LNG Apparitions

A rather curious and subdued claim that the Kwispaa LNG Project died on the coast of Vancouver Island last week - might it have a ghost of a chance?

This brief article was prepared and set aside to aerate about a week ago, as the EPC industry waited for some word from Steelhead LNG regarding the news of their apparent cancellation a week ago. However, in the continued absence of official communication from the Steelhead LNG corporation, we are left to reason through the peculiar and surprising announcement by the company’s indigenous partner – Huu-ay-aht First Nations – regarding the cancellation of work on the Kwispaa LNG project on Vancouver Island, British Columbia.

Predictably, disappointed and interested outsiders have lurched to simple and obvious causalities, but almost all reasons are probably not accurate, given the way the story is playing out – or rather - how it is stalled. Environmental, political and cost reasons are certainly easy to fault – but are doubtful underlying causes. They may not even be cosmetic saboteurs.

The Steelhead LNG project has yet to issue official statement and has not entered the public fray regarding the apparent decision to cancel or suspend the important project. Rather, their partner has been the only party to make statements public, and in doing so, may have even breached agreements of confidentiality. That is, unless this publicity is ultimately an intentional tactic to achieve Steelhead LNG objectives – albeit through the apparition of the partnership.

In late 2018, Steelhead proudly declared the award of the front-end engineering contract to Hyundai Heavy Industries (HHI), based in South Korea, while declaring its short-list of EPC candidates for the full execution. The expectation was that engineering work by HHI would proceed in early 2019 – an important Project milestone. This major contract award implied that about three percent (3%) of the total project cost would be immediately needed from the financiers, in order to support the work to develop the engineering and execution strategy basis. Given that the announcement was made in the public forum, it is apparent that confidence (by Steelhead LNG) in its financial commitment was – and remains - high.

So, what happened, or is happening?

The silence on the fronts of politics and environmental process, along with all other facets seemingly tranquil, means two things may have transpired to bring about the February 10th news from Huu-ay-aht First Nations:

1.      Forecast return on investment (ROI) is underwhelming (potentially including inadequate sales agreements) for Steelhead LNG and its investors, and/or,

2.      Negotiations with indigenous partners or other interested parties have reached an interesting and risky juncture or end-game.

Available information would entice us to favor the latter of these potential causes, recognizing that:

-         Steelhead LNG has made no public attempt to leverage economic benefit as argument to combat political, environmental or principled resistance;

-         Only the Huu-ay-aht First Nations partners have made any public statement (no official statement from the investor/developer), along with some mystery around what the message (from Steelhead) says;

-         It is too early for the project team to have prepared a baseline cost estimate and schedule that could currently upset the concept ROI.

-         This has happened before (with Malahat Nation in Saanich Inlet)

For now – we are left to wonder: Is the project finished? Probably not - judging by the pedigree of the executive team, the vacuous silence, the considerable investment to date and the forecast LNG economics at stake.

R W Harms

President, EPC Lens, Inc. ? 2019