January 2017, Vol. 244, No. 1

Features

Pacific Connector Pipeline: Journey or Destination?     

Over a decade of twists and turns underpin what has become an ever-changing saga for the proposed Pacific Connector natural gas pipeline, a 36-inch conduit through southern Oregon whose fate is tied to the increasingly tough job of permitting and building the first U.S. West Coast liquefied natural gas (LNG) project. While the proposed pipeline has generated its share of optimism and pessimism over its long history, its backers have managed to keep their eyes on the prize. And although 2016 produced somewhat equal amounts of both good and bad news, the vision for the multibillion-dollar project remains intact.

As part of its tool kit, a Houston-based project management team assembled by Canada-based Veresen Inc. and its Pacific Connector partner has created what they describe as a “complex matrix” listing all of the regulatory approvals needed and their status. “Much of this information is not for public disclosure as the interpretation of the data would require assistance from our regulatory team,” says Calgary-based Veresen spokesman Mark Chyc-Cies.

Similarly, the project’s complex web of engineering plans are still to be hammered out once an engineering procurement construction (EPC) firm is named, probably in mid-2017. Requests were submitted earlier in 2016 from Pacific Connector Gas Pipeline (PCGP) in the form of an “invitation to tender (ITT)” to solicit prospective EPC firms to handle the large-diameter pipeline project, which is expected to apply much innovative technology and processes. Interest from at least three major EPC firms was secured among the project team, Chyc-Cies indicates.

Nothing is taken for granted. Little is left for chance when it comes to a project that has been so long in the making, and with which regulators have seemingly had a sometimes fickle, on-again/off-again relationship. Early in 2016, the Federal Energy Regulatory Commission (FERC) rejected the overall Jordan Cove export project, citing specific shortcomings in the pipeline. It was struggling to tap Western Canadian and U.S. Rockies supplies and lacked contracts from prospective overseas LNG buyers.

Veresen and its pipeline partner, the Williams Companies Inc., have since tried to set the record straight and have asked for a rehearing at FERC, which is still pending. Nevertheless, in its 25-page denial of the earlier application for the $7.5 billion LNG export facilities and connecting pipeline, FERC suggested  the “public benefits” from the Pacific Connector pipeline were outweighed by what it saw as adverse impacts on landowners and communities along the proposed route. In 2015, the federal regulators had delayed the final environmental assessment of Pacific Connector because of local concerns. But more recently, the company has obtained options to additional private lands along the pipeline route as a sign of progress for the regulators.

In this time of heightened sensitivity by Native American tribes to energy infrastructure planned on parts or near their reservation lands, PCGP’s route crosses no Native American lands. The breakdown among the different types of property ownership that comprise the entire route is: about 30% pipeline centerline rights-of-way easements, 30% private timber company lands; and 40% private landowners. “Although we have secured a large portion of the easements, we are still working to complete the acquisitions of that land,” Chyc-Cies adds.

Along the same timeline, key state permits have been delayed numerous times at Veresen’s request by the Oregon Department of State Lands (DSL) and other agencies that share the review of the overall project that began life as a LNG import terminal only to be changed by the shale revolution into an export project. The Oregon state processes are completely separate from FERC’s activity.

Oregon’s DSL set a late fall target date for a decision on a removal-fill permit, and it plans later coordination of its proprietary authorization approvals with that decision, according to a DSL spokesperson.

With the long history and the necessary ups and downs of the pipeline and the LNG terminal projects, Jordan Cove has needed a leader who is not easily diverted from the long-term, strategic path. In 2014, the company found that coach/cheerleader in Elizabeth “Betsy” Spomer, Veresen executive vice president and LNG project CEO, who holds deep experience in the global LNG business with firms such as BP plc and Amoco.

After giving a progress report – or as she quipped a “lack of progress” report – on the LNG project, including the pipeline, Spomer told an analysts’ gathering in Toronto in late September: “We know Jordan Cove is competitive from a cost basis with Gulf of Mexico brownfield projects; we’re sized to current market conditions, so I can’t say when, but I know this project will happen and I remain very confident of that.”

Another advantage for the Oregon coastal project, Spomer says, is the variety of major interstate transmission pipelines that serve the hub at Malin, OR on the California border. “One of this project’s biggest advantages is the existing long-haul, large-diameter pipeline systems serving Malin,” she says, citing the TransCanada system from Western Canada and Veresen’s own Ruby Pipeline coming from the U.S. Rockies. “However, unlike projects in the Gulf that are competing for natural gas with a number of end-users, the Western Canadian producers are looking for new gas markets.”

Spomer predicts that there won’t be many gas-price basis problems with Jordan Cove because through Ruby Veresen is aligned with Rockies producers to bring their gas to market and both existing interstate lines have what Spomer calls “low-cost, expansion opportunities and little local competition for gas supplies in southeast Oregon.”

Veresen CEO Don Althoff continues to see Jordan Cove as a key to the Canadian-based company’s growth strategy, along with growing other parts of its midstream business north of the U.S. border. He describes Jordan Cove as a “valuable and potentially transformative option.” And he is depending on Spomer and the experienced PCGP team she has assembled to enhance that value.

There have been very few major changes other than flow reversal and a few short re-routs over the past 12 years in PCGP’s fundamental plans as its purpose shifted from a takeaway transmission pipeline for an import terminal. But the pipeline has evolved into an engineering undertaking steeped in state-of-the-art equipment, processes and materials, according to officials involved with Pacific Connector since its inception. Compressors, measurement, communications, and construction processes and methodologies will all be advanced and are expected to be part of the responsibility of the eventual EPC firm.

Plans in the fall of 2016 called for turbine-driven gas compressors, ultrasonic flow metering, wireless data transmission and construction plans that include the use of horizontal directional drilling and direct pipe methodologies for trenchless crossings. “These techniques can be less environmentally impactful and less impactful to the public [such as road crossings] than trenched crossings,” according to a Houston-based PCGP team engineer.

Manufactured by a Caterpillar company, Solar, the gas turbine-driven compressors will compress the gas at the inlet of Pacific Connector, and are what Veresen engineers consider generally more reliable than internal combustion engines, along with carrying lower maintenance costs and a cleaner burn. “Industrial gas turbines are the prime mover of choice for many pipeline compressor station applications,” Veresen’s engineers confirm.

Similarly, in the measurement sphere, ultrasonic flow meters are more accurate when large flow rates are involved, and again carry lower maintenance and operating costs. The alternative would be orifice or turbine metering, but PCGP plans are not going that direction. Ultrasonic flow metering will be used for the custody transfer of gas supplies.

For a central control center and various points along the 232-mile transmission pipeline, PCGP will install a communications network to enable wireless data transmission to flow among the various points and the control center.

During construction, in addition to the trenchless approaches, an extensive geographic information system (GIS) will be applied, including mapping software that supports environmental permitting, rights-of-way acquisition, much of which still remains to be completed, and engineering/construction planning. The Veresen engineers note that a “significant amount of light-detection-and-ranging (LIDAR) data already has been acquired that can be integrated with the GIS mapping to produce high-resolution images and mapping, and digital terrain and/or elevation models.”

Project controls and inspections also will be fully web-based, using enterprise scheduling and so-called “march” charts for time-distance considerations, along with inspection data repositories and access through the web.

These innovations won’t really come to life until the EPC is named following a nearly two-year process. Absent a final decision on the EPC, Veresen has held off ordering pipe and related equipment, leaving that for the EPC. It has a rough idea on how the construction will be staged, although that, too, awaits the EPC firm.

“Several staging area possibilities were included in the FERC application,” says Taylor Johnson, a Veresen manager on the PCGP team. “In addition to staging areas, there will be a need for pipe-storage yards, for which there will likely be two, and two or more staging areas for each construction spread.” The EPC will make the final decision, but Johnson anticipates that there will be five spreads.

The Veresen pipeline team and a veteran executive who has considerable industry experience on major infrastructure projects characterize the global environment as excellent for building oil/gas infrastructure. Preliminary numbers from bidders that PCGP has received reflect that, according to the industry veteran. “Bulk commodity prices in particular have gone down,” he says, attributing the cost “de-escalations” to less competitive pressures worldwide for materials, equipment, and skilled labor, which in the past was a major concern for the project developers.

So, while the estimated costs for Pacific Connector in the past 10 years have risen because of inflation, there has been more of a tempering of prospective costs over the past two years, according to Veresen’s pipeline team.

While the eventual EPC will make the final determination on construction workforce and equipment, preliminary estimates concluded that personnel needs will range from 450-650 workers for each pipeline spread (2,250-3,250 for five spreads). Equipment estimates were still being scratched out in late 2016.

Professionals at Veresen take a proprietary interest in the pipeline and are sensitive to misinformation and misperceptions that characterize a few isolated local pockets of opposition to the entire length of the line. The PCGP team cites many large segments of local support, and they remind questioners that FERC previously issued a certificate for the pipeline to be built when it approved the project for importing LNG. PCGP voluntarily gave up that approval when the project switched to exports.

“The environmental footprint of the export [pipeline] route is substantially the same as the route filed under the import application, and the engineering plans are substantially the same,” Veresen’s  Johnson says.

The Veresen pipeline team likes to point out that both the liquefaction terminal and pipeline projects have already obtained all local land-use approvals, something that eventually killed a long-standing second LNG project in Oregon that was proposed along the Columbia River near the mouth at the Pacific Ocean. Oregon LNG cited sustained local opposition in early 2016 for pulling the plug on that decade-old project to build a liquefaction terminal and connecting 87-mile gas transmission pipeline.

The PCGP project team from the start has worked hard to reach out to local communities, knowing the presence of a new large-diameter gas pipeline carries some potential economic benefits, particularly in areas beyond the reach of the existing distribution provider, which in most cases in southeast Oregon means Spokane, WA-based Avista Utilities.

Most of the potential new retail distribution communities are too far from Avista’s grid or other local distribution systems to make it economic to expand, but the PCGP route changes the equation. Pacific Connector has agreed with the Klamath Chamber of Commerce to install a mainline tap to allow the LDC to serve the town of Merrill in Klamath County. Avista is studying how close Pacific Connector comes to gaps in its service territory before it decides whether future taps make sense. In the case of Merrill, Avista customers would not have to pay for the interconnection. In essence, it provides a jump start to the local distribution provider.

“We feel confident that PCGP will provide natural gas service for several communities in Oregon for the first time,” Johnson says.

There is also a 10.75-inch north-south transmission lateral that parallels Interstate Highway 5 from just north of Portland to the southern end of Oregon. It is the Grants Pass Lateral, operated by Pacific Connector partner Williams’ Northwest Pipeline Co. PCGP could interconnect with the lateral about halfway between Eugene and Grants Pass, OR. The lateral, which starts at a point north of Portland across the Columbia River in Washington State as a 24-inch pipeline, has been pared down south of Eugene to less than half that size, so it is not in position of being able to feed supplies for the LNG plant, Veresen officials emphasize.

Conversely, the main Pacific Connector line at some point could backfeed up to 40 MMcf/d of gas supplies into the Northwest Pipeline lateral for use by residential, commercial or industrial customers, not to mention a modest sized electric generation plant. “This is another benefit of PCGP for southern Oregon as gas supply already is tight in two local counties [Douglas and Josephine],” Johnson points out.

Veresen officials and their investors both at FERC and in Oregon with government officials are facing the common inertia and skepticism that sets in when a long-term, major endeavor encounters various setbacks. But to the company’s credit, the momentum has been building on their side ever since FERC rejected the project without prejudice. Several key commercial deals came together in the spring – two involving Pacific Connector and global energy marketer Macquarie Energy LLC and Avista Utilities.

“It cannot be overstated how important the existing interstate pipeline infrastructure is in making these LNG export projects work,” says Spomer, reminding her listeners that PCGP is “easily expandable” to twice its proposed 1 Bcf/d capacity. On the plus side, several western states – Wyoming, Colorado, and Utah – congressional delegations have all gone to bat for the Jordan Cove project in requests for FERC to rehear the case.

After concluding deals with substantial Japanese buyers for half the capacity of Jordan Cove, Veresen informed FERC that Pacific Connector had struck the Macquarie deal for 215,000 Dth/d for firm transportation capacity that comports with the global marketer’s status as the fourth-largest U.S. gas marketer and the largest non-producer marketer. Macquarie plans to be an aggregator of gas supplies for the Jordan Cove liquefaction facility.

At the same time in 2016, PCGP completed a deal with Avista for 10,000 Dth/d of transportation service, which will allow it to potentially expand its distribution utility network in southern Oregon. With the two different laterals – Northwest’s Grant’s Pass and TransCanada’s GTN Medford lateral – feeding into parts of Avista’s southern Oregon operations, PCGP sees the potential for attracting new industries and economic growth in the normally sleepy, rural southern end of Oregon.

The economic stakes go far beyond the pipeline since the overall Jordan Cove project is viewed as a viable way to return the international deepwater port of Coos Bay to its past glory when it was the world’s largest timber and wood products port with 300-400 ships calling annually. Today it is primarily used for exporting wood chips, which involves 30-40 ships annually, most going to Japan.

“The decline in timber and wood products has hit the region very hard. The community through the port authority has been looking for an anchor project to revitalize both local and regional economies, and it has embraced the Jordan Cove project,” Spomer says.

If FERC and others come to embrace the project, too, there will be some happy engineers in Houston who have patiently moved forward with the logistics and planning for that long-sought 232-mile transmission pipeline that could eventually be a literal lifeline for the region.