BC Regional Report 2015
An improving economy has British Columbia's ports gearing up for more imports from Asia, while increased energy extraction in Canada and the US has those same ports preparing to export coal, oil and gas.
Shipping markets are still under a lot of pressure and most of the container ocean carriers in particular are losing serious money says Captain Stephen Brown, President, Chamber of Shipping of British Columbia. "Freight markets in the bulk trades are still very low and it's difficult for shipowners to raise rates due to the continuing over-supply of ships in most sectors for the time being."
Despite the falling cost of oil on world markets and the cost of vessel bunkers, the higher fuel standards in Emission Control Areas (ECAs) effective January 1 2015, including a designated area which extends out to approximately 200 nautical miles of the coastline of North America, will considerably add to bunker costs. While both Port Metro Vancouver (PMV) and the Port of Prince Rupert regularly update their successful respective incentive schemes for ships to "exceed regulatory compliance", only partial cost recovery is possible from a shipowner perspective.
The Asia-Pacific Gateway saw its share of challenges with winter rail service conditions in the early part of 2014, which resulted in federal government intervention and the issuance of an Order in Council requiring the two class 1 railways, CN and CP, to each deliver 500,000 tons of grain per week against the threat of a $100,000 per day fine for non-compliance.
Simultaneously, rail delays to intermodal traffic were compounded by 28 days of trucking disruption in March, eventually resulting in federal/provincial intervention and the provincial government approving a 15-point action plan to address many of the driver grievances which ranged from rates of pay to turn time delays at the container terminals. PMV has since proposed major changes to the Truck Licensing System (TLS) and the provincial government is to appoint a permanent trucking commissioner who will oversee and audit most aspects of the port trucking industry going forward.
With respect to port-related infrastructure development, a collaborative investment of more than $700 million spanning four trade areas within PMV has been successfully completed, Brown reports. As a consequence of this, private sector investment in Gateway capacity has also been incentivized with significant expansion of new and existing capacity now underway or seeking approval.
Meantime, development of BC's LNG export projects remains uncertain. "There are 19 proposed projects but realistically we don't expect more than a handful of them to materialize," says Brown. "Now that the provincial government has finalized export LNG tax intentions, we must wait to see which of the various projects can successfully navigate rigorous environmental assessments while containing construction costs with a view to pressing the button for a final investment decision or otherwise. These are tough decisions, made even more so by the declining price of oil, and consequently LNG, on world markets."
Two project initiatives that have sparked lively debate are the 1,100 kilometer Northern Gateway pipeline proposed to run from Northern Alberta through to the port of Kitimat, in Northern BC and the proposal by Kinder Morgan to complete twinning of their 1,150 kilometer oil export pipeline from Northern Alberta to PMV.
"In both cases, the proposals have met with support including from the business community and our trading partners, but opposition from NGOs, First Nations and sections of local communities," explains Brown. Canada's National Energy Board (NEB) and federal cabinet have both approved Northern Gateway subject to meeting a list of 209 conditions while the Kinder Morgan project remains under NEB review.
Additionally, the province of BC has listed five conditions to meet in order to win its support. These are related to fulfillment of NEB conditions, spill response capability on land and water, First Nations consultation and shared economic benefits between Alberta and BC.
Coal Down, Grain Up
A softening of coal demand has impacted the recently-expanded coal terminal at Ridley Terminals at the Port of Prince Rupert. But the Port posted a strong 2014 in grain for Western Canadian agricultural exports and a record year with container volumes at Fairview Terminal, which are up nearly 15 percent, reports Shaun Stevenson, VP, Trade Development and Public Affairs.
The Prince Rupert Grain and Ridley Terminals have infrastructure developments well underway and the Westview Terminal, operated by Pinnacle Renewable Energy Group, opened in 2013 to handle growing volumes of bio-fuel. Additionally, the Ridley coal terminal now has capacity for 18 million tons, up from 12 million.
On the intermodal side, the Port is seeing much stronger-than-forecasted Trans-Pacific Eastbound volumes and strong consumer demand in the US. In addition, the congestion that has impacted US west coast ports has resulted in diverted cargo coming north for a variety of reasons, including challenges with larger ships, consolidation of operations at the terminals, truck chassis challenges and ongoing IWU negotiations.
Recently, a $90 million rail corridor project opened up five development sites into a common user rail platform on the Port's 2,000 acres of industrial land. The Port also has two LNG projects that are at different stages of investigation.
The Pacific NorthWest LNG $11B project, for which an announcement regarding a final investment decision is anticipated in early 2015, and the Prince Rupert LNG project, which proposes a 225-acre LNG facility complex on the south-western section of Ridley Island near Prince Rupert. A new greenfield potash project is also in the works with Canpotex, which has signed a lease agreement with the Port Authority but it's not yet clear when a final decision will be made to go ahead.
"Our focus is on diversification of the types of terminals and facilities we have so they serve BC and Canada as key trade sectors," says Stevenson. "We've got a pragmatic development plan with key infrastructure investment that ensures an efficient terminal cluster. It's really about stewarding the growth in a way that ensures the sustainability of the port going forward."
Gateway container traffic is expected to double in the next 10 to 15 years. Port Metro Vancouver continues to work on its expansion plans and is working collaboratively with supply chain partners and various levels of government to improve the flow of containerized goods through Lower Mainland.
In fact, the economic impacts are clear. Container handling activities within PMV jurisdiction currently generate more than 10,900 person-years of direct employment and the handling and distribution of containerized cargo supports over 21,700 person-years of total employment across BC.
Example infrastructure developments include the Deltaport Terminal, Road and Rail Improvement Project (DTRRIP), which is a series of improvements to the existing Deltaport container terminal at Roberts Bank, and will result in an increased capacity of 600,000 TEUs. An additional expansion of container capacity at Centerm could potentially increase the existing capacity 900,000 TEUs up to between 1.5 million to 1.8 million TEUs. Feasibility studies show construction could begin as early as 2016. Finally, the proposed Roberts Bank Terminal 2 project would provide an additional 2.4 million TEU capacity per year. Once operating at full capacity, the project would provide 12,400 total jobs, worth more than $800 million in wages annually and contribute $1.22 billion per year in GDP.
"Growth is our biggest challenge but also our greatest opportunity," says PMV spokesperson John Parker-Jervis. "Available industrial land in the region has been shrinking, and we know that the current inventory of market-ready industrial lands is sufficient to meet demand for only about eight to 15 years. With an additional one million people expected to move here by 2041, it is critical that the region retain the industrial lands necessary for creating jobs and stimulating the economy. We believe that if an industrial land reserve were to be developed, it would protect valuable industrial land for economic development."
Over the next 10 to 15 years, Seaspan's Vancouver Shipyards will be busy building up to 17 Non-Combat vessels for the Royal Canadian Navy and Canadian Coast Guard as part of their partnership with the Government of Canada that began in 2011.
The first ship to be built is in the initial stages. "We hope this will bring up to 30 years of new construction work to the region," says Brian Carter, President, Seaspan Shipyards. "That has a BC GDP impact of almost $500 million a year, which is very significant for our industry, for people and careers."
The early part of the program was focused on getting the right management and technical teams in place. New hires have been a combination of experienced shipbuilders from both outside and inside Canada. Most are located at Vancouver Shipyards, which now employs approximately 175 people. By 2017, Carter says he expects that number will increase to 1,000 and stay there in perpetuity. "This is long-term work, so that's attracting a lot of young people interested in shipbuilding-related trades."
Seaspan continues its work with BC Ferries, as several vessel mid-life upgrades are scheduled; some of which, will also be large LNG conversion projects. The Canadian Navy is also in the midst of its upgrade program that involves the modernization of 12 Canadian Patrol Frigates at Esquimalt Dry Dock, which is providing steady employment for over 300 people.
"It looks like that project will roll into an export opportunity where New Zealand will bring its two frigates here right on the backside of the Felix completion which is in late 2016," says Carter. "We just completed 14 new barges for Seaspan Marine here at Vancouver Shipyards, where we've historically done a lot of repair work for our sister company Seaspan Marine and that will continue well into the future."
Still, having enough trained personnel will always be a challenge according to Carter. "There is an unprecedented level of activity in front of us and it spans all corners of the shipbuilding and ship repair market. We have to be making sure we develop the next generation so we know they're going to be there."
Dual Fuel Ferries
It will be 2016 before BC Ferries (BCF) can start recouping their investments in LNG-fuelled ferries. Three new vessels being constructed in Poland will run on dual fuel; the first will replace the Queen of Burnaby on Route 17 between Comox and Powell River in the fall of 2016. Meantime, both of the company's two Spirit-class vessels are being converted to LNG as they are in need of mid-life upgrades. The first major upgrade project will commence in the fall of 2016, the second a year later, with the first vessel entering service in the later spring of 2017.
There are no plans to convert the entire fleet to LNG, and no major changes to terminal infrastructure for LNG bunkering is expected. The province's proposed large-scale liquefaction export facilities are not necessarily linked to the use of LNG as a fuel within British Columbia. The company will likely source LNG from medium to smaller-scale liquefaction facilities, for example, the Fortis' Mount Hayes LNG plant located near Ladysmith on Vancouver Island or their Tilbury facility in Delta.
"We'll follow the same principles as we do with our diesel," says Mark Wilson, BCF's Vice President, Engineering. "Right now our prime fuel provider is Chevron, and they roll on the decks of the vessels on graveyard shift with diesel bunker trucks. They cover the cost of the transportation and the infrastructure right to the flange on the vessel. So the plan with LNG, although we're not locked down with our supplier yet, will be similar."
There are more new ships to build over the next 10-15 years as the average age of the 35-vessel fleet is 33 years old. Most likely, LNG will be an integral part of the future vessels. The company is also working on a capitally-intensive program to keep its 45 ferry terminals modernized and safe.
Late last year, Port Alberni-based Canadian Alberni Engineering (CAE) acquired nearby aluminum boat builder Kama and Blake Industries in order to offer additional services and more diverse expertise to the growing BC shipbuilding and repair industry as well as international markets.
CAE has primarily built and repaired steel hull vessels such as 18-foot sidewinders for the forest industry, 30-foot tugboats, and service vessels like landing craft in around the 30-foot range. "A big part of our business is docking and repairs to commercial vessels and new boat fabrication. We also provide service to Catalyst Pulp and Paper and Western Forest Products," says Robert EJ English, VP Operations.
Now as the company expands its workforce, it is also looking to expand its facilities. CAE is in negotiations with the Port Alberni Port Authority to lease two lots of industrial land to build a 16,000-square-foot building for larger vessel construction projects, while keeping the current ship repair/office space where it is in the heart of town. The expansion will also help the local economy that relies heavily on forestry industry work.
The next phase of the National Shipbuilding Procurement Strategy (NSPS) will be a good opportunity for possible larger contracts for CAE, as Seaspan's Vancouver Shipyards and Irving Shipbuilding's Halifax Shipyard on Canada's East Coast are not allowed to bid in this phase of vessels under 1,000 tons displacement. "We'd like to be in a position to be competitive for some of this NSPS work in the next four-to-five year time frame," says English.
English says CAE is also looking to gain attention from youth who might be interested in marine shipbuilding and repair careers. "We're starting to talk with local colleges and high schools about work experiences for young people, as we're interested in building a pool of skilled people who want to stay in Port Alberni."
What is the outlook for the province's shipping industry in 2015? Chamber of Shipping of British Columbia's Brown says much will depend on the international situation, which could put pressure on commodity prices in the short term but as lower oil prices work their way through the world economy there is every reason to be optimistic that a period of sustained world economic recovery, lead by the United States, can take hold. "If we can follow through on our opportunities and prepare ourselves, BC will be well placed to benefit."