re accordance with the commission’s resource planning ...€¦ · pacific northern gas ltd. 2014...

Janet P. Kennedy Vice President, Regulatory Affairs & Gas Supply

Pacific Northern Gas Ltd. Suite 950 1185 West Georgia Street Vancouver, BC V6E 4E6 Tel: (604) 691-5680 Fax: (604) 697-6210 Email: [email protected]

Via E-Mail and Courier

April 8, 2014

B.C. Utilities Commission File No.: 4.2.7(2014)

6th Floor - 900 Howe Street

Vancouver, BC

V6Z 2N3

Attention: Erica M. Hamilton

Commission Secretary

Dear Ms. Hamilton:

Re: Pacific Northern Gas Ltd.

2014 Resource Plan for PNG-West Pipeline System

Pursuant to Commission Order G-209-11 and Commission Letter L-61-13, Pacific Northern Gas

Ltd. (PNG) respectfully submits the 2014 Resource Plan for its PNG-West pipeline system (2014

Resource Plan) for the Commissions review. This 2014 Resource Plan has been prepared in

accordance with the Commissions Resource Planning Guidelines and Section 44.1 of the

Utilities Commission Act (Act). PNG hereby seeks Commission acceptance of this 2014

Resource Plan, including the proposed DSM Plan, in accordance with Section 44.1 of the Act.

Enclosed herein, please find ten copies of the 2014 Resource Plan for the Commissions

reference. PNG notes that both PDF and printed copies of the 2014 Resource Plan have been sent

to the parties copied by this letter. Those parties have registered as interveners in respect of

PNGs 2014 revenue requirements application or have expressed an interest in this submission.

By copy of this letter, PNG is requesting that those parties provide comments on the 2014

Resource Plan to the Commission and to PNG.

Frequency of Long-Term Resource Plan Filings

At this time, PNG would like to bring forth the issue of the frequency for required long-term

resource planning submissions for its pipeline systems. In recent years, PNG has been directed to

prepare, submit and defend the following long-term resource plans:

2011 Resource Plan for the PNG-West Pipeline System;

2012 Resource Plan for the PNG(N.E.) Pipeline Systems; and

2014 Resource Plan for the PNG-West Pipeline System (originally required to be filed for 2013).

335 Pages B-1

markhudsPNG Resource Plan & DSM

Pacific Northern Gas Ltd.

2014 Resource Plan for PNG-West Pipeline System

Page 2 of 2

Further, PNG will soon begin preparations on the 2015 Resource Plan for the PNG(N.E.) Pipeline

Systems which is to be filed no later than April 18, 2015.

While PNG believes that long-term resource planning is a prudent strategic planning activity

necessary to bring together the short-, medium- and long-term planning cycles to ensure that the

Company is able to effectively provide reliable, secure and safe service to customers, the

frequency of long-term resource planning activities in recent years has placed considerable

strain on PNGs limited corporate resources and has resulted in incremental costs to be borne by

ratepayers.

In the 2013 PNG-West Revenue Requirement Application Decision, the Commission Panel

directed PNG to formally seek processes that create efficiencies and enable PNG to manage its

costs. As such, PNG has been directed to file its future revenue requirement applications for a

two-year period. On this same note, PNG proposes that its long-term resource plans should be

filed every five years unless there are significant changes in its circumstances which would

prompt an earlier filing of its resource plans. PNG submits that its short-term and mid-term

planning activities, including the revenue requirements and CPCN application processes, are able

to capture near-term changes in resource supply and demand, and that long-term planning

objectives can continue to be effectively achieved with a less-frequent formal review process.

Further, PNG submits that the review of resource plans for the PNG-West and PNG(N.E.)

pipeline systems may be more efficiently undertaken on a consolidated basis.

Please direct any questions respecting the foregoing matters to my attention.

Yours truly,

J.P. Kennedy

cc. Sarah Khan (BCPIAC) BCPSO James Wightman (Econalysis Consulting) BCPSO

Tom Hackney BC Sustainable Energy Association

PACIFIC NORTHERN GAS LTD.

RESOURCE PLAN 2014

Resource Plan for the PNG-West Pipeline System

April 8, 2014

Pacific Northern Gas Ltd. Resource Plan for the PNG-West Pipeline System April 2014

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TABLE OF CONTENTS

1 INTRODUCTION ...................................................................................................... 1

1.1 Overview of Pacific Northern Gas Ltd. Operations ............................................ 2

1.2 Regulatory Context ........................................................................................... 4

1.3 Resource Plan Development Process ............................................................... 4

1.4 Long-term Resource Plan Objectives ................................................................ 7

1.5 Status of 2011 Pipeline System Resource Plan Directives .............................. 12

2 ENERGY MARKET OUTLOOK .............................................................................. 14

2.1 Policy Environment and Outlook ..................................................................... 14

2.2 Regional Economic Outlook ............................................................................ 17

2.3 LNG Export Infrastructure Development World Scale ................................... 27

2.4 LNG Export Infrastructure Development Small Scale ................................... 30

2.5 PNGs Regional CNG and LNG Strategy ........................................................ 32

2.6 Supply Outlook ................................................................................................ 34

2.7 A Comparison of Energy Costs: PNG-West Burner Tip Rates and Electricity . 38

3 RESIDENTIAL END-USE FORECASTING MODEL ............................................... 47

3.1 Introduction ..................................................................................................... 47

3.2 Residential End Use Survey ............................................................................ 47

3.3 Residential End-Use Model ............................................................................. 49

3.4 Residential Consumption ................................................................................ 49

4 DEMAND FORECASTING ..................................................................................... 59

4.1 Introduction ..................................................................................................... 59

4.2 Trends Influencing Demand ............................................................................ 59

4.3 Annual Demand Forecast ................................................................................ 63

4.4 Design Day Demand Forecast ........................................................................ 75


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4.5 Sensitivity Analysis .......................................................................................... 77

5 DEMAND SIDE MANAGEMENT ............................................................................ 85

5.1 Introduction ..................................................................................................... 85

5.2 DSM Plan ........................................................................................................ 86

5.3 Future Steps ................................................................................................... 89

6 PORTFOLIO PLANNING ....................................................................................... 91

6.1 System Capacity Requirements ...................................................................... 91

6.2 Gas Supply Resources ................................................................................... 92

7 PORTFOLIO EVALUATION AND ACTION PLAN .................................................. 94

8 STAKEHOLDER CONSULTATION ........................................................................ 96

9 APPENDICES ........................................................................................................ 99

APPENDIX A: RESOURCE PLANNING OBJECTIVES

APPENDIX B: CONDITIONAL DEMAND ANALYSIS

APPENDIX C: RESIDENTIAL END-USE STUDY

APPENDIX D: BUILDING ARCHETYPES

APPENDIX E: ANNUAL DEMAND

APPENDIX F: DESIGN DAY DEMAND

APPENDIX G: DSM PLAN


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Tables

Table 1: Commission Directives (G-209-11) 13

Table 2: Population Projections 18

Table 3: Household Formations Projections 20

Table 4: North Coast and Nechako Commercial Projects (September 2013) 21

Table 5: Residential Housing Mix 61

Table 6: Residential Customer Net Recapture Rate Forecast 65

Table 7: Penetration of New-Construction Dwelling Archetypes 66

Table 8: Large Customer Forecast 71

Table 9: Company Use Coefficients 73

Table 10: Design Day Heating Degree Days 76

Table 11: Peak Day Demand per Customer (GJ/d) 77



Table 14: Summary of Demand Determinants Residential Customers 81

Table 15: Summary of Demand Determinants Small Commercial Customers 81

Table 16: Change in Annual Demand (All Scenarios) 83

Table 17: Design Day Demand (All Scenarios) 84


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Figures

Figure 1: Overview of PNG Natural Gas Pipeline Systems 1

Figure 2: Customer Segments: Number of Customers 3

Figure 3: Deliveries by Customer Segment 3

Figure 4: Cumulative Job Openings 19

Figure 5: Employment Distribution 20

Figure 6: Residential Building Permits 20

Figure 7: Northern British Columbia Mining GDP 23

Figure 8: North Coast and Nechako Mining Projects 24

Figure 9: Location of Unconventional Natural Gas Reserves in British Columbia 35

Figure 10: Natural Gas Production from the Western Continental Sedimentary Basin 36

Figure 11: British Columbia Actual and Forecast Production (Source: NEB, OGC) 36

Figure 12: British Columbia Actual and Forecast Production 37

Figure 13: Disposition of Marketable Natural Gas in B.C. 37

Figure 14: Station 2 Daily Gas Price (January 2013 to March 2014) 38

Figure 15: Henry Hub Natural Gas Price Forecasts 40

Figure 16: Station 2 Natural Gas Price Forecasts 41

Figure 17: Residential Gas Rates vs. Electricity Equivalent (Reference Gas Price) 42

Figure 18: Residential Gas Rates vs. Electricity Equivalent (High Gas Price) 43

Figure 19: REUS Results Cost Effectiveness of Natural Gas vs Electricity 45

Figure 20: REUS Results Energy Conservation and Cost Savings 45

Figure 21: Penetration of Primary Space Heating 50

Figure 22: Penetration of Domestic Hot Water 50

Figure 23: Penetration of Secondary Space Heating 50

Figure 24: Penetration of Fireplaces 50


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Figure 25: Ancillary natural gas end-uses 51

Figure 26: Distribution of Use per Account (All Areas) 52

Figure 27: End Uses of Natural Gas (All Areas) 55

Figure 28: Average End Use by Building Type (All Areas) 57

Figure 29: Growth in the Number of Households 60

Figure 30: Trend in Residential Customer Count (2002 2014) 64

Figure 31: Residential Customer Activity 64

Figure 32: Age Profile of PNG-West Residential Furnace Stock 66

Figure 33: Age Profile of PNG-West Domestic Hot Water Heater Stock 67

Figure 34: Historical Trend in Residential Use per Account 68

Figure 35: Forecast Residential Use per Account 68

Figure 36: Trend in Small Commercial Customer Count (2002 2014) 69

Figure 37: Small Commercial Customer Activity 69

Figure 38: Historical Trend in Small Commercial Use per Account 70

Figure 39: Forecast Small Commercial Use per Account 71

Figure 40: Forecast of Total Gross Annual Demand 74

Figure 41: Forecast of Residential and Small Commercial Annual Demand 74

Figure 42: Forecast Design Day Demand 77

Figure 43: Residential Use per Account Forecast (All Scenarios) 82

Figure 44: Small Commercial Use per Account Forecast (All Scenarios) 82

Figure 45: Forecast Total Annual Demand (All Scenarios) 83


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1 INTRODUCTION

This Resource Plan has been prepared by Pacific Northern Gas Ltd. (PNG or the

Company) for its PNG-West division (PNG-West). The Resource Plan was prepared in

accordance with the BC Utilities Commissions (BCUC or the Commission) Resource

Planning Guidelines for Regulated Utilities (Resource Planning Guidelines) issued by the

Commission on December 15, 2003.

PNG is a company formed under the laws of British Columbia and is a wholly-owned

subsidiary of AltaGas Utility Holdings (Pacific) Inc., which in turn is wholly-owned by

AltaGas Ltd. (AltaGas). PNGs head office is located in Vancouver, B.C., and its

principal operating office is located in Terrace, B.C. PNG provides natural gas

transmission and distribution services to Northwestern B.C. via its PNG-West division.

PNGs wholly-owned subsidiary, Pacific Northern Gas (N.E.) Ltd. (PNG(N.E.)) and

provides service to Northeastern B.C. via its Fort St. John/Dawson Creek (FSJ/DC) and

Tumbler Ridge (TR) divisions. Figure 1 provides an illustration of the layout of PNGs

transmission and distribution assets.

Figure 1: Overview of PNG Natural Gas Pipeline Systems


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The Company delivers approximately 9,800 TJ of natural gas each year to just over

40,000 residential, commercial and industrial customers, of which approximately 4,000

TJ is delivered to approximately 20,400 customers in the PNG-West division and 5,800

TJ is delivered to approximately 19,900 customers of PNG(N.E.), including 5,000 TJ to

approximately 18,600 in the FSJ/DC division and 800 TJ to approximately 1,300

customers in the TR division.

1.1 Overview of Pacific Northern Gas Ltd. Operations

The PNG-West divisions transmission pipeline connects with the Spectra Energy

pipeline system near Summit Lake, B.C. and extends to the west coast of B.C.at Prince

Rupert. The PNG-West division owns and operates over 1,022 kilometres of

transmission pipeline, including 592 kilometres of mainline transmission pipeline and the

remaining lateral transmission lines extending into the various communities served by

the Company, the most significant being dual lines extending approximately 57

kilometres from Terrace to Kitimat.

There are five compressor units that can be used to maintain pressure on the PNG-West

division's transmission pipeline system: two located at Summit Lake and one each at

Vanderhoof, Burns Lake and Telkwa. The total installed rating of the compressor units

is 16,120 kilowatts (21,610 horsepower). The sustainable capacity of the transmission

pipeline system, with the present compressor and looping configuration, is approximately

3,260 103m3 per day (115 million cubic feet (MMcf) per day). With the closure of the

Methanex methanol/ammonia facility in Kitimat in 2005 the Company deactivated its

compressor stations at Vanderhoof and Telkwa, as well as 85 kilometres of 255 mm (10

inch) diameter pipeline and 53 kilometres of 150 mm (6 inch) pipeline. These facilities

are being maintained for potential future use.

PNG also owns and operates natural gas distribution facilities in the PNG-West division

including approximately 950 kilometres of distribution mains and 690 kilometres of

service lines to deliver gas from its transmission pipeline system to homes and

businesses in Prince Rupert, Port Edward, Kitimat, Terrace, Smithers, Telkwa, Houston,

Burns Lake, Fraser Lake, Fort St. James and Vanderhoof.

In addition, the PNG-West division operates a propane vapour distribution system

serving approximately 150 customers in the town of Granisle.


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Figure 2: Customer Segments: Number of Customers1

Figure 3: Deliveries by Customer Segment

1 Small commercial customers are defined as those that consume less than 5,500 GJ per year and large commercial

customers as those that consume more than 5,500 GJ per year.

Residential17,679

Small Commercial2,451

Large Commercial, Small Industrial Sales

and Other

26

Firm Transport135

Interruptible Sales and Transport

11

PNG-WestNumber of Customers (year ending 2013)

Residential1,252

Small Commercial761

Large Commercial, Small Industrial Sales

and Other285

Firm Transport806

Company Use86

Interruptible Sales and Transport

846

PNG-WestDeliveries -TJ (2013- weather normalized)


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1.2 Regulatory Context

Under the Utilities Commission Act (Act), the Commission has the authority to regulate

utilities in the Province. Section 44.1 of the Act, Long-term Resource and Conservation

Planning, provides the Commission with the authority to require utilities to submit long-

term resource plans. In December 2003, the Commission issued Resource Planning

Guidelines to assist utilities with the preparation and submission of Resource Plans.

The process outlined in the Resource Planning Guidelines can be summarized as

follows:

1. Identify the planning context and objectives of a Resource Plan.

2. Develop a range of gross (i.e. that do not reflect the impact of Demand-Side Management programs) demand forecasts.

3. Identify supply and demand resources.

4. Measure supply and demand resources against Resource Plan objectives.

5. Develop a range of multiple-resource portfolios.

6. Evaluate resource portfolios against Resource Plan objectives and select a portfolio.

7. Develop an action plan to implement the selected portfolio.

8. Obtain stakeholder input during the planning process.

9. Consider government policy and seek regulatory input during the Resource Plan preparation.

10. Submit the Resource Plan for regulatory review.

1.3 Resource Plan Development Process

For PNG, the development of a resource plan is more than a regulatory obligation, it is a

prudent strategic planning activity necessary to bring together the short-, medium- and

long-term planning cycles to ensuring that the Company is able to effectively provide

reliable, secure and safe service to customers.

1.3.1 Integration of Corporate Planning and Resource Planning

PNG, like most utilities, has undertaken resource planning in one form or another since

its inception. Long-term growth projections, peak day demand forecasts, hydraulic

analysis, and budgeting processes are common to the prudent management of any

utility business and will continue to be part of the planning cycle. In addition to

developing resource plans as prescribed by the Commission, PNG undertakes a

combination of short-, medium-, and long-term planning in order to continue to provide


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secure and reliable service to its customers. Each of these planning processes is

described below.

1.3.1.1 Short-term Planning

Short-term planning constitutes the annual budgetary process through which PNGs

management determines what resources will be required over the coming 12-month

period to ensure that all required capital programs are completed, that operations and

maintenance programs are carried out as required, and that rates are sufficient to

provide the Company with the opportunity to recover the costs of these programs

including the commodity cost of natural gas, taxes, financing costs, and a fair return on

equity.

1.3.1.2 Medium-term Planning

Medium-term planning considers demand and supply resources identified in the

resource planning process and the timing of those resources. The planning constitutes

reviewing the operations of the utility over a three- to five-year planning horizon.

Included in the scope of the medium-term planning process is a review of the financial

viability of the utility over the medium term, of capital expenditures required to ensure the

system remains safe and reliable, of expectations of customer demand, and of

operational expenditures and revenue forecasts. PNG periodically reviews its medium-

term forecasts and updates them for known changes such as the outcomes of regulatory

proceedings including revenue requirement application decisions, and expected

changes to demand and economic conditions. PNG believes that the five-year time

frame is a period that can be reasonably forecast in terms of providing a higher level of

certainty than the long-term planning time frame of 20 years.

1.3.1.3 Long-term Planning

PNG periodically updates and reviews its long-term demand forecasts to ensure that its

pipeline facilities will be sufficient to provide secure and reliable service to its customers

over the long term. Generally, the long-term forecasts use growth expectations, such as

inflation factors for cost increments, and anticipated market demand growth, applied to

the medium-term forecasts. Because of the 20-year time frame of these forecasts, PNG

has less confidence in their reliability as compared to the medium-term forecasts.


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1.3.2 Resource Planning Process

Consistent with the Resource Planning Guidelines, PNG has undertaken the following

steps in developing this resource plan:

Establish Objectives Consistent with Step 1 of the Resource Planning Guidelines

noted above, PNG has established a set of objectives appropriate to its

circumstances that will guide the development of this Resource Plan and future

expenditure plans in accordance with this Resource Plan. Objectives are discussed

in more detail in Section 1.4 below.

Market Review In order to develop a Resource Plan appropriate to PNG, the

markets of the PNG-West division were reviewed, the results of which are presented

in Section 2.

Develop Gross Demand Forecasts PNG has developed a long-term (20 year)

gross demand forecast for the PNG-West division based on its knowledge of its

service territory and economic outlook over the planning period. The demand

forecast is developed from projections of base load and temperature sensitive

deliveries over the 20-year planning period. Section 4 of this Resource Plan

summarizes the expected demands on the system. A summary of the 20-year

planning model used to determine the gross demand forecasts is presented in the

Appendices.

In order to support and improve PNGs residential demand forecasts and DSM

evaluation framework, PNG commissioned the undertaking of a residential end-use

survey (REUS) targeting a sample of residential customers from across all divisions.

Information collected in this survey, in conjunction with utility billing records of

historical energy consumption, have been used to improve the residential demand

forecast for resource planning. PNG has also made use of the REUS data in its

evaluation of energy efficiency measures proposed in PNGs corporate-wide demand

side management plan (DSM Plan) as per Section 5.

Review Supply and Demand Side Resources Once the gross demand forecasts

were developed, PNG reviewed its available supply and demand side resources to

determine if additional facilities or demand programs may be required to meet or

manage long-term demand on the system. The results of this review, along with a

discussion of the gas supply contracting practices that PNG uses to secure gas for


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resale to its core market sales customers, are discussed in Section 6.

Group Resources into Portfolios, Evaluate Alternatives, and Develop an Action

Plan In the case of PNG-West, these steps were not required because the forecast

of firm and core market demand over the planning period was well below the

capacity of the existing pipeline system.

Stakeholder Participation PNG will provide a copy of this Resource Plan to the

B.C. Public Interest Advocacy Centre, the sole intervener in PNGs 2014 revenue

requirements application. This party will be requested to provide comments to PNG

and the Commission.

Consideration of Government Policy The Provinces energy and greenhouse

gas policies and legislation that have implications for PNG in its planning process are

described in Section 1.4 (vi). The objectives of the B.C. Governments 2007 Energy

Plan (2007 Energy Plan) include the development of demand side management

programs whose objective is to reduce greenhouse gas (GHG) emissions by

reducing the consumption of fossil fuels.

1.4 Long-term Resource Plan Objectives

The Resource Planning Guidelines state that a resource planning process that

assesses multiple objectives and tradeoffs between alternative resource portfolios is key

to the development of a cost-effective resource plan for meeting demand for a utilitys

service2. PNG has identified six key resource planning objectives that form the basis for

evaluating potential resources that might be considered in a resource plan, including

major infrastructure projects, gas supply alternatives and demand side measures. The

six key resource planning objectives are outlined in the discussion that follows.

In its Reasons for Decision on the PNG(N.E.) 2012 Resource Plan, the Commission

directed PNG(N.E.) to complete Table BCUC 2.2 Summary of Resource Plan

Objectives Measurement Criteria and Attributes as a Compliance Filing. The

information submitted by PNG(N.E.) provided additional information on each objective

and is replicated in APPENDIX A: RESOURCE PLANNING OBJECTIVES. PNG notes

that these objectives were applied in the PNG(N.E.) Compressed Natural Gas (CNG)

2 British Columbia Utilities Commission Resource Planning Guidelines, December 2003, p. 2


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Virtual Pipeline CPCN and submits that they continue to be relevant for this 2014

Resource Plan.

The development of a resource plan is a high-level, strategic planning process aimed at

identifying potential system constraints and potential remedies to these constraints. As

detailed further in Section 6, the PNG-West division system has excess capacity.

Further, no system constraints have been identified and no new resource options are

being proposed in this 2014 Resource Plan. Consequently, the resource planning

objectives have only been considered on a general basis and PNG has not assigned

weightings, measurements and benchmarks or targets to identified planning objectives

for this 2014 Resource Plan.

PNG does consider planning objectives to be a critical consideration during the definition

and evaluation of specific identified alternative resource plan portfolios. PNG submits

that when resource options are under consideration and evaluation they should be

evaluated against each of the identified planning objectives, and acknowledges that

tradeoffs between fulfilling the requirements of competing objectives may be required.

(i) Provision of Safe, Reliable Service

PNG considers that the provision of safe, reliable service continues to be an important

guiding principle in its decision making processes. In determining Resource Plan

objectives, as well as for other planning purposes, decisions must be measured against

the ability to continue to provide high quality reliable service to existing and future

customers in a manner that balances other resource planning objectives such as the

provision of service at least cost, the economic viability of the utility, and rate stability.

As an example of the trade-offs between planning objectives, PNG will ensure that

facilities are added or expanded when needed due to increasing peak day demand on its

systems. The expansion of physical pipeline facilities is a relatively low-risk, highly

reliable means of meeting customers expectations of safe, reliable service, however it

may not necessarily be the lowest cost option for ensuring that existing customers

service is not interrupted during a peak weather event and may also not meet the

objective of maintaining stable rates.

Other options, such as DSM programs or peaking agreements with large industrial

transporters can delay the need for facilities additions, and therefore may put less

upward pressure on customers rates over the near term. However, during periods of


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demand growth, such programs and agreements only delay capacity additions.

Eventually, in order to meet demand growth the utility will have to build physical facilities.

Therefore, prior to undertaking capacity additions to meet the objective of safe, reliable

service, the utility must closely assess each of its options to ensure it makes the optimal

decision with respect to all of its planning objectives by carefully assessing the risks and

benefits associated with each option.

(ii) Provision of Least Cost Service

All stakeholders expect utilities to provide natural gas service efficiently, and at the

lowest cost reasonably possible considering such trade-offs as system reliability, the

cost of adding resources, and the economic viability of the utility. Resource options

available to PNG must consider rate impacts on customers and the ability of customers

to pay for capacity additions necessary to meet the objective of safe, reliable service,

compared to the price of alternate energy sources.

For PNG, the greatest opportunity to reduce the cost of service is through improving

pipeline efficiency by increasing the load factor on its existing pipeline assets.

Increasing the load factor lowers the unit cost of service to customers of the pipeline as

the fixed costs of the pipeline are recovered over more units of throughput. PNG

continues to work with potential partners on proposed LNG projects that would increase

the utilization of PNGs transmission assets, and PNG continues to monitor for

opportunities to increase asset utilization by providing increased service to existing

customers or by providing service to new customers.

In regard to adding new pipeline facilities, PNG considers pipeline efficiency in its

decision making process as there is a rate impact from adding that capacity. When

determining how best to meet customer demands while remaining price competitive with

alternate energy sources, PNG must assess the likelihood of being able to recover the

cost of the next tranche of pipeline capacity over increasing customer demand-related

volumes. If customer demand is not forecast to increase sufficiently to recover the cost

of the capacity addition without adversely affecting their rates, then the Company would

look to other means of serving customer demand with the existing system, such as

peaking agreements with large customers.

(iii) Economic Viability of the Utility

PNGs shareholder, customers, and shippers require that PNG remains a viable


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operation and continues to provide natural gas service as an attractive alternative to

electricity, propane, wood and oil. In order to maintain its position among energy

providers, it is critical that PNG be able to meet its financial obligations while being

provided an opportunity to earn its allowed return, and that customers are able to

continue purchasing natural gas at competitive prices compared to alternate energy

sources.

To ensure that the Company remains viable, additional supply or demand-side

resources should only be considered if there is sufficient customer demand growth to

support the added cost of service impacts associated with those resources, and that the

addition of those resources does not materially increase rates beyond the price of

energy from alternative sources. If this were to occur, it would be unlikely that the new

customer demand that drove the expansion would sign up for natural gas service due to

unfavourable pricing, leaving existing customers to recover the cost impacts of a

resource addition. In turn, existing customers may either leave the system in favour of

alternatives, or materially alter their consumption patterns, both which could adversely

impact the sustainability of the utility. To ensure that resources are added only when

appropriate, the Company employs financial feasibility tests, such as a mains extension

test.

(iv) Rate Stability

Customers prefer stable rates over time, allowing them to budget with some

predictability as well as validating their choice of natural gas for their thermal

applications. Volatility in rates leads to customer dissatisfaction and may introduce

changes to customer usage characteristics.

Significant capital expenditures may result in upward pressure on delivery rates. PNGs

planning for expansions to, and replacements of, parts of its distribution systems takes

into account the impact of those related capital expenditures on delivery rates. For

example, capital additions are evaluated based on a mains extension test that has been

reviewed and approved by the Commission. Other capital projects, such as are required

to meet safety and reliability criteria, are reviewed by the Commission in the context of

the revenue requirements application process, or a CPCN application, as appropriate.

(v) Environmental and Socio-economic Impacts

PNG considers environmental and socio-economic factors, including the impact on land


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use, emissions, the local economy, customer groups and First Nations when evaluating

alternative supply portfolios to meet demand growth.

(vi) Alignment with the B.C. Governments Energy Objectives

PNG is guided by the following government legislation and policies:

a) The Clean Energy Act: Part 1(2) of the British Columbia Clean Energy Act sets

out the following energy objectives which, among other things, encourage fuel

switching to a lower carbon intensive fuel as a means to reduce greenhouse gas

emissions3:

2(a) to achieve electricity self-sufficiency;

PNG continues to ensure that natural gas service remains competitive to other

forms of energy, particularly electricity, for serving customers thermal energy

requirements. Natural gas is the most efficient source of energy for thermal

requirements and its appropriate application reduces the Provinces reliance on

electricity for these applications.

2(b) to take demand-side measures and to conserve energy; and

2(g) to reduce BC greenhouse gas emissions;

PNG has considered the costs and benefits of a DSM program - of which one of

the outcomes is a reduction in the greenhouse gas emissions of its customers

through reduced consumption of natural gas - in its planning process. In Section

6 of this Resource Plan, PNG presents the proposed corporate-wide DSM Plan.

2(h) to encourage the switching from one kind of energy source or use to another

that decreases greenhouse gas emissions in British Columbia; and

PNG is exploring the opportunity to leverage its existing pipeline transmission

and distribution systems to provide service to micro-scale producers of CNG and

LNG near demand loads and to develop new CNG and LNG distribution services

to its customers. Promoting CNG and LNG as an alternative to diesel, gasoline

and propane for transportation, off-grid power generation and for isolated

communities and large customers unattached to the utilitys natural gas

distribution or transmission system improves the economics of these end-uses

3 Clean Energy Act Section 2(h)


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while at the same time reduces greenhouse gas emissions through the

displacement of higher carbon-content fuels.

2(k) to encourage economic development and the creation and retention of jobs.

The western region is on the cusp of economic change due to potential

opportunities for the export of LNG to Asian markets and also due to the

significant infrastructure required to implement these opportunities. PNG

continues to work with potential partners on LNG projects utilizing PNGs

transmission assets, and to monitor for opportunities to provide service to other

parties that may require service during the development stage of these projects.

b) British Columbias Natural Gas Strategy and Liquefied Natural Gas (LNG)

Strategy: In its Natural Gas Strategy, and again in its LNG Strategy, the

Province stated its goal of growing the market for natural gas - in both CNG and

LNG forms - as a transportation fuel.4,5 Accordingly, the Province has introduced

regulations under the Clean Energy Act to promote natural gas vehicles and

refueling stations.6 PNGs resource planning process takes into account the

impact of the Provinces Natural Gas Strategy, specifically in regards to the

potential for load growth from CNG and LNG facilities that will provide a lower

carbon fuel alternative to the transportation market in PNGs delivery areas.

PNG believes that these objectives are reflective of the Companys goal to provide the

highest level of quality service to its customers.

1.5 Status of 2011 Pipeline System Resource Plan Directives

In the Decision on the PNG-West division 2011 Resource Plan, Commission Order G-

209-11 directed PNG to undertake specific actions in the preparation of its next resource

plan. The table that follows provides the Commission directives as well as the status of

the items as they pertain to this 2014 Resource Plan.

4 British Columbias Natural Gas Strategy

5 Liquefied Natural Gas - A Strategy for B.C.s Newest Industry, p. 7

6 The Greenhouse Gas Reduction (Clean Energy) Regulation was issued on May 15, 2012.

http://www2.news.gov.bc.ca/news_releases_2009-2013/2012ENER0057-000674.htm


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Table 1: Commission Directives (G-209-11)

Commission Directive Status

PNG is directed to submit to the Commission its next Resource Plan which is to include consideration of the appropriateness of demand side management, within two years of the date of this Order.

Addressed as per Section 6 of this Resource Plan. Consideration is given to a corporate-wide demand side management program strategy.

In the event that the proponents of either of the LNG projects make a final investment decision prior to that time, the Commission directs PNG to file an updated Resource Plan within 180 days of the date of that investment decision to reflect the impact of assuming the additional gas delivery requirements accordingly.

This event did not come to pass. No action required.

When potential resource options are evaluated in future Resource Plans, PNG is directed to develop benchmarks or targets to provide a basis for evaluating the achievement of the Resource Plans objectives. PNG is also directed to specify the relative weights that will be attributed to each planning objective in order to rank the resource options.

Addressed as per Section 1.4 of this Resource Plan.


- 14 -

2 ENERGY MARKET OUTLOOK

2.1 Policy Environment and Outlook

As this Resource Plan is being prepared, the regions served by PNG have become

central to federal and provincial policy decisions regarding resource development,

international trade and the environment. While the North East region of British Columbia

has experienced rapid resource based economic growth for several years, the North

Coast and Nechako regions are positioned to be prime economic beneficiaries of a

movement to enhance trade with Asia and China. At the same time, environmental and

climate change concerns remain important for the public and for decision makers,

tempering and conditioning industrial, commercial and residential developments.

2.1.1 Federal Policies

Several departments of the federal government, including the Department of Aboriginal

Affairs and Northern Development, the Department of Western Diversification, Natural

Resources Canada, and Environment Canada each have a potential impact on the

decisions, timing and scale of development in the regions served by PNG. On balance,

the combined federal policy objectives appear to support sustainable economic growth in

the regions (especially as it relates to international trade) so long as there is no undue

compromising of environmental considerations and objectives.

Of course, defining what constitutes both sustainable growth and the lines with respect

to the environment and special interests remain matters of serious public, judicial and

regulatory debate, and outcomes at this point are in no way certain. Regardless of the

outcomes, it is likely that growth will continue in the North East region of British

Columbia, and that the desire to access markets in China and Asia will lead to growth

along the North Coast, though the nature, magnitude and timing of that growth are not

certain.

2.1.2 Provincial Policies

As with the federal government, British Columbias provincial government has interests

in the development of the regions served by PNG that cross departmental portfolios.

The provincial government has also made the environment and commitment to

greenhouse gas (GHG) reductions a serious cornerstone of its policy playbook.

In 2007 the government passed the Greenhouse Gas Reduction Targets Act (Bill 44 -


- 15 -

2007) which established that year as the base year and set GHG reduction targets to be

achieved by 2020 and 2050. Further, it set guidelines and responsibilities for

establishing stepped targets for 2012 and 2016. Carbon neutrality in the public sector

was also a major focus of the act.

Also in 2007 the B.C. Energy Mines and Petroleum Resources Department released The

BC Energy Plan, which outlined the strategies to be pursued in order to meet the

governments clean energy development and GHG emission targets. The plan focused

mainly on electricity, and described specific policy actions for meeting the GHG

reduction targets and committed to the pursuit of energy efficiency and conservation

through demand side management and investment in energy saving technologies. In

2008, The BC Energy Plan was augmented with The BC Bioenergy Strategy which

targeted bio fuel to meet 50 percent of B.C.s renewable energy requirements by 2020.

Wood waste and pine beetle deforestation are key assumptions in this strategy making it

particularly relevant to development in the regions served by PNG.

In the summer of 2008 the provincial government implemented the first consumer tax on

carbon in North America, with the final scheduled increase in the tax to $30 per ton of

CO2 emissions coming into effect in 2012. For natural gas, the tax now translates to 5.7

cents/cubic metre.

The Utilities Commission Amendment Act (Bill 15 -2008) encourages public utilities such

as PNG to reduce greenhouse gas emissions, take demand-side measures and

produce, generate and acquire energy from clean or renewable sources. It provided

authority for the Demand Side Measures Regulation (enacted in November 2008) which

set out the rules that the Commission uses when assessing proposed demand-side

measures from utilities.

The Clean Energy Act (Bill 17 - 2010) further developed the objectives around electricity

self-sufficiency, energy conservation and development of innovative clean energy

technologies. This act references and reinforces the Greenhouse Gas Reduction

Targets Act.

In 2012, B.C. Energy and Mines released its Natural Gas Strategy which recognized the

potential of natural gas to contribute to improving GHG emissions worldwide by

replacing coal fired power plants and oil based transportation fuels with a much cleaner

alternative [and taking the position that] natural gas is a climate solution it is widely


- 16 -

recognized as a transition fuel to a low carbon global economy.7 The plan re-

emphasized the need to encourage and pursue conservation in B.C.s domestic market,

as well as the potential for natural gas to form an important part of the GHG solution for

transportation fuel in trucks, buses and large machinery.8

In April 2013, B.C. adopted both the 2011 National Energy Code for Buildings (NECB)

and ASHRAE 90.1 (2010) as compliance options in the B.C. Building Code for Large

Residential, Industrial, Commercial and Industrial buildings effective December 20,

2013.9 The adoption is expected to update construction practices to increase the energy

efficiency of new construction, and to adapt to climate change effects. By separate

order the B.C. government also adopted the codes for new residential construction

beginning in December 2014.10 Based on a report prepared by Stantec Consulting for

the B.C. Ministry of Energy and Mines, the resulting decrease in energy demand from a

newly constructed big box retail operation in Northern B.C. resulting from the adoption

of the new building codes is expected to be between 12 percent and 18 percent. For

mid-rise commercial operations, the savings could be between 30 percent and 35

percent, and 8 percent to 10 percent for new mid-rise residential construction.11

2.1.3 Municipal Policies

The BC Climate Action Charter commits local governments to set GHG reduction targets

and demonstrate leadership on sustainable development. Prince Rupert, Terrace and

Smithers were early signatories to the Charter. Prince Rupert has set municipal

operations targets that would match the provinces target by 2020.12 Initiatives include

incentives for upgrading or retrofitting some of the existing building stock to meet higher

efficiency standards. Based on the Stantec findings, Prince Ruperts target to incent

existing commercial, institutional and industrial buildings to reduce energy consumption

7 BC Natural Gas Strategy, pp. 1, 11.

8 The Clean Energy Act provides the framework for a planned five-year, $62 million program to reduce transportation

emissions for heavy duty natural gas vehicles. (BC Natural Gas Strategy, p. 5.)

9 Ministerial Order No. M 090

10 Ministerial Order No. M 111

11 BC Energy Code Comparison (Final Report), Stantec Consulting, p.21.

12 City of Prince Rupert, Energy and Greenhouse Gas Plan, September, 2008.


- 17 -

by 25 percent from 2007 levels by 2020 would appear to be achievable.

The city of Terrace has created a planning horizon to 2050 to reduce dependence on

fossil fuels and develop wind, water and biofuel alternatives.13 While the visioning

document does not identify specific targets for energy use it does suggest a fairly clear

commitment to pursue policies and plans that encourage a reduced energy footprint for

existing customers.

The town of Smithers also has a plan committing to energy conservation measures and

GHG reductions in buildings and transportation.14 The plan forecasts modest decreases

in energy demand for the existing building stock due to retrofits in less than 20 percent of

residential, commercial and industrial buildings by 2017. The largest reductions in

energy consumption and GHGs are expected to come from new construction and an

overall decrease in carbon fuel consumption rates for transportation.

Kitimat signed the Charter in 2012, and is in the planning and implementation stage on

several initiatives.15

Similarly, in the North East region the Peace River Regional District, Fort St. John,

Taylor, Dawson Creek, Pouce Coupe and Tumbler Ridge have all signed The BC

Climate Action Charter and committed to energy conservation and GHG reductions.

2.2 Regional Economic Outlook

In developing its regional economic outlook for 2014 and beyond, PNG has relied on

regional statistics, key indicators and projections available through BC Stats, the central

statistical agency of the Province of British Columbia. The PNG-West division serves

the major urban centres of the North Coast and Nechako Development Regions and BC

Stats statistics and projections for these regions are therefore relevant indicators of the

demographics and economic growth experienced by PNG-Wests customers.

2.2.1 Regional Economic Indicators

The North Coast and neighbouring Nechako were the only Development Regions in the

province to record a population decline in 2012. While British Columbia saw an average

13 Terrace 2050, Fall 2009

14 Town of Smithers, Community Energy & Greenhouse Gas Emissions Plan, 2012

15 District of Kitimat Climate Action Revenue Incentive Public Report for 2012


- 18 -

gain of one percent between 2011 and 2012, population in the regions shrank by 0.2

percent, falling to 58,068, or 1.3 percent of the provincial population. The region has

steadily lost residents since its peak of nearly 71,000 inhabitants in 1996. A series of

economic blows since thenreductions in fish stocks, a slowdown in the forest sector,

and declining metal priceshave contributed to the outflow of people.

Economic prospects for the regions have improved dramatically in recent years thanks

to major project development in infrastructure and transportation, power generation and

transmission, and mining. Despite a slowing of the provincial economy in the latter part

of 2012, exacerbated by weaker demand for exports and volatile commodity prices,

investor interest in the region remained strong. Last year, investment spending and

mining exploration in the region reached record levels, generating employment

opportunities for both North Coast residents and workers from other parts of B.C.16

The population of the vast North Coast and Nechako regions of Northern B.C. is

approximately 100,000 people. Over the next 20 years, that population is forecast to

grow at an average annual rate of just over 0.15 percent.

Table 2: Population Projections17

2013 2023 2033

North Coast 59,958 61,272 61,932

Nechako 39,726 40,749 40,865

However, the make-up and distribution of the population in the region will likely undergo

more significant change than the relatively flat population forecast might suggest.

WorkBCs Labour Market Outlook predicts that by 2020 available jobs will increase by

more than 4,900, or by nearly 12 percent in the region as a result of strong economic

growth in the resource sectors, and the services required to support that growth. Over

the same period, about 37 percent of the current workforce in the region is expected to

reach retirement, creating opportunities for nearly 15,300 replacement workers (Figure

4).18

16 Institute of Chartered Accountants of BC, 2013 Regional Checkup Northcoast Development Region, p. 1

17 BC Stats People 2013: BC Sub-Provincial Population Projections

18 Work BC Regional Labour Market Outlook 2010-2020


- 19 -

Figure 4: Cumulative Job Openings in the North Coast and Nechako Development Regions.

Of the 41,300 or so people currently employed in the region, about 75 percent work in

the services sector, with production of goods accounting for just 26 percent of the

region's employment (Figure 5).19 The economic growth in the region will likely increase

both short-term and long-term labour requirements, with direct gains in the goods

producing sectors of forestry, mining and oil and gas. The service sector may see

increased economic activity and productivity gains, but will likely see labour growth

proportionately less than the gains in the producing sectors.

The BC Stats forecast of household formations better reflects the underlying dynamics in

the regions demographics. The number of households is expected to increase 0.5

percent per year on average over the forecast period, with about 70 percent of that

increase occurring in the first half of the forecast. This means that nearly 3,950 living

spaces will need to be constructed in the region by 2033, with more than 2,700 of those

constructed before 2023 (Table 3). Historical data on the types of residential building

permits granted provides no clear indication of a trend toward multi-unit residential

buildings (Figure 6).

19 ibid

4,923 24%

15,297 76%

Cumulative Job OpeningsNorth Coast and Nechako

(2010-2020)

New Jobs due to Economic Growth Replacement of Retiring Workers


- 20 -

Figure 5: Employment Distribution in the North Coast and Nechako Development Regions

Table 3: Household Formations Projections20

2013 2023 2033

North Coast 23,593 25,330 26,094

Nechako 15,466 16,455 16,911

Figure 6: Residential Building Permits in the North Coast and Nechako Development Regions

20 BC Stats People 2013: BC Sub-Provincial Population Projections

13%

12%

11%

9%

7%

6%

4%

4%

11%

8%

6%

Retail & Wholesale Trade

Health Care and Social Assistance

Educational services

Transportation and Warehousing

Accommodation and Food Services

Other Services

Public Administration

Professional Scientific and Technical Services

Manufacturing

Construction

Forestry, Fishing, Mining, Oil and Gas

Employment Distribution in North Coast & Nechako (2011)

Service Producing Sector

Goods Producing Sector


- 21 -

2.2.2 Commercial Developments

Commercial growth rates are expected to track household formations fairly closely,

though there may be some lags. Noteworthy commercial projects currently planned for

the North Coast and Nechako regions are described in Table 4, below.

Table 4: North Coast and Nechako Commercial Projects (September 2013)21

Project Municipality Status Completion Comments

Lakes District

Hospital

Replacement

Burns Lake Construction

Started

Fall 2015 The hospital replacement will include 16 beds,

acute care services and emergency services.

The facility will accommodate diagnostic

imaging, laboratory and a pharmacy. PCL

Constructors Westcoast Inc. has been

selected to design and build the facility. The

design will adhere to Leadership in Energy

and Environmental Design (LEED) Gold

building standards.

Carnaby Industrial

Site

New

Hazelton

Proposed ? Proposed industrial development on a former

100 acre sawmill site. A 5,000 sq ft shop and 2

ton crane currently located on the site.

Skeena Industrial

Development Park

Terrace Proposed ? A 2,000 acre heavy industrial greenfield

development site with potential for bioenergy

manufacturing.

Industrial

Development Park

Terrace Proposed ? Proposed 20 acre serviced industrial

development site is located near Highway 16

and railway. Potential for forestry-based

manufacturing and services, site is zoned for

heavy industrial use.

2.2.3 Industry Forecasts and Projections

Economic growth in the region is highly dependent on both the likelihood and timing of

major investments. The plans and timing of such investments are in turn dependent on

global supply, demand and price projections for commodities and resources, as well as

prevailing regulatory and socio-economic conditions.

The Northwest Transmission Line and Forest Kerr Hydroelectric projects will be

21 BC Major Projects Inventory, September 2013


- 22 -

complete by 2014, setting the stage for other major project investments such as hydro

generation projects and mine development in remote areas of the North Coast

Development Region. The Northwest Transmission Line, which will run along Highway

37 between Terrace and Bob Quinn Lake, will supply power to future industrial and

mining developments, and provide an interconnection point for clean-energy projects.

Forestry

Changing supply-demand dynamics in the world market for forest products are expected

to create continuing challenges for the traditional forest industry until at least the end of

the decade.22 Increased supply from South America, Europe and especially Russia will

likely be tapped to meet growing demand for wood products around the world. However,

bio-fuels and wood pellet production for export to world markets offer growth potential,

especially before 2020 when the remaining supply of viable pine beetle killed wood is

forecast to be exhausted. One such project being proposed in the PNG-West division

service area is a biocoal production plant in Terrace that would convert wood waste into

biocoal for use in coal-fired power and cement plants. This project is in the pre-

feasibility stage of development.

A surge in lumber prices in late 2012, fuelled by a rebound in US housing starts, demand

from China, and a smaller global timber supply renewed activity in the North Coast

Development Regions forest industry. In B.C., the value of lumber exports increased for

the third consecutive year by 9.7 percent. The improved softwood lumber market has

prompted a rebuild of the Burns Lake sawmill, restoring the economic mainstay of a

town that had been left reeling earlier in the year. The new mill will be about two-thirds

the size of the original, due to restricted log availability, and is expected to be operational

by early 2014.23

Mining

The long-term outlook for global metal and non-metallic mineral demand is fairly

promising. Rapid industrialization in highly populated regions like China, India and

Brazil, and the resulting emergence of a larger middle class with disposable income to

purchase goods have created sustainable demand increases. This in turn has led to

22 Opportunity BC 2020 BC's Forest Industry, Woodbridge Associates, October 2009

23 2013 BC Regional Checkup, Chartered Accountants Institute, pp. 1, 6


- 23 -

commodity price increases that are expected to fuel exploration investments for many

years. At the same time, new and innovative technologies and techniques (such as

GPS surveying information, three-dimensional data maps, airborne technologies, and

down-hole seismic imaging) are helping exploration and mining companies overcome

some of the geographic barriers associated with mining remote areas.

Figure 7: Northern British Columbia Mining GDP24

Therefore recent commodity price declines are expected to prove temporary. In fact,

Northern British Columbia's mining output is still expected to increase at an impressive

compound annual rate of about 17 percent until at least 2020.25

24 The Future of Mining in Canadas North, Conference Board of Canada, January 2013, p. 13

25 ibid


- 24 -

Figure 8: North Coast and Nechako Mining Projects26


Huckleberry Copper /

Silver / Molybdenum

Mine

Houston Construction

Started

2021 Main zone optimization and extension of

Huckleberry mine life by 7 years will include

$119 million for upgrades and $82 million for

dam construction. The expansion is expected

to create 70 new positions and keep the

mines 260 current workers employed for an

additional seven years.

Berg Copper-

Molybdenum-Silver

Mine

Houston Proposed ? Proposed molybdenum mine located 80 km

southwest of Houston in scoping stages.

Previous 42,000 m drill program has revealed

a significant copper-molybdenum resource.

Website: www.thompsoncreekmetals.com

Kitsault Mine Project Alice Arm Proposed 2017 Proposed open pit molybdenum mine located

140 km northeast of Prince Rupert near

tidewater on Alice Arm. A pre-feasibility study

completed in Dec 2009 estimates extraction of

40,000 tonnes of ore/day. Included in the

project will be mill processing, ancillary

facilities and a possible 9.8 MW run-of-river

hydroelectric project. Project has been

certified under the Environmental Assessment

Act.

The two year construction phase is estimated

to generate up to 700 jobs, with an expected

ongoing requirement of 300 employees during

operation of the mine. The mine life is

anticipated to be 16 years.

Harmony Gold Mine Graham

Island

Proposed ? The Harmony property is located on Graham

Island (Haida Gwaii), with a potential of 64

million tonnes containing 3 million ounces of

gold. Detailed engineering and exploration

studies will be required.

26 BC Major Projects Inventory, December 2013


- 25 -


Mt. Milligan Houston Startup 2013 The phased start-up commenced on August

15, 2013, followed by the first production of

copper-gold concentrate in September 2013.

The mine achieved commercial production on

February 18, 2014. The mine is planning to

continue to support local communities by

hiring the majority of the 350 workers needed

during operations from the Nechako and

Cariboo Development Regions.27

2.2.4 Large Industrial Projects

Rio Tinto's Kitimat Modernization Project

The Kitimat Modernization Project (KMP) will increase the production capacity of Rio

Tinto's Kitimat aluminum smelter by 48 percent to approximately 420,000 tonnes of

aluminum ingot per year using the most cost effective, energy efficient and

environmentally friendly technology available. The company announced its final

investment decision on December 1, 2011. The construction labour estimate is 1,500

jobs over three years. The new smelter is expected to begin metal production in early

2015 and to provide employment for approximately 1,000 once operational.28 A

complementary electric generation project will take several more years to complete.

Enbridge Pipelines Inc. Northern Gateway Project

Northern Gateway Pipelines Limited Partnership proposes to construct two, 1,177 km

pipelines between Bruderheim, Alberta and Kitimat. A 915 mm (36-inch) diameter

pipeline flowing west will carry up to 525,000 barrels of oil per day. An eastbound 500

mm (20-inch) diameter pipeline will carry 193,000 barrels of condensate per day back to

Alberta. A two-berth marine terminal and tank farm is proposed to be located on the

west side of Douglas Channel, north of Bish Creek. Ten pump stations will be powered

by electric pumps to limit noise and greenhouse gas emissions. The regulatory review

commenced in May 2010. The Joint Review Panel of the Canadian Environmental

Assessment Agency and NEB recommended approval of the project in December 2013.

27 Thompson Creek Metals, Mount Milligan External Enews, February 21, 2013

28 Chartered Professional Accountants 2013 BC Check-Up "Paving the Way"


- 26 -

A final decision from the Government of Canada is expected by mid-2014. The project

is expected to employ 165 persons to operate the marine terminal and tug fleet, to

maintain first response and to monitor the environment.

While this project is unlikely to have much direct impact on natural gas demand in the

region, it could impact both the timing and the magnitude of economic growth in the

region.

Kitimat Clean Refinery

In August 2012, Kitimat Clean Ltd. submitted a proposal to build a large oil refinery at the

Dubose Industrial site 25 km north of Kitimat to process heavy crude oil delivered by

pipeline or rail. An environmental assessment is in progress, with operations forecast to

commence by 2020. The refinery will process 550,000 barrels of diluted bitumen per

day, producing 240,000 barrels per day of diesel, 100,000 barrels per day of gasoline,

and 50,000 barrels per day of aviation fuel. The proposed project includes a 40 km

pipeline to transport refined fuel, a marine terminal on the Douglas Channel, and a fleet

of tankers. The project includes an on-site natural gas cogeneration facility to provide

steam and electric power.

Approximately 6,000 workers will be required during the construction phase, and the

refinery will create 3,000 permanent full time jobs. In April 2013, Kitimat Clean signed a

Memorandum of Understanding with the Industrial and Commercial Bank of China,

which will serve as a financial advisor and cooperate in the financing of the project.

Prince Rupert Port Authority

The port facilities of Prince Rupert continue to expand. Current and planned projects

include:

The Ridley Rail and Utility Corridor: The $90 million project will be constructed to

include an access road, rail loop, utilities, onshore terminal infrastructure and marine

components. The completion of this project is expected to act as a catalyst for further

developments at the Ridley Island Industrial Park.

Fairview Terminal Phase 2: The 24 hectare (59 acre) Fairview Container Terminal has

an operational capacity to move 750,000 TEUs (Twenty-foot Equivalent Units) per year.

The $650 million Phase 2 expansion being planned will expand the capacity to two

million TEUs. Phase 2 engineering design, environmental assessment and consultation


- 27 -

are well underway.

Ridley Coal Terminal Expansion: The $200 million multi-phase project will allow Ridley

Terminals Inc. to increase its annual shipping capacity from 12 million tonnes to 24

million tonnes by the end of 2014.

Westview Pellet Terminal: Pinnacle Renewable Energy Group, the longest established

pellet producer in Western Canada is constructing a $42 million wood pellet receiving,

storage and shipping facility in Prince Rupert. Pinnacle Renewable Energy Group owns

and operates six pellet plants across British Columbia with a production capacity well

over one million tons annually.

The Westview Pellet Terminal shipping facility is designed specifically to receive and

store wood pellets transported by rail from production facilities in the interior of British

Columbia, and load them into bulk cargo vessels bound for overseas markets. It

includes the construction of private rail storage tracks, a wood pellet receiving and

unloading building, and a conveyor and ship loader system.

Watson Island Industrial Site Redevelopment: Prince Rupert and Port Edward have

accepted a conditional offer from Watco to purchase the former pulp mill site, a site

which the communities acquired through a tax sale process. Watco is a venture made

up of the Metlakatla First Nation, the Lax Kw'alaams First Nation, Colonial Coal and

Hillsborough Resources. Watco plans to redevelop Watson Island as a bulk shipping

terminal, with a supporting industrial park.

Canpotex Potash Terminal: Canpotex Terminals Limited, the worlds largest exporter

of potash, is proposing to construct a $400 million potash export terminal in response to

increased international demand for Canadian potash.

2.3 LNG Export Infrastructure Development World Scale

Pacific Northwest LNG and Prince Rupert Gas Transmission Ltd.

Malaysias state-owned Petronas has proposed an $11 billion LNG facility on Lelu

Island, near Port Edward. The facility would liquefy and export natural gas produced in

northeastern B.C. by Petronas recently-acquired Progress Energy Canada Ltd.

(Progress). JAPEX, PetroleumBRUNEI and Indian Oil Corporation Ltd. are minority

shareholders in Pacific NorthWest LNG and its associated natural gas supply. The final

design and capacity of the facility is still being developed, but it could include two to


- 28 -

three LNG trains, and an export terminal and jetty to accommodate ocean-going LNG

carriers. The targeted operational commencement is late 2018. In February 2014,

Pacific NorthWest LNG submitted its environmental impact statement to both the

Canadian Environmental Assessment Agency and the B.C. Environmental Assessment

Office. In March 2014, Pacific NorthWest LNG was awarded an LNG export license by

the Government of Canada for 19.68 million tonnes per annum (mtpa).

TransCanada Corporation has been selected by Progress to design, build, own and

operate the proposed Prince Rupert Gas Transmission (PRGT) project. The

approximately 900-kilometre pipeline is expected to deliver 34 to 57 106m3 per day (1.2

to 2.0 billion cubic feet (Bcf) per day) of natural gas from a point near the District of

Hudson's Hope to the proposed Pacific NorthWest LNG facility.

BG Group Prince Rupert LNG and the Westcoast Connector

The Prince Rupert Port Authority has engaged with the British Gas Group (BG Group) to

develop Prince Rupert LNG, an LNG terminal that could be used to load Western

Canadian gas onto ships bound for consumers in Japan, South Korea and China. When

fully developed, the LNG facility will include three LNG processing trains with a total

capacity of up to 21 million metric tonnes per year (21 mtpa). The facility will be

developed in 2 phases: Phase 1 will include two LNG processing units and Phase 2 will

include the addition of the third LNG processing unit to achieve full processing capacity.

The targeted operational commencement is 2021. In March 2014, Prince Rupert LNG

was awarded an LNG export license by the Government of Canada for 21.6 mtpa.

BG Group has signed a project development agreement with Spectra Energy to jointly

develop plans for the Westcoast Connector, a new natural gas pipeline from Northeast

B.C. to the proposed Prince Rupert LNG terminal on Ridley Island. It will include 851 km

to 872 km of 912 mm to 1,219 mm (36 to 48-inch) diameter pipeline and up to five

compressor stations. The expected capacity is as much as 119 106m3 per day (4.2 Bcf

per day).

LNG Canada and Coastal GasLink

In May 2012, Shell Canada formally announced the development of a proposed two

billion cubic feet per day liquefied natural gas export facility on the site of the former

Methanex methanol plant. LNG Canada is a joint venture Shell Canada holding a 40

percent stake and with Korea Gas (KOGAS), Mitsubishi, and PetroChina Company each


- 29 -

holding a 20 percent interest in the project. The project consists of the construction and

operation of natural gas treatment facilities, liquefaction and storage facilities, marine

terminal facilities, an interconnecting cryogenic transfer pipeline, and supporting

infrastructure. LNG Canada will initially consist of two-trains, each with the capacity to

produce six mtpa, with an option to expand the project in the future. In February 2013,

the NEB awarded a permit to export up to 24 mtpa of LNG annually over 25 years. A

project description was filed with the federal and provincial environmental assessment

agencies in April 2013. The approval process is expected to extend into 2015. A

decision to move the project into development could be taken in late 2015/early 2016,

with start up around the end of the decade (pending regulatory approvals and

investment decisions).

TransCanada Corporation has been selected by Shell Canada and its partners to

design, build, own and operate the proposed Coastal GasLink project, a 1,219 mm (48-

inch) diameter, 700 km pipeline that will transport natural gas from the Montney gas-

producing region near Dawson Creek to the LNG Canada liquefied natural gas export

facility in Kitimat. A project description was filed with the federal and provincial

environmental assessment agencies in October 2012. Shell and TransCanada are

working toward the execution of definitive agreements on the Coastal GasLink project.

The pipeline is expected to move 48 106m3 per day (1.7 Bcf per day) of natural gas. It is

estimated that 2,000 2,500 construction jobs will be realized over a three-year

construction period. The pipeline is expected to be in service near the end of the

decade, coinciding with the LNG Canada plant commencing operations.

Kitimat LNG and Pacific Trail Pipeline

Chevron Canada and Apache Canada each hold a 50 percent stake in the Kitimat LNG

terminal, Pacific Trail Pipeline and 644,000 gross undeveloped acres in the Horn and

Liard River basins in northeast B.C. Chevron will operate the two-train liquefaction plant

and the pipeline; Apache will operate the upstream assets. The terminal will have an

initial capacity to produce 19.8 106m3 per day (700 MMcf per day) of natural gas or five

million tonnes of liquefied natural gas per year. In October 2011, the NEB granted a

permit to export up to 10 mtpa of LNG over 20 years. In January 2014, Kitimat LNG

awarded the engineering, procurement and construction contract to a joint venture

involving Fluor Canada and JGC Corporation of Japan. Required labour is estimated to

be up to 2,500 jobs during construction (three years) and up to 150 permanent jobs for


- 30 -

operation. A final investment decision is expected in 2014. Site preparation and access

road upgrades are ongoing, along with construction of temporary worker accommodation

on the site of the former Eurocan Pulp & Paper mill.

The Pacific Trail Pipeline (PTP) is proposing a new 1,067 mm (42-inch) diameter, 470

km pipeline to supply gas transferred from the Spectra Energy Transmission System at

Summit Lake (north of Prince George, B.C.) to Kitimat LNG for export. PTP is expected

to transport up to 28.3 106m3 per day (1.0 Bcf per day) of natural gas. Provincial

environmental approval was granted in June 2008, followed by federal environmental

approval in March 2009. A front end engineering and design study was undertaken in

2010. In February 2013, PTP signed a $200 million benefits agreement with 15 First

Nations along the pipeline right-of-way. A final investment decision is expected in 2014

in conjunction with the Kitimat LNG project.

WCC LNG

Proposed by ExxonMobil Canada Ltd. and Imperial Oil Resources Limited, WCC LNG

was awarded an LNG export license by the Government of Canada in March 2014 for 30

mtpa. Project proponents have yet to identify a project site, but have indicated they are

considering locations in the vicinity of Kitimat and Prince Rupert. Pending regulatory

approvals, they expect to be operational in the 2021 to 2023 time frame.

2.4 LNG Export Infrastructure Development Small Scale

AltaGas Idemitsu Joint Venture Limited Partnership (AIJVLP)

On January 29, 2013, PNGs parent company AltaGas signed an agreement with

Idemitsu Kosan Co. Ltd. (Idemitsu) to form the AltaGas Idemitsu Joint Venture Limited

Partnership (AIJVLP). AltaGas and Idemitsu each own a 50 percent interest in AIJVLP.

Idemitsu is a global leader in the supply of energy, petroleum, lubricants and

petrochemical products and services to Japan.

AIJVLP is pursuing opportunities to develop liquefaction infrastructure, and long-term

natural gas supply and sales arrangements to meet the growing demand for natural gas

in Asia. AIJVLP is also pursuing opportunities to develop an LPG export business,

including logistics, plant refrigeration and storage facilities.

Triton LNG, a wholly-owned subsidiary of AIJVLP, is currently developing the proposed

project feasibility study which is expected to be completed in 2014. Triton LNG is also

http://www.imperialoil.ca/Canada-English/operations_ngas_export.aspx

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preparing preliminary engineering designs for the construction of the liquefaction

facilities and is in discussions for potential site locations. Triton LNG is currently in

discussions with market participants to develop sales and supply agreements. On

October 29, 2013, Triton LNG filed an application with the National Energy Board (NEB)

to export up to 2.3 million tonnes per year of LNG. Subject to consultations with First

Nations, and the completion of the feasibility study, permitting, regulatory approvals and

facility construction, the proposed LNG exports could begin as early as 2017.

Douglas Channel Gas Services Ltd. (DCGS)

This small-scale project involves a barge-based liquefaction plant proposed to be

located on the west side of Douglas Channel, south of Moon Bay. The project will

initially utilize existing capacity in the PNG pipeline and produce up to 900,000 tonnes of

LNG per year. Front end engineering and design studies commenced in 2011. In

February 2012, the NEB awarded a permit to export up to 1.8 mtpa of LNG annually

over 20 years, equivalent to 7.1 106m3 per day (250 MMcf per day) of natural gas. The

Haisla Nation, LNG Partners, Golar LNG and an unnamed Asian firm are the project

partners. DCGS is currently in a Companies' Creditors Arrangement Act proceeding, of

which the outcome is not known at this time.

Pacific Northern Gas Ltd. Pipeline Looping Project (PLP)

PNG itself is considering a project to upgrade its gas transmission capacity by looping

(or twinning) its existing natural gas transmission pipeline between Summit Lake and

Kitimat. The new pipeline will increase the overall pipeline capacity of the PNG-West

transmission system to 20.8 106m3 per day (735 MMcf per day) in order to meet the

requirements of its existing customers and new small-scale liquefied natural gas projects

proposed for construction in Kitimat. The project involves the construction of

approximately 525 km of new 610 mm (24-inch) diameter pipe, operating in parallel with

the existing 254 mm (10-inch) pipeline. The project would also include the replacement

of four existing compressor stations and would have an initial capacity of 17.6 106m3 per

day (620 MMcf per day). On July 24, 2013, the British Columbia Environmental

Assessment Office issued an order accepting PNGs PLP into the environmental

assessment process following PNGs filing of its project description. PNG expects to

continue the environmental and consultation processes with a final investment decision

on PLP expected in late 2015. The project is expected to generate approximately 1,800

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to 2,400 direct person years of employment during construction.

PNG has signed Transportation Reservation Agreements (TRAs) with both DCGS and

Triton LNG for an aggregate of 14.7 106m3 per day (520 MMcf per day) of natural gas

transportation capacity on the proposed PNG pipeline expansion. The TRAs provide for

cost recovery of development costs related to the PLP and are backstopped by letters of

credit provided by the counterparties.

2.5 PNGs Regional CNG and LNG StrategyPNG anticipates playing a significant role in the development of the new natural gas

economy in Northern B.C. and in other regions north of the Province. PNG is exploring

the opportunity to leverage its existing pipeline transmission and distribution systems to

provide or supply facilities for the micro-scale production of CNG and LNG near demand

loads and to develop new CNG and LNG distribution services to its customers. PNGs

system has the potential to be an integral part of a regional LNG strategy by facilitating

service to several site locations for micro-scale LNG, focused on domestic gas

consumption for which PNG would develop LNG transport tariffs and incentives to assist

in conversions.

In Northern B.C., the regional CNG and LNG business fundamentals are the strongest in

North America due to the low price for natural gas relative to the high price for diesel

fuel. These fundamentals are further enhanced by the large amount of remote and off-

grid diesel-fueled power generation in place throughout Northern Canada. Remote

power markets create ideal anchor customers for base-load LNG plants as they are

inclined to enter longer-term sales contracts on a cost-plus/take-or-pay basis, which is

the preferred contract structure.

Additional target markets include high fuel volume end-use equipment in the oil and gas,

mining, marine and rail sectors, including significant opportunity to displace diesel

consumption in heavy mine haul trucking applications in the next three to five years.

Additional opportunity exists for the on-road trucking sector, however this is expected to

have the longest time to conversion due to small per-unit fuel use and time required for

the build-out of a retail supply network.


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2.5.1 Industry Overview

2.5.1.1 Commodity Pricing

The fundamentals for the distributed CNG/LNG business remain strong as forward

curves and longer-term forecasts for natural gas and crude oil continue to support the

minimum energy spread of 10 to 15:1, allowing for natural gas adoption to displace

higher-cost fuels and reduce harmful emissions associated with refined petroleum

products.

2.5.1.2 Equipment Manufacturing

The vehicle manufacturing industry continues to move forward with increased

manufacturing capacity of CNG/LNG-fueled

re accordance with the commission’s resource planning ...€¦ · pacific northern gas ltd. 2014...

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