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City inks deal with Pembina for Watson Island propane terminal

The City of Prince Rupert and Pembina Pipelines sign letter of intent to construct propane terminal on Watson Island
Where once stood a pulp mill

Prince Rupert Legacy (a subsidiary of the City of Prince Rupert) and Pembina Infrastructure and Logistics (a subsidiary of Pembina Pipeline Corporation) have signed a letter of intent (LOI) to construct a $125 million to $175 million liquid propane export terminal on Watson Island.

In its announcement, Pembina said assessments of the site indicate Watson Island is ideal for the development of an export terminal with a capacity of approximately 20,000 barrels per day of LPG export with an associated capital cost ranging between $125 million and $175 million.

Pembina expects a project timeline of two years from final investment decision. The project is subject to completion of design and engineering requirements, Pembina entering into appropriate definitive agreements, the receipt of necessary environmental and regulatory permits, and the approval of Pembina's board of directors.

"Watson Island has promising potential as an LPG export terminal location," Stuart Taylor, senior vice president, NGL & Natural Gas Facilities, said. "In light of our plans to develop a world-scale polypropylene production facility, the smaller export facility we are contemplating for Watson Island — utilizing smaller ships and ensuring very competitive per-unit export facility costs — makes good sense for Pembina."

Mick Dilger, Pembina president and CEO, also stated that Watson Island is an encouraging location on which to do business.

“Watson Island has great potential as a LPG (liquefied petroleum gas) export terminal location. Early impressions of the site are promising, and we’re happy to be working with the City of Prince Rupert,” Dilger said.

Pembina said Watson Island's sheltered berth and existing dock are adequate for activities associated with LPG export. The company also noted rail connections between its facilities in Redwater, Alberta and Watson Island, while also offering efficient shipping routes to Asian, North, Central, and South American markets were key factors on the decision.

In support of this project, Pembina has already secured a long-term export permit.

The letter of intent is the first step for the city in trying to get the location to generate tax revenue for the municipality once again after the former Skeena Cellulose Pulp Mill shut down in 2001 – once an employer with nearly 1,000 workers based in Prince Rupert – the city’s biggest employer.

“We are looking forward to a new beginning for our community as we work toward putting Watson Island back on the tax roll,” Prince Rupert Mayor Lee Brain said.

“Pembina is a Canadian company with a proven track record for supporting the communities in which they operate and has an industry-leading history of operating safely. We are happy to have the opportunity to potentially partner with them to create new local jobs and revenue that will significantly improve the quality of life for everyone in Prince Rupert.”

Pembina will now conduct preliminary technical assessments and feasibility studies of the site, engage with area First Nations and stakeholders and work toward a future final investment decision (FID). A timeline for a potential FID was not announced.

The LPG export terminal is slated to take up only a portion of the 280-acre Watson Island site. The city has leased a portion of the site to Prince Rupert Legacy Inc. for other future commercial operations.

A proposed  $500 million propane export terminal project by Pembina for Portland, Oregon hit a snag early last year when  opposition voiced their displeasure over the project based on environmental concerns.

The City of Prince Rupert had been fighting a legal battle with former owner Sun Wave Forest Products and WatCo until recently after the city seized the site from purchasers Sun Wave, who were given tax breaks in exchange for putting hundreds of mill workers back to work in the mid-2000s — which never happened. Sun Wave never paid its taxes and tried to sue the city over the site’s seizure and failed.

Since then, the city, unwilling recipients of the site, have tasked contractors NRI Global, Stantec and Clearview Demolition to decommission the site, once filled with tonnes of sulphur, barrels of C-fuel oil, hog fuel, broken down trucks, asbestos, pulp, caustic soda and various dangerous pulping chemicals.

As of March, 95 per cent of the materials collected by the remediation companies had been recycled and used for other pulp operations across the province. Eighty per cent of the entire former pulp mill site has been decommissioned so far, with the remainder scheduled to be completed by fall 2017.

Prince Rupert Legacy Inc. took on partial costs of decommissioning activities, with some locations on the site still standing due to being in good condition.

A certificate of pending litigation (CPL) on the island with WatCo (Watson Island Development Corporation – a consortium of two coal companies and the Lax Kw’alaams and Metlakatla First Nations) needed to be removed before the city could lease or sell the land. The Pembina announcement is the first step forward in new industry on the former mill site.

The History and Glory Days

Watson Island has a storied past as far back as World War Two when it was used as a storage site for munitions for a Canada/U.S. military base in Prince Rupert.

After the war, the Skeena Cellulose Pulp Mill began operations in 1951, employing 1,000 people at its operational height, with different generations of the same family having a hand in contributing to its success. The former mill site included four major areas – the wharf, the lower mill, the upper mill and filled areas.

What makes it attractive to potential industrial tenants today is its existing rail line and truck access, deep sea dock and its utility services like gas, hydro, sewer systems and fibre optic service.

Timeline of Watson Island’s Industrial History

1951 – Skeena Cellulose Pulp Mill opens.

2001 – The mill is shut down. Approximately 750 jobs are lost.

2002 – The mill site is purchased by Daniel Veniez, former chairman of Ridley Terminals.

2004 – Veniez declares the project bankrupt after failing to re-start it.

2006 – Sun Wave Forest Products, owner Ni Ritao buys the mill, but also fails to re-start it.

2009 – City of Prince Rupert reclaims ownership after Sun Wave conducts tax sale.

2012 – WatCo purchases site for $5.5 million, start paying monthly maintenance fees.

2013 – Settlement is reached between Sun Wave and City of Prince Rupert.

2014 – WatCo pursues legal action against the city for allegedly breaking an oral exclusivity commitment by seeing another purchaser for the site. The city takes over upkeep and maintenance duties.

2015 – City hires NRI Global to decommission the site over the next two years.

2017 – LOI signed between city, Pembina for LPG export terminal. Full decommissioning work expected to be complete by fall 2017.

- With files from Todd Hamilton, Quinn Bender