N.W.T. gov't exploring LNG project off Canadian Arctic coast

The government of the Northwest Territories is working on reviving a decades-old dream of exporting natural gas from the Mackenzie Delta.

But this time, the gas won't be flowing by pipeline — with less and less ice in the Arctic Ocean thanks to climate change, the government is exploring the possibility of sending the gas to east Asia by tanker. 

"We don't know yet how realistic it is," explained Menzie McEachern, director of the territorial government's mineral and petroleum resources division. "Right now, we're really at the stage of, 'hey, is this something that could be competitive?'" 

The government released a request for proposals in October, seeking bidders to conduct a feasibility study developing the region's gas fields, building pipelines and two offshore liquefaction and tanker loading platforms far off Tuktoyaktuk, N.W.T. 

The liquefied gas would be shipped to Asian ports, like Tokyo, which is more than 500 nautical miles closer to Tuktoyaktuk than to Kitimat, B.C., where construction of a $40-billion liquefied natural gas project is underway. The N.W.T. government assumes it would be exporting around four million tons of LNG each year. 

The LNG tanker loading platforms, according to a map prepared by the territorial government and shared with the CBC, would have to be located far offshore due to the shallow waters near Tuktoyaktuk. The map shows a potential site 20 kilometres northwest of Tuktoyaktuk.

Decades of exploration work done in anticipation of the Mackenzie Valley pipeline established that there are at least 255 billion cubic metres of natural gas in the Mackenzie Delta and offshore — and likely much more.

"We have huge natural gas resources in the N.W.T.," McEachern said. "Far more than can be used by our small population." 

But the rest of the export plan, including large-scale gas extraction, would be untrodden territory for the region, though not for the Arctic; Russia has well-developed LNG export hubs on the Yamal Peninsula, and is currently building an even bigger LNG facility on the Gydan Peninsula. Both facilities depend on exporting gas through the Arctic on icebreaking tankers. 

Doubts on price, investment

When the Mackenzie Valley gas project was being considered in the early 2000s, natural gas prices were about three times what they are today. 

"The conventional wisdom was that the United States was running out of natural gas; they would have to import more from Canada," said Doug Matthews, an energy consultant based in Canmore, Alta., who spent decades living and working in the N.W.T. 

Since then, fracking and its accompanying gas boom in the U.S., as well as major production increases in Russia and the Middle East, have cratered natural gas prices.

"It's gone down the toilet, which was why the Mackenzie Valley gas project went down with it," he said. 

That doesn't bode well for expensive and remote gas projects, which would be competing with gas from more accessible and developed parts of the world like the U.S. and Australia.

The project's stated goal is to export the LNG to Asia, where prices are currently higher and expected to remain that way as countries like China switch from coal to cleaner, natural gas. 

At the time of writing, Asian natural gas prices for December delivery were $4.20 higher than in North America.

"So, if you're buying North American [natural gas] at about $2.50, you only have $4.20 to cover all your costs to get the LNG to China," Matthews explained. Those costs include the transportation, liquefaction, and loading — and eventually the use of icebreaking LNG tankers, worth around $300 million apiece. 

Counting on climate change

The ships' icebreaking capabilities are needed less today than ever before, thanks to climate change. By the late 2020s, when exports could feasibly be underway, there will be even less ice. That's all factored into the territorial government's enthusiasm for the project. 

"Sea ice coverage and thickness is lower than it has ever been, and is anticipated to continue to shrink, reducing Arctic shipping concerns," reads an optimistic territorial government presentation slide shared with CBC.

That shrinking ice could also be a threat to the project. The federal government put a moratorium on offshore oil and gas development in the Arctic in 2016, citing climate change, a decision welcomed by environment activists but slammed by the then premiers of the Northwest Territories and Nunavut. That moratorium is currently set to be reviewed at the end of 2021.

The impacts of climate change are also being felt in places like Tuktoyaktuk more strongly than anywhere else in Canada. Permafrost is melting, land is eroding and storms on the newly open water of the Arctic Ocean threaten the coast. Any development there would have to contend with an increasingly difficult landscape.

Much of the development would happen within the Inuvialuit Settlement Region. Representatives of the Inuvialuit Regional Corporation and Inuvialuit Petroleum Corporation did not respond to requests for comment.