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Connecting to the Grid: BC Sets Rates, Terms for LNG Industry

Today, the BC Government introduced the Domestic Long-Term Sales Contracts Regulation under the Clean Energy Act setting rates and terms for liquefied natural gas (LNG) customers proposing to use electricity from the BC Hydro grid.

LNG proponents will pay $83.02 per megawatt hour (MWh) for electricity delivered at LNG export facilities, plus full cost of connecting to the BC Hydro system plus any transmission system upgrades necessary to serve the facilities.  Compared to $54.34/MWh, being the average rate paid by established industrial customers in the province in 2014.  This is some impressive negotiation by government.

Earlier in the day, BC Hydro announced that it has signed a power purchase agreement with LNG Canada (the Shell led consortium) to supply electricity to a portion of the proposed LNG facility in Kitimat, BC. Terms of the deal were not announced, but it is expected that LNG Canada will purchase 200 MW or approximately 2,000 GWh/year from BC Hydro to serve its ancillary (non-compression) load requirements.

The BC Government news release also commented that the 3,000 GWh/year earmarked for LNG development in BC Hydro’s 2013 Integrated Resource Plan (IRP) will be taken by LNG Canada and Fortis BC’s Tilbury LNG plant in Delta, BC.

Today’s news shows that LNG companies are choosing BC’s electricity, even paying the new “latecomer” industrial rate, because it is the cost-effective option when factoring in BC’s GHG emissions compliance costs. You need to get to 0.16 of CO2e, or purchase carbon offsets or pay into a technology fund. Using grid electricity in BC is proving to lower GHG emissions and thereby reduces project costs.

Only time will tell whether this leads to additional LNG projects selecting renewable electricity for all or part of their power requirements. But given that all of BC Hydro’s IRP forecasted power for LNG is now spoken for (subject to final investment decisions), should any more LNG projects wish to use grid electricity, BC Hydro will have to procure new generation to supply the load. This, of course, is welcome news to BC’s fledgling renewable energy sector.

The exact electricity requirements for LNG projects in British Columbia are unknown. But consider this: per the announcements today, one major LNG project (LNG Canada, ancillary load only) and one small LNG project (Tilbury LNG, all power requirements) requires 3,000 GWh/year. Front running LNG projects yet to make firm power purchase decisions are: 

Should these projects choose to use electricity from the BC grid for all or part of their power requirements, a conservative estimate is that they would command approximately 6,000 GWh/year of electricity. This does not even include possible electrification of the upstream (drilling and processing) where 70% of LNG industry operations occur.

As you may gather, the electrification possibilities for the natural gas sector in BC are staggering. In an industry where GHG emissions are plentiful, it is critical to take every opportunity to reduce environmental impacts in a cost-effective manner. Grid electricity provides that opportunity.

Are today’s announcements a precursor to a dedicated power call to service the LNG industry in British Columbia?  Perhaps. And if so, there are many renewable energy project developers and their First Nation partners eager to invest in the province.

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