Who is "Steelhead"?

 

 

 

 

 

 

 

 

 

 

Harald Wolf - November 2016 ()

 

     
     
 
  This piece is rather speculative; but speculation is often necessary when the truth is not forthcoming. I invite anyone with better information to contact me, so I can correct, rescind or clarify.
 
  In the summer of 2015, residents of southern Vancouver Island were stunned to hear of a new proposal to build a gas liquefaction facility at Bamberton on the west side of Saanich Inlet.  Those of us that love the Inlet, or live near it's shores, simply couldn't believe this could be under consideration - it would utterly destroy the nature of this precious waterway! Not only that, but simply by reaching the approval state, it would set a precedent that would make it difficult to stop anything else from moving into the area.
 

 

As we try to come to terms with the significant threat of destruction of our beloved Saanich Inlet, we invariably hear that "Steelhead" is behind it. But who is Steelhead?

The verbal presentations, web sites and media articles try to keep it simple: a Vancouver-based Canadian corporation in the business of pursuing opportunities in liquified natural gas exports. If pressed, they will indicate they have received initial funding from a venture capital company in Calgary called Azimuth Capital Management, which solicits funds from "Canadian pension funds & US endowments, other institutional investors, family offices, foundations & insurance companies". That, unfortunately, is a catch-all phrase that very likely screens a very significant investor – one that has very specific strategic goals – but wishes to remain anonymous. I've speculated elsewhere that my number-one suspect is Williams Companies, and remain anxious for information to prove or disprove this.

Since Azimuth and Steelhead are private, it is not easy to find details about who truly controls and funds them, or the exact nature of their relationships. Good old Google does, however, turn up hints.

So far, I've turned up eleven different interrelated companies that make up what we refer to as "Steelhead"! Then there are the known "partners" and contractors, who have private/secret deals with one or more of the Steelhead entities.

So, why so many companies, when there are only two offices, and a relatively small number of employees?

I'm not an expert in corporate law, but do have some understanding of how and why multiple corporations are set up for seeming one business:

  1. Cascading ownership can dilute financial investment without loss of control;
  2. Encapsulating assets can make it easier to track finances, and sell off business units;
  3. Complex corporate webs can and have been used to funnel income to tax havens, or otherwise avoid taxes;
  4. Complexity can be used to hide true owners, either for optics or to protect them from liabilities such as claims and law suits if something goes wrong.

In the sketch below, I've attempted to lay out the interconnectedness of the many entities I know are involved. Most of the connecting arrows are conjecture and subject to refinement.

At first I didn't think the Seven Generation Energy Ltd. (7Gen) announcement was anything more than a stock promotion scheme. Closer examination, however, shows a different picture. 7Gen was also founded by Azimuth (actually, its predecesor: KERN), apparently well before Steelhead. Their involvement in the gas fields in Alberta (NOT B.C.!) is substantial, and based on bringing holdings that were exhausted by conventional gas production back on line through the use of hydraulic fracturing (fracking). Their holdings and economic model seem to be based on indicators that they have very "wet" gas i.e. high in natural gas liquids (NGLs). These NGLs are much more profitable than the gas itself – certainly in the current and short-term market (they are largely responsible for the huge uptick in US fossil fuel production).

To produce the profitable NGLs, 7Gen has to produce a lot of natural gas (see sidebar). So, even if the current world price of natural gas is not encouraging, they have to produce it and sell it in order to bring the profitable liquids to market!

"Natural Gas"

People will try to argue that I'm misusing the term "natural" – that this is dirty "fracked gas". "Natural gas" is the term that has always been used to refer to fossil gases that come out of geological formations. In most cases, this is predominantly methane, but includes many other gases an liquids. Before the gas can be put into the vast natural gas pipeline distribution network, it has to be processed to remove most of the "impurities". Some of these are marketable, others are a nuisance, but still need to be dealt with. Traditionally, unwanted gases were flared off. This is no longer tolerated in most jurisdictions, so they have to be marketed, or refined into products that can be marketed. The number of products that are generated from gas wells is mind-boggling!

Hence, the Steelhead initiative.

While other LNG projects proposed for BC are focused primarily on LNG (rather than NGLs, with NG as a by-product), 7Gen wants to keep infrastructure investment to a minimum. So, there is already a natural gas pipeline running from the gas fields straddling the BC/Alberta border, currently operated by Spectra Energy, but in the process of being absorbed by Enbridge. This is the same pipeline that supplies Fortis' distribution network and will supply gas to Woodfibre on Howe Sound. It also connects to Williams Companies' network at Huntingdon/Sumas. Adding a short extension from that system to get gas to Vancouver Island is a lot simpler and less risky than building a dedicated pipeline to the North or Central BC Coast. It also is a lot more flexible than a dedicated line! This is what I continue to suspect has attracted Williams' interest – their bidirectional pipeline could also feed the Island Gas Connector, depending on how the ownership and markets turn out.

At this stage, everything is all being orchestrated to be flexible. But nothing can happen until the pipeline route has been secured! Williams is also very familiar with the route, having once before gone through this, obtaining US Federal Gov't approval for the GSX Pipeline. (I have not been able to determine if the permitting ever expired, or if some arm of Williams is still sitting on it, intending to only increase the capacity.)

So, back to the core discussion: Steelhead.

Steelhead LNG Corp. seems to be the main entity. The investment connection to Azimuth seems to come via Steelhead Holdings Ltd. Some funding is also being channeled through 7Gen, with added funds from other investors, including the Canada Pension Plan (!). There are at least two subsidiaries with unknown objectives: Steelhead LNG (UK) Ltd. (seemingly only a post office box, and with the same directors as its parent) and Steelhead Petroleum Ltd.

The NEB export licenses are held by five entities with the letters A-E added to the name, each with six million tonnes per year (MMt/y or MTA). One of those is designated for Malahat, the other 24 to Sarita.

The two projects are with Steelhead LNG (Salish) Ltd. and Steelhead LNG (Sarita) Ltd.

Exactly which of these entities has signed the deal with Williams to create the joint-venture Island Gas Connector is not clear (the IslandGas domain ownership is hidden via a Panama-based secrecy screen!).

Steelhead loves to wave the Canadian flag, and promise all kinds of Canadian jobs, but the reality is that almost all the substantial contracts they've issued have gone elsewhere: Williams (USA) has hired a Texas-based company to do the pipeline route technical investigation; Steelhead has hired Höegh LNG (Norway) and Bechtel (USA) to do the preliminary design of the Malahat facility. The floating gas liquefaction plant would be constructed in Asia or – a distinct possibility – they could acquire an plant already under construction for elsewhere but no longer economically viable. The pipe itself would also be brought in from elsewhere. Canadian jobs would be minor in comparison. We do, however, shoulder substantial risks from the long-term operations of the facility and the shipping traffic.
 

 
     
   
 

 

 
  What this boils down to is that "Steelhead" is a VERY serious operation! A Monster! They have set up this complex network for only one purpose, and that's to get gas to Vancouver Island for export to Asia. Anyone that tells you "it'll never happen" had better think twice.

Unlike the other LNG proposals for BC, the proponents can't slow down or redirect resources to other projects or departments - they have only one goal. Until they shut down their offices and lay off everybody, this initiative will continue to threaten the Salish Sea, Saanich Inlet and Sarita Bay!

That said, it remains to be seen if and how it would play out. I think the reason they have split the project into two very different ones is that they want to see which becomes the most economically viable. I truly doubt that both would be justifiable in the end.

They could also play BC against Washington State. If Washington relented and let them build a facility at Cherry Point, thus capturing jobs and taxes there, Steelhead could save the expense of building and operating the sub-sea pipeline.

Since Azimuth/Steelhead clearly do not have the resources to actually finance and develop such an enormous undertaking, they would have to bring in a much bigger operator. That entity may only want the pipeline permits, and have very different objectives.

That entity - as I've speculated before - could very well be Williams. It would give them their long sought-after access to the Pacific for the gas they refine in several producing regions of the US, and could generate much more profit for them than simply piping Canadian gas over a short distance.

 
     
     
     
  Comments, corrections, additional information welcomed at hwolf@wolfweb.ca  
 
 
 
 
Links

Saanich Inlet Network website and Facebook page.


 

 
  Harald Wolf has had a diverse series of careers in construction, mineral exploration, as a government geologist, IT, and renovations, but he's happiest in his canoe - especially in Saanich Inlet.