PNG came before town council to discuss plans for the future of their gas supply in Tumbler Ridge.
Earlier this year, PNG submitted a request to the BC Utilities Commission (BCUC) that would have seen them put $4.92 million into gas plant upgrades in Tumbler Ridge.
This would push Tumbler Ridge’s cost per Gj to at least $19.376, the highest rate for gas in the province.
However, a few months ago, PNG asked for an extension on this proposal, as they needed to “evaluate a new proposal for an alternate gas supply arrangement, which could significantly impact the anticipated capital expenditures.”
On December 9, Amanda Ward and David Keir from PNG appeared before council to discuss what that would mean to the town.
Keir, who is Director of Business Development and Stakeholder Relations for the company says he recognizes the District has concerns about affordability.
Indeed, the District filed a letter of comment to the BCUC expressing that concern. “While the District of Tumbler Ridge does not disagree that the TRGP needs repairs and rehabilitation,” says the letter, “we do believe that the proposed 25 percent increase to rates for users in Tumbler Ridge to offset the cost of these repairs would result in many negative impacts to our community including the loss of business and industry, inability to attract new investment, loss of essential services like the health clinic, etc., inability to attract and retain skilled professionals as well as attract and retain residents due to the high cost to heat their homes.”
The current rates charged by PNG in Tumbler Ridge are already 50 percent higher than in Dawson Creek and Fort St. John, says the letter. “Adding an additional 25 percent on top of that pushes the rates beyond affordability for anyone.
“We are concerned about the welfare of our residents who cannot afford this increase but have no other option. The majority of the homes and business in Tumbler Ridge use natural gas heat and PNG is the only provider, which creates a monopoly and does not allow users to try to find a more affordable provider. In conclusion, the District disagrees with the report prepared by PNG that indicates that there are no negative socio-economic impacts for the reasons stated above. The District urges PNG to re-evaluate how it intends to distribute the expense of the project in order to not create undue hardship on the users in Tumbler Ridge who are already paying significantly higher rates than neighbouring communities.”
Keir says that the cost of the natural gas in Tumbler Ridge is exactly the same as everywhere else. “PNG is a regulated Cost of Service Utility, which means we recover our cost of service through our rates.”
He says the rates are divided into two parts: the cost of the gas itself, and the cost of delivering the gas. “There’s the delivery charge which is where we recover the cost of moving gas through our pipeline network and then there’s the commodity charge which are the actual molecules themselves. PNG has five unique service areas, Tumbler Ridge being one of them. We recover the cost of service to residential small and large commercial and industrial customers separately. That means the rates for delivery in Tumbler Ridge are different from the rates in Fort St. John, which are different from the rates in Dawson Creek, or PNG West or Granisle. These are the five unique service areas whereas the commodity charge is spread equally across all of the customers so everybody pays the same.”
The difference in rates, he says, is the cost of delivery. “What makes Tumbler Ridge really unique is that we have almost 40 km of gas pipeline that runs from the Tumbler Ridge gas plant. In no other part of our system does PNG operate a gas processing plant.”
PNG doesn’t get the gas out of the ground; instead, gas is provided to them by Canadian Natural Resources (CNRL). “CNRL has a bunch of gas fields, producing sweet gas and sour gas, which has hydrogen sulfide in it. Our little Tumbler Ridge gas plant takes that sour gas and makes it sweet. The plant takes out the hydrogen sulfide and turns it into pipeline quality sales gas. What’s different about Tumbler Ridge compared to all of the other areas is that the delivery charge includes the gas plant as well as the pipeline whereas in other parts of the PNG system it’s just the pipeline. That’s why you see a higher delivery charge in Tumbler Ridge compared to Dawson Creek and Fort St. John, although the delivery charge for Tumbler Ridge is less than in the west.”
In order to continue to provide sweet gas to Tumbler Ridge, says Keir, the company looked at a variety of options.
One of those options is to see if they can reduce the need for processing the sour gas. “Is there an opportunity to look at the supply, at the composition of the gas that we’re receiving?”
Another alternative would be to build a pipeline to a new source of sweet gas, so that PNG didn’t have to process the sour gas anymore. “That proved to be a very expensive alternative,” says Keir, as did the option of bringing liquefied natural gas.
This is something that happens when the company needs to do work on the plant. “We’ve taken the plant down a couple of times in the last few months both on a short-term basis and for 10 days in September to do some work, and we supplied the town on liquefied natural gas during that period of time.”
He says that based on the current arrangements, the company would have to upgrade the plant, at a cost of $4.92 million dollars.
The work done to this point has cost the company about $1 million, to make sure the plant could make it through the winter. “We have a second phase of work about $4 million which is presently scheduled to be completed sometime in 2025.”
However, he says, this work (which would be to replace the sour gas processing equipment) is currently on hold.
While the company is not at liberty to discuss the specifics of why it’s on hold, they say that they are currently in discussion with CNRL to “discuss an alternative that could allow us to defer these expenditures,” says Ward. “However, if we don’t need to spend the money that’s obviously a preferable option.”
Keir says that, if the company were to spend $5 million for the plant reinforcement, it would result in an increase to the cost of gas.
But how much? He says that with Quintette coming onstream, the cost would actually go down for everyone else in the town. “We won’t know the precise numbers until such time as we contract with Quintette for firm service and we can’t contract with them for firm service until we confirm if we are going to proceed with the supply alternative.”
But once they are able to contract with Quintette, it would mean that the mine would be paying a larger portion of the cost for the plant upgrades, reducing the impact on residential customers.
As well, he says, there are a couple other options. He says PNG may be able to rebalance the rates to keep the cost of the plant upgrades from impacting residents too much. As well, he says, there may be an option for the company to classify the repairs as a part of the overall commodity cost, thereby allowing the company to spread the cost out across its entire service area.
Mayor Krakowka asks if this means that there will be enough gas in the system to supply both the town and Quintette. “On a previous council, there was talk about Quintette coming back, and PNG was concerned there wasn’t enough gas and were looking about a virtual pipeline, bringing in liquid natural gas on semis. IS there enough gas now?”
Keir says it’s tricky, especially as things have not been finalized with CNRL, but the company wants to ensure they have enough raw gas to “ensure the provision of firm service. When a new a customer like Quintette restarts after 20 years, they’re not looking at one or two years of service. They’re looking at ten or 15 years of service, and so we need to ensure that the system has been reinforced and that we have Supply Arrangements in place to be able to meet those commitments.”
Keir says there’s a lot of moving parts, but there is a good chance that the cost of rates with stay the same, or might even go down. “Everything we’re doing is designed to make sure that we provide reliable supply. How do we do that prudently and efficiently? What’s the best alternative? How do we make sure rates move this direction as opposed to that? That’s what we’re going to do.”
Even if the company needs to bring in a virtual LNG pipeline because of demand from Quintette, the cost of that would get spread across the entire service area. “I’m just going to use round numbers,” says Keir. “Let’s say it costs about $2.60/Gj. Every customer in all of PNG service area pays $2.60/Gj for the gas molecule. Right now LNG is more expensive, say in the $15 to $20/Gj range. But because we spread those commodity costs across all customers in all service areas, even if we had $20/Gj commodity for Tumbler Ridge it would mean that everyone’s commodity charge might go up by five cents. We would still have to recover the cost for the LNG infrastructure, but if we can build it in a way that it provides resilience to the town as well as Quintette—which I think is the right solution to ensure that we’ve got sufficient resilience—my hope is that if we can if we can lock in Quintette for the right term at the right volume, that will protect the town. Quintette is working wonders for your service area.”
Keir says it will probably take two to three months for the discussions with Quintette and CNRL to be completed. At that point they will decide what they will do. However, says Ward, if the agreements mean they don’t have to do the plant improvements, they will probably not move forward with rate rebalancing, as that issue just “goes away.”
PNG will be filing their revenue requirements around that time as well. “When we get the decision from the commission that sets our rates, we will then look at our total cost of service and how it gets allocated across our various classes and at that time could propose a change to how the gas plant costs are allocated between commodity and delivery,” says Ward. “I would expect to know later 2025.”
Trent is the publisher of Tumbler RidgeLines.
