Can Steelhead LNG ‘s Proposal Overcome Bamberton’s So-Called Business Curse?

Can the Steelhead LNG proposal to build a floating liquefaction plant on Saanich Inlet overcome a global LNG glut, enviro concerns, conflict within the Malahat Nation, the proposed partner in the project, and the so-called curse of Bamberton, the site of many quashed business opportunities over the past decades? Douglas looks at the odds.

Proponents of Steelhead LNG’s floating liquefied natural gas proposal for the Bamberton waterfront on Saanich Inlet already had enough on their minds while pondering their final investment decision: A stumbling Chinese economy. A world glut of natural gas. Plummeting oil prices robbing natural gas of a competitive advantage. Australian competitors moving ahead. A Louisiana LNG facility about to enter the fray. And, closer to home, objections from environmentalists, the nearby Tsartlip First Nation and Shawnigan residents.

Then, on February 10, the Malahat First Nation announced it had fired one of Steelhead LNG’s most eloquent advocates, a man widely credited (or blamed) with brokering Steelhead’s deal with the Malahat to build an LNG facility on the foreshore of the nation’s recently acquired Bamberton lands, about 35 kilometres north of Victoria. Steelhead and the Malahat First Nation (MFN) quickly issued statements assuring all concerned that the turfing of Malahat Investment Corporation CEO Lawrence Lewis — as well as two other executives and three trustees — would have no bearing on the LNG project.

“MFN stands behind the project and recent changes are undertaken to ensure the project moves forward for the betterment of the MFN people,” said an email from Richard Margetts, one of two lawyers assigned by the Malahat Nation to review the governance and finances of the nation and its investment corporation. Steelhead, meanwhile, regards the restructuring as “an internal matter” and looks forward to working with recently elected Chief Caroline Harry and her council.

Still, given all that’s been happening, a disinterested observer might be excused for wondering if the curse of Bamberton is about to assign another grand development scheme to the historical trash heap.

Bamberton’s History
From 1912 to 1980, Bamberton was home to a cement plant founded by Robert Pim Butchart of Butchart Gardens fame. Bamberton’s column of smoke was a familiar sight from many vantage points on the Saanich Peninsula. In the ‘50s and ‘60s, the plant thrived, according to the Bamberton Historical Society website. It employed hundreds, many who lived with their families in a village on the site. But on many occasions, the plant struggled, as when it shut down during the First World War and the Great Depression.

Since the plant’s final closure, various grand ideas have been floated for the 1,800-acre property. In 1988, New Jersey-based industrialist Jay Wooding proposed a ferrochromium smelter on the site. A public hearing at the time drew 600 mostly hostile critics to the Brentwood School gymnasium. Wooding was run out of town, only to pitch his idea in 1989 to Nanaimo, where he received an even more acrimonious welcome. He tried Port Hardy, but the third effort wasn’t a charm either.

In 1991, South Island Development Corporation, funded by union pension funds, proposed a 4,900-home utopia of bike paths, tertiary sewage treatment and home-based businesses on the Bamberton hillsides. At the time, then-Malahat Chief Randy Daniels said the $900-million proposal impinged on the Malahat Nation’s land claims to the property, which included sacred Malahat Mountain, according to a Vancouver Sun article written by the author of this article.

South Island could never get its project off the ground. Nor could Bamberton Properties after proposing a scaled-back development of 3,200 homes. But Chief Daniels’ 1991 comments proved prescient when nearly 25 years later, in July 2015, the Malahat Nation bought the Bamberton site from Bamberton Properties LLP. The price tag, Lewis said in an interview before he was fired, was between $30 million and $40 million.

On the face of it, the most recent grand plan for Bamberton looks like the most grandiose of all. Or loopiest. Take your pick. It involves building a natural gas pipeline from the B.C. border at Sumas, running it about 53 kilometres to Cherry Point in Washington State, where it would connect with a 75-kilometre undersea pipeline snaking along the bottom of the Salish Seas, past the Swartz Bay ferry terminal, through Satellite Channel and down the throat of Saanich Inlet (see map p.49).

There it would supply gas to a gargantuan floating liquefaction plant. Then another pipeline would carry gas to an even larger land-based liquefaction facility — estimated cost $30 billion — on Sarita Bay near the mouth of Barkley Sound.

That’s kinda, sorta, the plan right now, though Steelhead CEO Nigel Kuzemko said the Sarita plant might still be built first. “We’re still in early days and we’re looking at all options still. Nothing’s off the table,” he said during an interview that predated the Malahat Investment Corporation shakeup.

Kuzemko doesn’t expect Steelhead, which is backed by Calgary-based private equity firm Azimuth Capital Management, to make its final investment decision until 2017 at earliest. Should everything fall in place, Steelhead would begin exporting LNG by 2021 or 2022.

Not Much Middle Ground
Depending on whom one asks, the proposed LNG facility would either be the greatest boon to the Malahat First Nation and the people of Saanich Inlet ever — or herald the destruction of the Inlet as it is known and cherished.

Among those strenuously objecting is Adam Olsen, B.C. Green Party deputy leader and member of the Tsartlip First Nation on the opposite side of the Inlet from the Malahat.

Olsen’s beefs include that other First Nations on the Inlet weren’t consulted before Malahat signed the deal. He also questions the wisdom of natural gas development when there’s a global glut, and when world leaders committed in Paris last year to dramatically reducing fossil fuel consumption.

“So look, no matter whether or not the natural gas market changes and all of those global forces shift miraculously into the benefit of developing a liquefied natural gas economy here over the next decade, Saanich Inlet is still the wrong spot for an LNG facility,” Olsen says.

Growing up near the Inlet’s shoreline, he would accompany his fishing-guide father on trips that took him within 50 metres of the Bamberton wharf. At 40, he’s barely old enough to remember the last gasps of smoke from the old cement plant.

Former Malahat Investment Corporation CEO Lawrence Lewis has a similar background, coming from a line of fishermen from the We Wai Kai Nation on Quadra Island. As a young man he crewed on seine boats from the west coast of Vancouver Island to Alaska. Like Olsen, Lewis has young children and is concerned about the world they’ll inherit.

“I’ve had the benefit of working on this project for close to two years now,” Lewis said while still CEO of the Malahat Investment Corporation. “So I understand the science, I understand the engineering, I understand the economics. And what I can say with absolute certainty is when reasonable people sit down and walk through the project, I have yet to experience a single soul who has come and said this is not a good idea.”

Lewis also noted there was no way Bamberton could have consulted with other First Nations before the Steelhead deal was signed because the negotiations were taking place at the same time the Malahat was negotiating the deal to buy the Bamberton lands. “The negotiation of the acquisition of the site had to happen in secrecy,” Lewis says. Had word of the LNG potential leaked to the seller, “the price of the property could have easily doubled,” he adds.

A Boon or a Losing Proposition?
Guy Dauncey, a futurist and author now based at Yellow Point near Nanaimo, doesn’t see any merit to the Steelhead LNG proposal. Twenty-five years ago, he was an environmental consultant for South Island Development Corporation on its proposal, of which he was something of a booster.

“Clearly the proponents [Steelhead] believe there’s a business case because they’re investing money,” says Dauncey. “They may have bought into [B.C. premier] Christy Clark’s rhetoric and believe the government is so strongly behind [LNG] that all the approvals will be plain sailing.”

Just a few years ago, Clark and her Liberal government were banking on an LNG windfall to sweep up B.C. in a wave of prosperity, adding billions in revenues and creating 100,000 jobs. Clark has toned downed those projections, while also lashing out at LNG naysayers who have raised concerns about the environmental impacts.

The Liberals’ most recent throne speech in February conceded that slumping gas prices “will have an impact on your government’s initial timelines.” But it went on to say, “Success is not for quitters.” And, the speech added, “We must begin to export [natural gas] or the 13,000 people who depend on this industry today will be out of work.”

Rich Coleman, minister responsible for LNG, wasn’t available for an interview. However, he released a statement to Douglas that said, in part, “B.C. is in this for the long-term. We are negotiating project development agreements with proponents, working with First Nations to further strengthen environmental stewardship, and partnering with trades associations to increase skills training. Thousands of jobs are being created and our first commitment is to have British Columbians ready for them.”

Strategic Partners
A common feature of pretty much every LNG proposal in B.C. is that it has a First Nations partner. These are moves calculated to gain projects with what has become known as social licence. Yet invariably support from First Nations for these projects is far from universal. Consider the case of the LNG plant that Malaysian energy giant Petronas wishes to build on Lelu Island near Prince Rupert. While members of the Lax Kw’alaams First Nation have reportedly turned down a billion-dollar offer from Petronas and have been actively protesting the project, other First Nations leaders in the region have said they remain open to the project so long as it passes environmental muster.

Support for Steelhead’s project among First Nations has also been questionable. The Tsartlip First Nation, for example, posted a notice on its website denouncing Steelhead’s “aggressive approach” in announcing the project “prior to any discussions with the Tsartlip community.” Tsartlip Chief Don Tom has said that any such project requires Tsartlip approval, according to news reports. However, he didn’t respond to requests for further comment from Douglas.

Malahat Chief Caroline Harry, elected in November, has also expressed concerns about the LNG project, according to news reports following the election. Contacted by Douglas, she declined comment, referring the matter to Renee Racette, who took over from Lewis as the Nation’s CEO in January. (Lewis had stepped down as CEO of the Nation to focus full-time on his duties as CEO of the Malahat Investment Corporation, an arm’s-length, Nation-owned entity “that exists for the beneficial interests of the Nation,” he says.)

Caroline Harry succeeded interim Chief Tommy Harry, who took over after the previous chief, David Michael Harry, resigned over allegations, not tested in court, involving a contaminated-soil dump near Shawnigan Lake. (Yes, all three Harrys are part of an extended family.) A week after the resignation, Steelhead and Malahat announced their deal, timing that also rankles Adam Olsen.

“I’m not sure what motivated it or what expedited it, but for them to make an announcement such as this with a project of this kind and not have a solid leadership in place in Malahat speaks volumes to me,” Olsen says.

There is also First Nations dissent over Steelhead’s Sarita Bay project, proposed for land owned by the Huu-ay-aht First Nation. At a national assembly last year, about 200 members voted (around 60 per cent) in favour of conducting an environmental review of the project. Seventy-one people voted against going even that far.

Asked what supporters of the project would have to do to win over the naysayers, elected Chief Robert Dennis Sr. says, “Well, I think it’s more what we have to do so we don’t lose the yes vote.”

One “big advantage” of the LNG project is that it would cause less disturbance to the land than a forestry operation, says Dennis, who was elected chief councillor in June but previously served in the post from 1995 to 2011. The Steelhead project also presents a “very high” potential for employment of Huu-ay-aht members and would be part of a mutual benefits agreement the nations would sign should they reach a deal with Steelhead, Dennis adds.

The 315-member Malahat Nation already has such an agreement with Steelhead that includes $25,000 a month the company is now paying for a life-skills development program, Lewis reveals. The program has put 13 people to work, although five of those jobs are with another joint-venture company “because the opportunities with Steelhead right now are all forward future looking,” Lewis says. “So we’re using this opportunity to create jobs and employment today.”

The Bamberton facility, which will produce six million tonnes of LNG annually, will provide up to 200 “high-paying long-term positions” once operational, according to an August 2015 Steelhead news release. The company hasn’t arrived at an estimate for the Sarita site, but it is licensed to handle four times the volume of Bamberton.

Making the Case
If there’s a business case for Steelhead, Darryl Anderson, Victoria transportation analyst and managing partner of Wave Point Consulting, hasn’t seen it. But since proponents aren’t making an investment decision right away, he is willing to give them some benefit of doubt.

“But in the short run, it’s a challenge,” says Anderson, who undertook a project on LNG bunkering for a port authority three years ago and has also studied LNG shipping traffic.

He says one challenge is Sarita Bay’s remote location, about 75 kilometres from Port Alberni. “They’re really energy intensive facilities. Now they may use natural gas and other things. But you have to still bring your pipeline, your electrical, your water, your sewer to a relatively remote location.”

At its Bamberton location, Steelhead also has “really hard capital costs,” not to mention the expense of the pipeline,” he says. But the biggest problem for Anderson is that Steelhead doesn’t appear to own any assets at upland production or at the consumption end. That’s unlike Petronas, which owns and is developing its own wells in northeastern B.C. but also has an equity partner to buy the gas.

If Steelhead is just an asset owner of would-be marine terminals, which are in the midstream, it is “particularly vulnerable,” Anderson says, “because that market has not proven to be successful for anybody.”

Even if Steelhead’s model is for a long-term play, it isn’t clear to Anderson how the company would generate value for customers when it doesn’t “appear to be large enough to control the supply chain and drive down economies and guarantee the customer a security of supply.”

Steelhead CEO Kuzemko says that because its project requires bank financing, the company is looking for “long-term contracts with credit-worthy off-takers.” Those would be “back to back” with similar contracts with gas suppliers. So far, the company hasn’t signed any such contracts but is working with potential customers to understand their requirements, he says.

“Their requirements are just the same as any other business — they want stable, long-term, reliable LNG supply at a competitive price,” Kuzemko says. “That’s what we believe we can deliver from Canada.”

Saul Klein, dean of the Peter B. Gustavson School of Business at the University of Victoria, says potential B.C. LNG producers might gain advantages from the cheaper loonie, “but it is not clear that other countries, such as Australia or Qatar, do not have similar advantages,” he said.

However, his LNG skepticism has little to do with the present glut and low energy prices, which are cyclical. While he doesn’t expect the world to wean itself from fossil fuels for many years, he says concerns over climate change will likely cause a shift from dirty sources such as coal to cleaner fuels, “which will obviously be good for LNG.”

Dauncey, though, expects that the green shift will also doom LNG. “It’s like investing in a huge horse-powered infrastructure in the year 1890,” Dauncey says of LNG.

Even Kuzemko doesn’t dispute that the world is heading toward an energy future without fossil fuels, including LNG. “I really hope that in 60 years we don’t need LNG projects anymore,” he says. With the right technological developments, coal should phase out over the next decade, followed by oil, then natural gas, he adds.

Ken Green, senior director of natural resource studies at the Fraser Institute, says if he ran a company looking to enter the LNG market today, he’d seriously recalculate because of the prospect of China’s economic bubble bursting. “If that happens, then the expected giant sales market for liquid natural gas might be slower to appear …”

He also acknowledges that the head start of Australia and competition from Russia pose problems for B.C.

Then there’s competition from other proposed LNG facilities in B.C., but Kuzemko notes many LNG facilities are in remote locations and lack much of a local workforce. That’s why Steelhead is building a floating facility. It doesn’t need a lot of land or require dredging, and the facility can be built in a shipyard, which in this case would be in Asia.

However, as Adam Olsen points out, only one floating LNG facility has been built and it isn’t even finished yet. That’s Shell’s Prelude project, expected to go into operation in 2017 off the coast of Western Australia. Petronas also has a couple of floating LNG projects under construction.

Kuzemko, though, is confident that the technology is proven and ready for Saanich Inlet, saying it combines the proven liquefaction technology of onshore facilities with proven technology for storing LNG on ocean carriers. It’s a concept, he says, “that has been rigorously developed and assessed for more than a decade.”

But will it work on Saanich Inlet? Dauncey suspects that Steelhead has seriously underestimated the physical challenges of the inlet, noting that it’s more than 200 metres deep in places. “And it’s full of anoxic sludge at the bottom, which if it’s ever disturbed would send off a wave of oxygen-free material and do massive damage to the marine life of the inlet.”

Kuzemko says he is confident engineers will be able to deal with the depth and sludge. Undersea pipelines have been built all over the world, he says. In fact, he is hopeful the project will be judged on its merits and the many benefits it brings to the region, B.C. and Canada.

Beyond the Bamberton Curse
That still doesn’t take into account that the plan is to build it at Bamberton, where other grand schemes have died, as Dauncey recalls all too well.

“The funny thing is that when I was working on the Bamberton project, there was a lot of protest on the Saanich Peninsula side. And I remember being at one meeting where someone said, ‘Look, if I get my binoculars, I can see that ugly thing,’” Dauncey recalls with laughter.

The underlying message: never underestimate the power of determined people to cast a curse on Bamberton.