Updated: Mar 16
Shares of Pembina Pipeline Corporation have plummeted over the past month.
Because of the coronavirus outbreak, all of Wall Street has the jitters right now. Oil prices have nose-dived, and an oil price war between Russia and Saudi Arabia has erupted.
In any case, we thought we’d use the stock market shake-up as the occasion to take a closer look at Pembina Pipeline Corporation, the Canadian company that owns the Jordan Cove project, and to explore the relationship between Pembina, natural gas, and the Canadian government.
Those of you who have been following the many rounds of Jordan Cove know that Pembina is just the latest owner of the project that seemingly will not die. Way back in 2004, a newly formed Colorado company first proposed building an LNG import facility on the North Spit of Coos Bay. By July 2005, Fort Chicago Energy Partners L.P., a Canadian company, had acquired a majority interest in Jordan Cove. After the U.S. fracking boom scuttled the need for imported gas, Fort Chicago reorganized as a Canadian corporation called Veresen Inc. Pembina acquired Veresen in 2017 and inherited Jordan Cove from them.
Pembina Pipeline Corporation is based in Calgary and “operates transportation and storage infrastructure delivering oil and natural gas to and from parts of Western Canada.”
Nothing against our neighbor to the north, but we feel that basic facts of the Jordan Cove project preclude it from being in the U.S. public interest. Jordan Cove is owned by a Canadian company that wants to export LNG to foreign countries. Then there’s the question of where this gas would be coming from.
Pembina has stated that the natural gas will be sourced from both Canada and the United States. And it’s true that the Pacific Connector pipeline, if built, would tie into the Malin Hub near Klamath Falls, which receives gas from both the Ruby and GTN pipelines.
The 42-inch Ruby Pipeline runs east-west from Wyoming to Malin and carries natural gas from the Rocky Mountain basins. Veresen bought 50 percent of the pipeline in the form of “convertible preferred interest” in 2014, which Pembina inherited.
The GTN, short for Gas Transmission Northwest, is a much older pipeline. It originates in Kingsgate, British Columbia and conveys natural gas from the Alberta region to markets in Washington, Oregon, and California.
Despite Pembina’s assertions, landowners Ron Schaaf, Deb Evans, and Bill Gow are convinced that most, if not all of the gas destined for Jordan Cove will be Canadian. And that, as they argued in comments to FERC, should give the commissioners pause.
While the U.S., Australia, and Qatar are building LNG facilities as fast as they can get them approved, Canada has been playing catch-up. For example, the U.S. has 10 LNG export projects and five expansion projects either operating or under construction; in contrast, Canada has one.
Traditionally, most of the natural gas Canada exports ends up in the United States. In fact, in 2017, Canadian gas accounted for 97% of all U.S. natural gas imports. But the fracking boom has caused prices to drop and exports to flatline.
Canada is motivated to pursue new markets abroad. A report compiled by Natural Gas Advisory Panel in Alberta in 2018 called Canadian LNG the “one big prize for Western Canada’s natural gas sector.”
One of the prime strategies the report identifies for getting Canadian gas to world markets is “direct LNG exports to Asia via sites in the U.S. Pacific Northwest region,” aka Jordan Cove.
The report acknowledges the political and regulatory barriers that have held back LNG projects in Canada, and contrasted the climate in the U.S. Gulf Coast region, where LNG projects enjoy “attractive costs, under favorable regulation, and with clear political support.”
The report also urges that the window for getting into the LNG game is closing. The time is now, and the Canadian and provincial governments are jumping in to help.
“The cleanest LNG in the world”
One of the strategies Canada is using to get into the LNG world market is to tout its brand of LNG as the “greenest” in the world, as the country vows to electrify production and clamp down on methane leakage. “Cleaner” Canadian gas can help replace dirty coal and help solve the climate crisis, leaders argue.
In 2019, the Canadian and British Columbia governments drafted a memorandum of understanding in which they committed to $680 million in infrastructure projects to help “electrify” the natural gas industry—for example, converting processing plants and pumping stations to run on hydropower-generated electricity.
“By moving to clean power — a process referred to as electrification — we will avoid emissions and position Canada as a supplier of the world’s cleanest natural gas,” Prime Minister Trudeau’s office boasted.
“Canada’s recent move to capture markets by reducing their LNG upstream and in-country GHG emissions will likely get play as the world tries to move away from fossil fuels and toward low- and no-carbon alternatives,” says Ron Schaaf, an affected landowner who has been closely following LNG markets since 2015. “Some in the European Union are already starting to insist that the life-cycle greenhouse gas emissions of LNG sources be factored in.”
It’s worth noting that much Canadian natural gas is a by-product captured during the extraction of other fossil fuels; it’s abundant and cheap.
If Asian customers buy the message about Canada’s “green gas”—and if the price is right—overseas customers could start preferring Canadian LNG over U.S. product.
Making a case
Setting aside the question of whether Canadian LNG exports will ultimately help bring down global carbon emissions or contribute to them, the participation of the Canadian government in shoring up private enterprise brings up some intriguing questions.
In their comments to FERC, Evans, Schaaf, and Gow posed one to FERC: Is an LNG project owned by a Canadian company that transports Canadian gas to foreign markets—the same markets that U.S. producers are fighting over—in the U.S. public interest?
The landowners also raised the question of whether the Canadian government has a “partnership relationship” with Pembina and other Canadian companies.
They argue that, by allocating tax dollars, loans, and grants to the private sector which directly support Pembina and other gas producers, the Canadian government has in essence become a co-applicant in the Jordan Cove project.
If this is the case, the use of eminent domain authority over U.S. sovereign citizens is unconstitutional and deprives landowners of their due process rights. After all, American landowners have no say in Canadian policy that advances private projects for that country’s companies.
The landowners urged FERC to consider this Constitutional question before assessing whether the public benefits outweigh the project’s adverse effects.
The question of Canadian gas
In May of 2019, Pembina stated they had non-binding agreements for 11 million tons per annum (mtpa) of LNG, in excess of the project’s stated capacity of 7.5 mtpa. Pembina predicted these contracts would be converted into binding agreements over the coming months.
That didn’t happen.
In fact, in all of the years Jordan Cove has been under consideration, the various companies that have owned the project have not produced a single binding contract for the LNG, despite promising to do so over and over again.
Evans, Schaaf, and Gow propose two possible explanations for this. One, given the glut of LNG worldwide, there is no demand for Jordan Cove’s LNG at the price they are able to offer; or two, the non-binding agreements are for Canadian gas—gas that’s being subsidized by the Canadian government.
If the latter is true, it makes sense that Pembina would not be eager to advertise it.
If Jordan Cove is to be used primarily to move Canadian gas, FERC might have reason to reject the project as not being in the public interest, as it would put Jordan Cove in direct competition with U.S. producers.
As Evans, Schaaf and Gow wrote in their comments, FERC “cannot ignore that this project, serving the very same market that the United States LNG export projects are all hoping to serve, will significantly harm US-sourced LNG terminals,” whether already operating or in progress.
Jordan Cove is on FERC's Sunshine Agenda for March 19. Hopefully we will discover that the commissioners have taken these concerns seriously.
UPDATE: FERC has cancelled its open meeting for March, so the decision will likely come as a notational order.