am not going to speak to what our financial arrangements are, but they are diversified in terms of this project. We haven’t put all our eggs in one basket. We’ve diversified our interests and we will receive varying types of benefits depending on the stage of the project – and certainly when it’s operational.”

Lewis said Malahat would receive both cash and future investments, as well as training, employment and capacity-development.

“We are well-diversified within that agreement for the Nation to benefit, whether the project gets to [Financial Investment Decision] or not.”

Last year, in light of the extended multimillion-dollar consulting process attached to the Huu-ay-aht/Sarita Bay project, Kuzemko was emphatic that his company had taken steps to avoid becoming entangled in a “self-perpetuating proposal,” in which the consulting process itself becomes the main revenue-generator.

Lewis echoed Kuzemko’s assertion that there is no other goal short of bringing a functioning LNG shipping facility to fruition. That is where the real benefits and “the real opportunities of a lifetime” lie, he explained.

“This is a whole different game for First Nations – and that’s where we want to get. We have no interest in creating a consultant’s regime that never translates into any benefits for the Nation.”

In its own Aug. 20 press release, Huu-ay-aht First Nation suggested that the development of the Malahat project would hasten the process of building the high-capacity pipeline required to transport export gas from Northern B.C. to Vancouver Island.

Kuzemko was asked whether this was a concession that the Malahat project would be built first.

The CEO replied that while Steelhead places equal priority on both projects, “having said that, if we do get the pipeline across from the Southern mainland across to the Island, then obviously, Malahat LNG is the first facility on the way. It makes sense from that point of view.”

Kuzemko said there were several incentives to go with FLNG over a land-based liquefaction facility as envisioned for Huu-ay-aht at Sarita Bay.

“For one, we are looking at a smaller and more modest size: four to six million tonnes (per annum). [FLNG] gives you the ability to put the liquefaction trains on a barge or a small vessel… that opens up opportunities to do that.”

Kuzemko said there were also environmental considerations in deciding between a marine-based or a shore-based plant.

“If you do a land-based facility, you are looking at thousands of tonnes of concrete and steel on the land to make it safe and secure. If you can do that on a vessel, you don’t need to do near as much.”

It was pointed out that in the Huu-ay-aht/Sarita Bay proposal, one of the benefits frequently trumpeted has been the number of high-paying jobs (up to 4,000 at peak) that would be generated during construction of infrastructure and assembly of the processing plant.

By contrast, an FLNG terminal would be built and assembled offshore, likely in Korea, then simply floated into port and moored. Local construction would be limited to maintenance and administration infrastructure, as well as the hookup to the pipeline.

Kuzemko said options were limited by the topography of the port.

“It’s probably the only way of realistically doing it at this site. We wouldn’t be having this conversation if this was a land-based facility, because there isn’t enough room,” he explained. “It’s a very steep place.”

Lewis said losing the liquefaction plant construction was not a deal-breaker.

“The ship will be made somewhere else. That is for Steelhead to sort out,” he said. “The upland side will all be constructed here. It’s not going to be a Lego-type of assembly. I don’t know what the numbers are going to be, but it’s going to require hundreds of folks, from across all sorts of sectors, with all sorts of skills.”

Lewis said it is estimated that the project, when complete, would result in 200 full-time permanent jobs in a full spectrum of fields, from engineers, technicians and operators to maintenance, security and housekeeping staff.

“There will be opportunities across all sectors, and many entry points for our aboriginal folks.”

One fact that did not emerge at the media conference was that FLNG is an entirely new technology. To date, there is not a single working FLNG facility on the planet.

According to the joint Steelhead/Malahat press release: “The use of floating liquefaction technology provides Steelhead LNG with a low impact facility that builds on the exemplary 50-year safety record of LNG carriers and floating regasification and storage units.”

In strict point of fact, however, while there are a number of FLNG terminals under construction worldwide, these are huge offshore facilities built to service undersea natural gas wells. (Regasification takes place at the customer end, converting the LNG back into its gaseous form for shipment via conventional pipeline.)

Googling “FLNG” takes one directly to the Shell Global Prelude project currently under construction in Korea. The massive vessel is 1,600 feet long, with five times the displacement of the largest U.S. Navy aircraft carrier and a pricetag of over $10 billion.

Kuzemko conceded that the design process for the proposed terminal alone could be measured in years. While it may be possible to install off-the-shelf LNG technology onto a barge within a reasonable time frame, he noted, a purpose-built vessel would likely take years to design and build from the keel up.

“The design process starts in earnest shortly. What we have to do is make sure we’re taking into account all of the environmental impacts it may or may not have, in detail,” he said.

The Bamberton site is part of a 525-hectare parcel of land purchased by Malahat just last month. It was once home to a cement plant, now closed for decades. It is already zoned for heavy industry with marine foreshore leases already in place. Currently, there are a number of heavy industrial leaseholders onsite, and they will remain, Lewis said.

“This is about expanding the industrial complex for the benefit of the Nation. We will, obviously, have to expand some of those marine-space permits, and that is a whole engagement process in itself, with the community and with the stakeholders.”

Rather than focus entirely on preventing potential impacts related to the FLNG project, Lewis said Malahat is committed to use the project as a vehicle to repair existing damage to the marine environment in their traditional territory.

“We can’t harvest clams on the beach now, because the inlet is so toxic. We can’t fish for food, social and ceremonial purposes. There aren’t enough fish, because the habitat has been so damaged by historical impacts from other upland uses.”

Lewis said it is implicit that Malahat will take all necessary steps to protect its traditional territory as it moves ahead into the industrial world.

“I believe First Nations have a duty and a responsibility to be active in industry, if only to protect their interests and be proper stewards of the environment and the resources that affect them. Otherwise you’re just sitting on the sidelines.

“[This] Nation is focused on nation-building. We’re going to do what we need to do to protect our interests and the interests of our First Nations brothers and sisters, and, to the extent we can, the rest of B.C. We have to own that; we have to be part of that, and we have to be directly involved in that.”