A Piece of the LNG Pie?
British Columbia has set its sights on a billion dollar LNG industry. While consulting engineers are already reaping benefits doing early preparatory work, they wonder how much work will be sent offshore.
Consulting engineering firms in B.C. are capturing early works contracts for the massive liquefied natural gas (LNG) projects that are in B.C.’s sights. The province calls these LNG proposals “some of the largest capital projects in the province’s history,” and anticipates a final investment decision on some during 2015.
Renata King, director of business development for Northern Development Initiative Trust, a provincial funding corporation, says that early works in Northern B.C. have already translated into construction activity preparing sites. For example there has already been site preparation for camps and roads at major LNG sites located at Prince Rupert, the District of Port Edward, and Kitimat. “That is only millions of dollars (in contracts) compared to the billions that will be invested when projects go ahead,” she says.
Currently, provincial environmental assessment certificates have been issued for six LNG projects – the Westcoast Connector Gas Transmission pipeline, the Pacific Northwest LNG export facility in Port Edward, the Prince Rupert Gas Transmission pipeline, the Pacific Trail Pipeline, the Kitimat LNG project in Bish Cove, and Coastal GasLink Pipeline. The $40 billion dollar Shell-led project filed for a provincial environmental review of its project in November 2014, followed by two others, Woodfibre LNG and WCC LNG in early 2015.
B.C. consulting engineer firms acknowledge they are doing business but are reluctant to name clients. McElhanney, Golder, Stantec, Hatch, and Moffat & Nichol are all active in LNG projects. Other contracts have gone offshore or to a combination of offshore and local companies.
As an example of the wide scale and scope involved in LNG projects, the proposed LNG liquefaction facility at Bish Cove near Kitimat is a project of Chevron Canada and Apache Canada. They have given an engineering, procurement, and construction (EPC) contract to Fluor, which has an office in Vancouver, and JGC Corporation which is headquartered in Japan. The work scope includes detailed engineering and procurement services for the initial phases, and completion of the existing front end engineering design (FEED) package. As well there are two liquefied natural gas trains (5.5 million tons per annum), utilities, two 190,000-cu.m LNG storage tanks, product loading facilities, material offloading facilities, marine installations, and other related infrastructure.
Pressure on costs
Despite all the work that’s promised, there is a question of how much will be outsourced, and how much will fall to Canadian engineers.
Petronas, Malaysia’s national energy firm, has openly said that costs in Canada for its Pacific Northwest LNG project are higher than anticipated, and in a Globe and Mail article spoke of moving work offshore. The article pointed out that there are lower engineering costs in countries such as India and China.
Keith Sashaw, president of the Association of Consulting Engineering Companies-BC (ACEC-BC), says: “Obviously, we get concerned when the price becomes the major determinate when hiring consulting engineer firms.” He acknowledges that some work will go offshore simply because Canadian companies don’t have the expertise of LNG projects that many global engineering companies have. “But,” he says, “BC consulting engineers will continue playing a strong role in providing access to the LNG facilities, around the design of the plant, and other building construction at the sites.” He adds, “It is the strength of the B.C. consulting engineers that they know the local market and the terrain. You have to have knowledge of the local conditions.”
Catherine Fritter, P.Eng., business unit leader for Moffat & Nichol, has been pacing the various LNG developments since her company’s first involvement in 2004. “We have been involved in about 90% of the early works and studies in B.C. for the LNG projects,” she estimates.
Fritter, who also chairs the ACEC-BC board of directors, acknowledges that “We don’t have the expertise in Canada for the process design and some things are better done offshore.” That said, Fritter maintains that B.C. companies are strong contenders with their regional and local historical knowledge to compete on components such as the LNG marine terminals, pipelines, access roads and structures.
“There is concern that the local components are sent overseas,” she says, explaining that’s what happened in 2010 when projects were moved offshore to get lower costs. She says an ACEC-BC committee is being struck to monitor the situation.
B.C.’s LNG industry is at a neophyte stage, but internationally LNG is an industry that has flourished for four decades. Chris Mealing, P.Eng., regional director for LNG projects with Hatch, and senior vice-president of Hatch Mott MacDonald, says the reality today is that engineering has become a global industry, which impacts both the level of expertise and the cost structure that an engineering firm can bring to a large scale project.
“There is a globalizing trend in engineering, and most major firms today, have international links,” Mealing says. He points out that Canadian engineering companies routinely team up on complex mega-projects to bid on contracts in other countries, so it would be advocating a double standard to suggest that a protectionist attitude should be in place to provide Canadian companies an advantage on B.C.’s large-scale LNG projects.
Hatch has been involved in the burgeoning LNG industry in Australia and in other countries, and it will bring that expertise to any proposal it bids on in B.C. The reality, Mealing adds, is that other companies will do the same whether they are Canadian engineering firms in strategic alliances, or global companies able to draw expertise from other divisions.
McElhanney is a company with local offices throughout northwestern B.C. and a history of more than half a century of opening resource and infrastructure developments in the area now pegged for LNG development.
Allan Russell, P.Eng., president and chief executive officer of McElhanney, says that on large scale projects such as the proposed LNG projects, B.C. companies have teamed to provide the services required. “Just one of these projects is huge. While there are only certain companies that have that expertise or the technology to design the plants, there is the potential for a huge volume of Canadian work locally.” Already McElhanney, (through subsidiary Infinity Engineering) has snapped up the Petronas contract to assist in the planning of a long span 2.7 kilometre bridge to carry LNG pipes at Port Edward.
Colin Adam, P.Eng., LNG market sector leader at McElhanney, says that the ability to know local conditions and what can realistically be delivered in a northern climate, plus contractor relationships, permitting requirements, working with local authorities and First Nations, and knowing the geotechnical aspects of an area, are all essential to keeping a project on schedule.
Will there be enough people?
A looming issue, in fact, is whether there will be enough engineers to do the work if several of the mega-billion projects go ahead. Adam says, “We have noticed that big, large-scale projects have a certain allure,” and adds that working in more moderate climates such as the B.C. coast compared to more northern areas also helps attract engineers.
But, he continues, “If the projects move to the next level, what we are seeing now is just the tip of the iceberg. The demand for labour is going to be unprecedented and we don’t know where we may find [it].” That’s an aspect that engineers may also have to consider in designs they put forward.
The need to ensure that there are enough engineers available has not been ignored by ACEC-BC Sashaw says he is currently working with APEGBC and the ASTTBC to assess potential supply and demand.
Alex Ramos-Espinoza P.Eng., general manager of Lapointe Engineering, which has longevity in Kitimat since 1980, says LNG projects have already impacted hiring at the local level. “There is the expectation of a boom and we foresee there will be requests for higher wages and more benefits. We will be challenged to compete with the larger firms in the area.” But he is hopeful that some engineers will remain. He is also optimistic that Lapointe’s expertise will yield alliances with outside firms.
While opinion is divided on which project will go forward first, there is one generally held view. While the process engineering may go offshore, McElhanney’s Adam says: “We still have a good bite of the pie.” cce
Jean Sorensen is a freelance writer based in Vancouver.
This article is from the March-April 2015 print issue, page 35.