Canada’s Growing LPG Trade with Asia: A Conversation with Vern Yu
This week on the podcast, our guest is Vern Yu, President and CEO of AltaGas. AltaGas operates a midstream business focused on processing, transporting and marketing hydrocarbons, including natural gas and natural gas liquids (NGLs), such as propane and butane. The company also operates natural gas utilities in four U.S. states.
Here are some of the questions Jackie and Peter asked Vern: Based on your experience, particularly in your previous role at Enbridge, how difficult was it to build oil pipelines in Canada historically, and are you optimistic that this is changing? How long has AltaGas been exporting liquefied petroleum gases (LPGs) from Prince Rupert, and how much will volumes grow once the new Ridley Island Energy Export Facility (REEF) is completed? How would you describe Asian demand for LPGs and Canada’s competitive position relative to the United States and the Middle East? Is the growth of AltaGas’s LPG business dependent on aggressive natural gas production growth in Western Canada? AltaGas distributes natural gas in several U.S. markets through your utilities, including Virginia, a hot spot for data-centre growth. What are your growth expectations for data centres, given the growing opposition in Virginia? As a company operating in both Canada and the United States, and even supplying natural gas to the White House, how is the U.S.-Canada trade war affecting your business?
Content referenced in this podcast:
- Video of construction at Ridley Island Energy Export Facility (REEF) on LinkedIn
- Enbridge Tour for Cancer (Register for 2027 and Donate)
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Episode 336 transcript
Disclosure:
The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.
Announcer:
This is the ARC Energy Ideas podcast, with Peter Tertzakian and Jackie Forrest, exploring trends that influence the energy business.
Jackie Forrest:
Welcome to the ARC Energy Ideas Podcast. I’m Jackie Forrest.
Peter Tertzakian:
And I’m Peter Tertzakian, and welcome back. Well, last week, Jackie, we didn’t have a guest, but we’re back on track with a special guest today, so stay tuned for that in a few moments. But it’s going to be a big week next week, because that’s the week where Prime Minister Mark Carney is hosting the Canada Investment Summit on September 14th and 15th.
Jackie Forrest:
And I think everyone will be watching that. And I understand it’s been very hard to get into that summit. Lots of leaders of our big companies and investment firms-
Peter Tertzakian:
Yeah.
Jackie Forrest:
… have tried to get in, and they’re being pretty strict in terms of who gets to go. But you’re going, Peter, so you’ll be able to tell us all about it.
Peter Tertzakian:
I am going. I have the privilege of going and moderating a panel on energy, so that’s going to be very exciting. I will be there. And in the room, I’m told there’s greater than a hundred trillion dollars, American dollars represented from investors from around the world. So this is a big deal, and it relates to the prime minister’s initiatives in terms of the Major Projects Office and all the infrastructure projects, which need billions, trillions of capital.
Jackie Forrest:
Hundreds of billions, right, if you think about the-
Peter Tertzakian:
Yeah. Well, no. It’s really trillions if you think about all the way from nuclear power plants to ports and railways and pipelines and wires and you name it.
Jackie Forrest:
LNG facilities.
Peter Tertzakian:
LNG, coast to coast.
Jackie Forrest:
Yeah.
Peter Tertzakian:
It’s going to require a lot of money. And if you look at the past hundred-year history of Canada, a lot of our infrastructure that has delivered the economy and the prosperity that we are so accustomed to has been financed from foreign capital, multinationals and others that have come to this country, particularly post-World War II and developing with us as Canadians, the infrastructure that we drive our economy from.
Jackie Forrest:
Right. And with this trade war escalation, it’s always been important for us to track this capital-
Peter Tertzakian:
Right.
Jackie Forrest:
… but it’s even more important.
Peter Tertzakian:
Sure.
Jackie Forrest:
So of course, I’ve never seen or remember a summit quite like this in terms of trying to bring awareness to all these-
Peter Tertzakian:
No.
Jackie Forrest:
… international investors of the opportunities here.
Peter Tertzakian:
Yeah. Usually, these summits are hosted by the big banks and other financial institutions, and they’re off the radar from the public, but this one will likely be quite public. So stay tuned. We’ll probably have lots to say in a couple of weeks after it’s over.
Jackie Forrest:
Okay. Look forward to that update.
Peter Tertzakian:
Good. Okay. So special guest. We’re delighted to have our first special guest post-summer, and it’s someone who knows the energy industry particularly well, and how appropriate, someone who knows pipelines and liquids. We have Vern Yu, president and CEO of AltaGas. Vern, welcome.
Vern Yu:
Thanks for having me.
Jackie Forrest:
Hey, Vern. Well, I know it’s been a while since you joined AltaGas, but you had a 30-year career at Enbridge. So tell us a little bit about what drew you to AltaGas, and how’s it been going so far at the new gig?
Vern Yu:
Well, yeah, in 2023, I had an opportunity to join AltaGas after working at Enbridge for 30 years, and what drew me to the company was it has great assets. Really, it’s two prime businesses. One’s a utility business, where it’s actually the local gas distribution company to the capital of the United States, where it has an outsized opportunity to speak about energy policy and to get things right in a very important part of the United States. So that utility, it’s actually four separate utilities, but we serve about 1.6 million customers in the United States, and the White House is one of our customers.
The other big business we have is a Canadian business in Western Canada, primarily focused on exporting Canadian energy to the world, and predominantly Asia. So both of these businesses, when I looked at the company in 2023, weren’t operating as efficiently and as effectively as I thought they could. I thought there was a huge opportunity with the help of the board and the AltaGas management team to really improve how we could operate both of those businesses and grow those businesses for decades to come. So we’re three years into that journey and we’ve had a lot of success and it’s been very exciting.
Jackie Forrest:
Okay.
Peter Tertzakian:
Yeah. It’s really amazing, actually, Vern, as you talk about the utilities you operate in the United States, because there’s so many Canadian companies in the energy business that have operations in the United States, electrical power utilities, power plants. I mean, this is sort of an untold story. Of course, then there’s the big companies, like Enbridge and TC Energy, which are continental. So given that we have all these infrastructure projects that we need to build, what do you see, the ones that are national importance, what do you see in support of oil and gas in particular? And how does the drive to diversify out of North America reconcile with the lucrative markets within North America?
Vern Yu:
Well, I think in Canada, let’s start with Canada, we’ve obviously had a decade or more where it’s been very difficult to do anything in Canada, and you need infrastructure to develop our energy business in Canada. So we’ve seen some advancement. Obviously, the Trans Mountain pipeline went into service, and that’s been helpful. And then, AltaGas was the first company to export Canadian propane and butane to global markets. Propane and butane is used for heating, cooking, and transportation in Asia. A lot of Asian countries don’t have natural gas infrastructure, so propane is the substitute. Asia imports about four and a half million barrels a day of propane, and it gets almost all of it from the US and the Middle East. So with the supply disruptions we’ve seen in the Middle East, Panama Canal, congestion for US barrels, and then the global trade war the Trump administration has put into place, we’ve seen a massive uptick in demand for Canadian propane into these global markets.
What we’re lacking right now is appropriate infrastructure to get all of those barrels to market. But at AltaGas, we’re working away on our Ridley Island energy export facility, which will provide a significant uplift in export capacity come early next year. So we’re quite excited about getting these high-demand Canadian barrels into markets in China, Japan, and Korea.
Jackie Forrest:
Okay. Well, let’s come to that Ridley facility, because for sure, we want to talk about that and what it’s done in terms of the market here. But I did want to come back to just generally, you’ve been a commentator actively on Canadian oil and gas, and I will encourage people to check out your LinkedIn posts. You’ve suffered firsthand of the difficulties of building big projects in this country. You were actively involved in the Enbridge Northern Gateway, for instance. So how do you feel about all the changes you’ve seen in the last 18 months? Are you more optimistic in general that we can build big things in this country?
Vern Yu:
I think I am cautiously optimistic, after 10 years of pain, that we’re going to be able to get some stuff done in Canada. I think we have public opinion in our favor, and really, the tariff war with the United States really has gotten Canadians’ backs up about we need to have to diversify our markets, we need to diversify our economy, and energy is the fastest way to do that and it’s the most influential way of doing that. Obviously, our biggest export out of Canada is oil, and we’re landlocked, where 90% of our oil goes to the United States. We have a captive buyer, and they can dictate the price that we get for our oil.
So back in 2014, or even before that, Enbridge did have approvals to build the Northern Gateway project, and that was taken to the Supreme Court, where the court said that the federal government needed to do more Indigenous consultation before that project could go ahead. And the Trudeau government decided not to do any of that consultation, so eventually that project died. That project had been worked on for 15 years, and Enbridge had spent half a billion dollars before the Trudeau government pulled the plug on it. So obviously, if that pipeline was up and running today, we would have much more diversified markets.
But at the same time, when I was at Enbridge, we also got to the US Gulf Coast in early 2012. We reversed the Line 0 pipeline back to Montreal. So there was a whole bunch of pipeline work done in the early 2010s, where we were able to grow markets by about two million barrels a day. So we’re at the same point in time where we have to go do that again, and there’s lots going on. So obviously, there’s a Trans Mountain expansion that should be filed shortly. There’s the Alberta new West Coast pipeline. Then, obviously, I think South Bow is working with their partners on getting more product to the US Gulf Coast as well. So if all these things come to fruition, there’s two million barrels, I think, ballpark of new egress available for Canadian producers, which would be an extremely large amount of egress for our basin.
Jackie Forrest:
Okay. But tell us about that though. Is that a good thing? Having more oil pipeline capacity than supply has not been the reality we’ve lived in for a decade, so what are the good and bad sides of that?
Vern Yu:
Well, for producers, when there’s more egress than there is supply, you’re going to get the maximum price for your barrel. For the infrastructure companies, if all of this infrastructure isn’t fully backstopped and tolled, there’s going to be capital that’s not earning its appropriate return. So that’s the trade off, and ultimately, that’s what will have to be figured out, particularly with this West Coast pipeline, is who’s going to pay for it, and are the producers willing to pay an insurance program for egress while the capacity may not be needed?
Peter Tertzakian:
Although there’s other actors now at the fore that we have to consider from the perspective of economic resilience and protecting royalties and taxes, and that is the resource owner.
Vern Yu:
Absolutely.
Peter Tertzakian:
Which is the Province of Alberta and the federal government at large, which goes into trade negotiations, but is also the beneficiary of taxes, significant taxes off of the production base. So to have lack of egress affects not just the companies, and in this new world of state capitalism and global trade wars, it’s hard to put a price, other than forfeiture of royalties and taxes, but it’s hard to put a larger price on energy security and resilience.
Vern Yu:
Yeah. I think ultimately, the world wants Canadian energy. We have a huge opportunity to provide that energy. And this may not be the perfect economic outcome, but I think from a policy perspective, having sufficient egress for natural gas, oil, and LPGs is a great thing to have as a country.
Peter Tertzakian:
Well, let’s talk about LPGs, because I know we were rattling off propane and butane, and I’m going back to my chemistry courses. So methane is one carbon, CH4, then it’s propane, butane, ethane, I think is the next one in the line, and then, there’s-
Jackie Forrest:
Pentane.
Peter Tertzakian:
Pentane, hexane, so on, all the way octane, and above octane’s gasoline. Give us the LPG 101 here, AltaGas and LPGs.
Vern Yu:
Sure. When you produce natural gas in Canada, and particularly out of the liquids-rich natural gas plays that we have in Northeast BC and Alberta, the Montney, the Duvernay, these are very prolific basins and some of the best natural gas basins in the world, you get associated natural gas liquids. So you get ethane, propane, butane, and what we’ll call C5, or condensate. So ethane is used for petrochemicals. Propane is widely used for heating, cooking, transportation, and petrochemicals. Butane’s used as a chemical in chemical manufacturing. And then, finally, condensate is used for diluent for oil sands. So these things are extremely valuable.
So when you produce a BCF of natural gas, you get something in the range of 50 to 80,000 barrels a day of these natural gas liquids, which actually have more value than the natural gas. So the producers, when there’s a new LNG facility or a new data center, will look for the most liquids-rich natural gas that they can find, and to get the ancillary economic uplift from these LPGs… NGLs or LPGs, that term’s used interchangeably. So when it comes out of the ground, they call it natural gas liquids, or NGLs. When you ship it overseas, you liquefy it, you make it colder, you pressurize it a little bit. It’s no different than LNG exports. And in Canada, we’re now moving about 135,000 barrels a day of propane to Asian markets from AltaGas’ two facilities, one called the RIPET facility in Prince Rupert on Ridley Island, and a second facility in Ferndale, Washington, where we rail the product to these facilities, and then put it onto very large gas carriers and send it to Korea, Japan, China, Indonesia, Vietnam, and all these great countries.
Peter Tertzakian:
Where are you shipping it from?
Vern Yu:
Prince Rupert and Ferndale. And then, we’re about, in the beginning of 2027, to have our latest facility, called the Ridley Island Energy Export Facility, or REEF come online. That will add 85,000 barrels a day of incremental export capacity in ’27. The facility ultimately can export 500,000 barrels a day, so we’ll have a big opportunity to really make Canada a global player.
Peter Tertzakian:
And Ridley Island is where on the coast?
Vern Yu:
It’s in Prince Rupert.
Peter Tertzakian:
Yeah.
Jackie Forrest:
So just to have some context, so mostly it’s propane and butane-
Vern Yu:
Yeah.
Jackie Forrest:
… when you say LPG that you’re sending out. We produce over five million barrels a day of liquids in Western Canada. How big is the total amount of the LPGs in that scale?
Vern Yu:
So of that five million barrels, it’s about 10%.
Jackie Forrest:
So about 500,000. So you’re setting your facility up to almost be able to move everything we would have today potentially if and when you scale up.
Vern Yu:
Right. So today, Canada produces about 500,000 barrels a day of propane. We use about 250,000 of that domestically, and then the balance gets exported. We send about 135,000 barrels a day to Asia. The balance goes to the United States, so we’re sending about 120,000 barrels to the US. The US is very long propane. It is the biggest exporter in the world of propane. So we’re, again, getting some of the worst pricing in the world for our products. So a barrel of propane at the Edmonton trading hub sells for about $25 US. A barrel of propane in China would sell for $80 US. So there’s a huge economic uplift if we’re able to get our product to Asian markets.
Jackie Forrest:
So when the Trans Mountain started up, even though only like 10% of our supply went that way, it actually lifted the price for everything at Edmonton-
Vern Yu:
Right.
Jackie Forrest:
… because suddenly there was some scarcity. When you started your exports, did you notice the impact to the prices at Edmonton for all the molecules?
Vern Yu:
Yeah. So if you go back in time, we started up exporting in 2019. Prior to 2019, there was no market for propane in Alberta. Basically, you had to give it away.
Peter Tertzakian:
The barbecue market, basically.
Vern Yu:
Basically, yeah. So there was negative propane pricing in Edmonton in 2019 because the Americans had enough propane, they didn’t need any more, and if you wanted to grow your natural gas production, you had to figure out how to get rid of the propane.
Jackie Forrest:
Right. Or you could just send it with the gas, I guess, but there’s limits in that even. Yeah, yeah.
Vern Yu:
There’s limits in that just with the heat content in natural gas pipelines.
Jackie Forrest:
So it helped all the molecules then by creating that outlet for international markets.
Vern Yu:
Yes, absolutely.
Jackie Forrest:
Yeah.
Peter Tertzakian:
So let’s talk about Ridley Island, which is, as you said, you’re expanding it, and that’s going to ship out a lot more of the LPGs, especially like propane. So talk about Ridley Island, talk about the type of tankers because there’s tankers for different types of hydrocarbons. On one end of the spectrum, you have the crude oil tankers, and the other end of the spectrum is the liquefied natural gas tankers, which is the methane, and LPG tankers are somewhere in the middle.
Vern Yu:
That’s correct. So Prince Rupert, and particularly Ridley Island is the deepest water port in Canada, and it is 11 days by vessel from Prince Rupert to Japan. So it’s the closest port to Asia from North America. Our facilities allow very large gas carriers in, so these are called VLGCs, and they’re basically global propane vessels, and I think they take about 500,000 barrels a day per vessel to move it to Asian markets. So global trade for propane is done on these vessels. We actually have four vessels under long-term contract, where we operate the vessels and we deliver the product to the Asian market ourselves. We’re not selling just FOB off the dock. So we’re trying for our customers to get the best possible price by having the vessels available to get them to China, Japan, Korea, or other Asian markets, and we provide services basically for every producer in Western Canada. So we have 70 different producers who, ultimately, their product moves through our facilities.
Jackie Forrest:
I looked at the pictures, and I will put a link to your LinkedIn because you put a video of the construction project, and I was just surprised of the scale of it. What are you doing there that needs all that equipment? You have these big vessels. It seems like a very large footprint.
Vern Yu:
Yeah.
Jackie Forrest:
Is it just cooling of them or why is there so much there?
Vern Yu:
So basically, we need large storage vessels because we’re bringing in the product by train and because it’s never been cost-effective to build a pipeline for NGLs across the mountains in BC. So as the shipments come in by train, we store the propane until we have enough propane to put on a vessel. So basically, every four days or so, a vessel comes in. We’ve stored the propane that’s come in rateably each and every day from the trains, and then we compress it, liquefy it, and put it on the vessel, and then it ships directly over to Asia.
So our facility that we’re building right now goes about 1.3 kilometers out into the Pacific Ocean. That way, we don’t have to dredge. We’ll have about 120 feet of draft, so that gives you significant draft to allow the largest vessels in the world to come in. And we’re, as I mentioned earlier, pre-building the facility that allows us to do multiple vessels in a day when we actually get to this 500,000 barrels per day of export. So we have a rail loop that’ll accommodate 6,000 cars. We have electrical infrastructure being prebuilt to really make this world-class and world-scale.
Peter Tertzakian:
So from the upstream wells, which are in Alberta and BC-
Vern Yu:
Yep.
Peter Tertzakian:
… it goes onto rail cars, or does it get compressed at the rail station, or is it-
Vern Yu:
So what happens is when you drill in the Montney, you will strip out the propane, butane, and condensate out from the natural gas.
Peter Tertzakian:
Yeah, yeah.
Vern Yu:
The natural gas will go either to the NOVA system or the Enbridge T-North system for export to various markets. Then the natural gas liquids will either get railed in the field to Prince Rupert or they’ll get put in a pipeline, the Pembina or Keyera systems and piped into Fort Saskatchewan, and then from Fort Saskatchewan, they’ll get railed out into Prince Rupert.
Peter Tertzakian:
So it’s a whole supply chain complex.
Vern Yu:
Absolutely.
Peter Tertzakian:
Yeah.
Jackie Forrest:
Well, you’re a pipeline guy after all, so I’m surprised you’re loving the rail here. But when you get up to 500,000 barrels a day, isn’t there a point where you’re going to want a pipeline versus rail?
Vern Yu:
Right now, because pipelines are so expensive, our rail costs to get a barrel from Fort Saskatchewan to Prince Rupert is very reasonable and very competitive with pipeline economics. Ultimately, pipelines are the safest and most efficient way to move product, but until we get to a very large amount of volume, it doesn’t make any sense economically to use a pipeline.
Peter Tertzakian:
Although, will the incremental capacity that you’re talking about-
Vern Yu:
That’ll come on in over many years.
Peter Tertzakian:
… over many years. But the rail system, I mean, as I think about the Major Projects Office and the build out of infrastructure at large, including rail and port facilities, you don’t want a situation where you’re now clogging up the rail system and competing with agriculture and other types of commodities.
Vern Yu:
Yeah. So one of the things that the Canadian federal government has been very focused on is establishing Prince Rupert as the most prominent growth hub for exports of multiple products, whether it’s agricultural products, critical minerals-
Peter Tertzakian:
Forestry.
Vern Yu:
… forestry, containers. I was actually just in Prince Rupert for the grand opening of the CANXPORT facility, which is a new container export facility that will allow Canadians to ship product to Asia, and then not just ship empty cars back to Prince Rupert after Asian goods have come into Canada. So CN and the Prince Rupert Port Authority have spent a significant amount of capital to make sure that the railroad and any infrastructure in the port aren’t going to be the bottleneck for our exports or the exports of many others.
Jackie Forrest:
Okay. So you’re going to keep building up that rail capacity so that it can grow. Let’s talk a little bit about something I just learned about. You talked about, was it 12 shipping days or something like that, from the West Coast of Canada to Northern Asia?
Vern Yu:
Yeah.
Jackie Forrest:
Yeah. So I’ve just been reading that the Americans are starting to run into issues with the Panama Canal, not only because of the seasonal situation of low water, but just that all those LNG tankers and everything clogged it right up, and so that now, ships have to go much further to go from the Gulf Coast of the US to Asia. Are you seeing even a better competitive advantage for us over the Americans if they can’t keep going through the Panama Canal?
Vern Yu:
Yeah. So Asia imports, I think I said four and a half million barrels a day of propane. Two million of that comes from the US. So there is a major logistical issue if there’s congestion in the Panama Canal, if the Americans have to go the other way under Africa. So right now, on a really bad day, Canada has a $7-a-barrel shipping arbitrage just between Prince Rupert and the US Gulf Coast.
Peter Tertzakian:
To our benefit.
Vern Yu:
To our benefit. And as congestion increases, that can widen to $15 or $20 a barrel. So we will naturally be the first barrel purchased in Asia because we’re so much more competitive.
Jackie Forrest:
And of course, the Middle East is our other source of supply, and that’s looking less certain.
Vern Yu:
Absolutely.
Jackie Forrest:
So this actually has implications for LNG as well, and we’re going to cover that maybe on next week’s podcast. But if the Americans can’t go through the Panama Canal, it means that our projects arguably can still be a bit more expensive, and it’s tough to get pipelines built, as you just talked about, through the two mountain ranges in Northern BC.
Vern Yu:
Yeah.
Jackie Forrest:
But I think it’s a structural change that benefits Canada, because I’m hearing LNG tankers, all sorts of tankers can’t go through the Panama Canal.
Peter Tertzakian:
Right.
Jackie Forrest:
It’s too full. And that isn’t just a seasonal thing.
Peter Tertzakian:
Right.
Jackie Forrest:
That might just be a structural thing going forward. Is that your view?
Vern Yu:
It’s our view, and that’s one of the selling features of what we’ve been doing, is that there is this significant structural advantage by being that much closer to Asia. So if you think about it, it takes us 11 days to get a vessel there, it takes us 11 days to get a vessel back. The best shipping time out of the US Gulf Coast is 25 days, so that’s a 50-day round trip. So we have a two-and-a-half-times shipping advantage.
Jackie Forrest:
For those that can get through the Panama though.
Peter Tertzakian:
Yeah. Now, what about Alaska as a competitor? There’s talk about Alaska ramping up its gas and LNG, and presumably potentially liquids.
Vern Yu:
Ultimately, that’s going to take a lot of time. I’ve been in this business 35-plus years, we’ve been talking about Alaska for almost all of my career, and things don’t generally happen fast. The Alaskan gas distribution companies actually may run out of natural gas this year. So there are some challenges in Alaska as well.
Jackie Forrest:
Okay. Well, let’s talk about LNG, because for you to ramp up to the full size, you’re going to need more growth in natural gas-
Vern Yu:
Absolutely. Yeah.
Jackie Forrest:
… because your product is a byproduct of how much natural gas we produce. So of course, we’re still waiting for the news around LNG Canada Phase 2, if it’s going to go forward, and Ksi Lisims. Those are the two big projects that could get us to potentially six BCF per day of exports by early 2030s. What’s your view of that? Do you think that’s going to happen, and is your business kind of dependent on those LNG export story?
Vern Yu:
Well, we’re able to grow without those two projects because of what I talked about earlier, that there’s still a ton of propane going to the US and every barrel of Canadian propane should go to Asia. And with LNG Canada Phase 1, with cedar LNG, wood fiber LNG, and increased natural gas use for industrial purposes in Alberta, potentially more data centers in Alberta, that produces a significant amount of LPGs. So we’re well-positioned to expand propane exports well into the 2030s just based on what’s going on today. If these two new other LNG facilities go ahead, then we’re well-positioned to grow into 2040. So we’re pretty excited that there’s going to be potential for more growth than we’re counting on.
And the other market that we just started looking at is ethane. Ethane is a product, just like propane in Western Canada, that is basically free. We re-inject 500,000 barrels a day of ethane into the natural gas stream for no value today, and that’s an opportunity that we’re working on intently, because China is short ethane in a material way, it imports all of its ethane from the United States, and Chinese companies have been looking for Canadian ethane for the last couple of years and really want to have the ability to diversify their supply away from the United States.
Peter Tertzakian:
So the big petrochemical complexes in Alberta use a lot of ethane to make polyethylene and all that kind of stuff.
Vern Yu:
That’s right. But if you look at, even after taking in account the new Dow polyethylene facility, we’re still 500,000-ish barrels a day long ethane, and as these other things happen, the length of ethane-
Peter Tertzakian:
Yeah.
Vern Yu:
… we have just increases.
Peter Tertzakian:
Yeah. It’s an interesting situation that’s emerging over the course of the next decade and beyond, because more natural gas methane for LNG, more methane for firing up data centers, the power and the gas fire generation for the data centers, more natural gas for the thermal needs of the oil sands.
Jackie Forrest:
Yeah. If we’re going to grow a million barrels, that’s going to take natural gas.
Peter Tertzakian:
Yeah.
Jackie Forrest:
No one’s talking about that.
Peter Tertzakian:
And more natural gas just for general economic growth in Alberta. And so there’s a lot of natural gas that’s required, and the natural gas drilling liberates a lot of the LPGs, which is then your opportunity-
Vern Yu:
Absolutely.
Peter Tertzakian:
… to sell and transport, and seeking to get that higher $80 barrels in Asia versus 25 or less that you would get in North America.
Vern Yu:
Yeah. That is ultimately the value proposition.
Jackie Forrest:
So why aren’t we doing that for ethane today? Is it harder to transport and is there more logistical issues?
Vern Yu:
Ethane is much harder to transport.
Jackie Forrest:
Yeah.
Vern Yu:
Propane, you can transport it just lightly chilled, whereas ethane, you have to chill it pretty significantly to transport it or move it by pipeline. And obviously, there’s no ethane pipelines to the coast. So what we’re looking at right now is a specialized rail car that will chill the ethane and allow it to be transported to the coast. So this is where Canada, while we have very cheap ethane, we’re at a logistical disadvantage because we have to move it by rail. There’s no pipe option for it right now.
Jackie Forrest:
Okay. All right. So we’ll look forward to hearing about that. I do want to switch to data centers, because I understand your utility business is involved in a lot of these states where there’s a lot of growth of data centers, but there’s also a lot of opposition in some of the states that you’re operating in. So maybe you could tell us a little bit about Virginia. That’s a very hot market for data centers, and we’re reading about all this. Sometimes you read articles and you think, well, this is a gold rush. But at other times, you read articles and say, well, this opposition is so large, is any of this stuff going to be built? So for someone who’s on the ground there, what do you think is the outlook there for data centers? Are they going to be built or is the opposition too large?
Vern Yu:
So maybe just to provide some background, Virginia, and particularly Northern Virginia is the world’s data center alley. One third of all of the data centers in the world are in Northern Virginia, and really, the reason that they’re there is the US federal government is a big user of AI and requires a lot of data centers. So you have in Northern Virginia, CIA, FBI, Department of Defense, all these big users of AI, so the data centers have naturally been built in Northern Virginia.
The issue with Virginia is that it’s in the PJM electrical market, which is under capacity right now. There’s not enough electricity to go around for regular users, plus any industrial growth that you have. So there was this very significant build-out in data centers in Virginia, to the point where now there’s almost no incremental electrical capacity available. So the electrical utilities have said to data center developers, “You have to bring your own power. We can’t service any more data centers until we get more generation online.”
The end users still want their data centers close to them. So we as a gas utility now have the opportunity to say, “Hey, we supply natural gas into this region. Our system is built for peak day. So your system is built for the coldest day in the winter, and so there’s five of those days a year in Northern Virginia, so on the 360 days where we have excess natural gas capacity, can we provide that natural gas to your turbine to allow you to generate your own power and power up your data centers?” So that’s what we’ve been working on in our franchise area, and it seems to be getting a little bit of traction, but it’s still fairly early days of trying to figure this all out.
Peter Tertzakian:
But you’re the local distribution utility?
Vern Yu:
That’s correct.
Peter Tertzakian:
So you source your natural gas off a main pipeline-
Vern Yu:
Yeah.
Peter Tertzakian:
… presumably coming from where? Marcellus?
Vern Yu:
Marcellus.
Peter Tertzakian:
Dominantly in Pennsylvania.
Vern Yu:
Yeah.
Peter Tertzakian:
Right. Okay. And the White House is one of your customers.
Vern Yu:
The White House, the state buildings, everything.
Peter Tertzakian:
Last week, we talked about the trade war between the US and Canada and how it’s unwise to drag energy because of the interconnectivity of all sorts of electrical grids and even corporate interests cross-border. How has these US-Canada trade war issues affected you, if at all?
Vern Yu:
For us, our US business buys US gas and sells US gas to US customers, so we’re pretty much unaffected by the trade war. Our Canadian business buys Canadian product to sell to global markets. So the trade war has accelerated Canadians’ desire to get our product to global markets. So we’re getting more support from all forms of government in Canada to try to expedite any of these exports that we’re working on. So while the trade war’s not great for Canada, it’s been relatively decent for AltaGas.
Jackie Forrest:
Okay. No concerns with the White House that a Canadian company is supplying their gas?
Vern Yu:
They know it’s a Canadian company that supplies their gas. It’s kind of funny. And then, half the pipes that support provide that gas to the White House are Canadian-owned as well. So we buy gas from the Columbia system, which is ultimately owned by TC, and then we also get gas from Texas Eastern, which is owned by Enbridge. So it is interesting how so much of North America’s energy infrastructure is owned by Canadian companies.
Jackie Forrest:
Hey, just don’t tell Doug Ford, because he’ll add that to his list of things to cut off.
Peter Tertzakian:
Yeah. Well, it’s not just the infrastructure, but it’s the corporate interests-
Vern Yu:
Yeah.
Peter Tertzakian:
… which relate to the financial interests and so on. So it’s a very difficult and challenging thing to consider as an economic weapon of warfare. It’s just not wise, in my opinion.
Vern Yu:
Well, the US administration fully understands how integrated the Canadian energy business is into the US, providing supply to the US economy. I’ve had the pleasure of going to the White House to deliver certain updates on energy, and many people in the administration, despite what you hear, fully understand how Canadian energy fits into all this.
Peter Tertzakian:
Yeah. But it’s the reverse too. I mean, so much of Canadian interest is intertwined with American companies, and particularly investors. I mean, for our publicly-owned upstream producers, close to 70% of the shareholders are in the United States.
Vern Yu:
Yeah. And if you look at the Canadian infrastructure companies, it’s about 50/50 Canadian and US investors.
Peter Tertzakian:
Yeah. I imagine-
Vern Yu:
Yes.
Peter Tertzakian:
… AltaGas has a lot of American investment.
Vern Yu:
Yeah. We’re about 50%.
Peter Tertzakian:
50%.
Vern Yu:
Yeah.
Peter Tertzakian:
Yeah.
Jackie Forrest:
Yeah. So if you hurt the Canadian businesses, it can hurt some of the investors in the US, right?
Peter Tertzakian:
Well, it’s like I said last week, I mean-
Jackie Forrest:
Yeah.
Peter Tertzakian:
… just be careful what you do, because it has a real risk of boomeranging and hitting you back in the head.
Jackie Forrest:
It does, yeah. There’s honestly all these different ideas to threaten the Americans, can find out right away that it actually hurts us more. It hurts us, by the way, in even raising capital for these companies.
Peter Tertzakian:
Yeah.
Jackie Forrest:
We want to grow our infrastructure here with these companies. The money has to come from somewhere, right?
Peter Tertzakian:
Yeah, yeah.
Jackie Forrest:
So maybe some of it’ll come from Mark Carney’s international investors, but historically, a lot of it’s come from the US. Well, maybe we should wrap up with one question for you, Vern, a little bit different topic. You posted on LinkedIn, you participated in the Enbridge Tour for Cancer for 18 years, and it was great to see your photos. I actually have never done it. I need to do it one year. It’s on my list of things to get around to. But you’ve been very central in terms of your role in shaping that ride. Just tell us a little bit about it and what it’s done for helping to raise money for cancer.
Vern Yu:
Well, thanks for talking about the Tour of Alberta for Cancer. That’s been something that’s been happening in Alberta for the last 18 years, and it’s principally a cancer fundraiser for the Alberta Cancer Foundation, which provides proceeds for cancer research here in Alberta. And what’s not always known is that we have some of the leading cancer researchers in the world and in Alberta. We now have the Arthur Child’s Comprehensive Cancer Center here in Calgary, which is one of the best cancer centers in the entire world, where we’re able to attract globally-renowned cancer researchers.
So this bike ride’s basically a two-day event, where individuals have to ride about 220 kilometers and raise money for cancer research. The ride, over 18 years, has raised about $130 million, which is incredible. On an average year, you see about 2,000 people doing this event. And it’s really been embraced by corporate Calgary, where you see all of the big energy companies involved, and it’s a great team builder for AltaGas and other companies. So I started this when I was at Enbridge and got Enbridge to be the title sponsor. They’ve done a great job over 10 years. They’ve raised, as their corporate team, over $10 million. Since I’ve come over to AltaGas, I’ve been really pleased with how much support I’ve got from our employees. We started in 2024 with 64 people, and this year, we had almost 170 people do the event, and we raised a million dollars all by ourselves this year.
Peter Tertzakian:
Wow.
Vern Yu:
So it’s incredible how much support there’s been. But just to put a fine point on it is one in two people get cancer in their life in Canada, one in four people die from cancer in Canada each and every year, so it affects us all. I got started because a good friend of mine had cancer at that point in time, and he wanted to do this ride to try to support the cause, and I happily supported him, and due to the fact that my mother-in-law had passed away from cancer just the year before. The amount of breakthroughs we’ve seen is if my mother-in-law got diagnosed today, 20 years later, she would be able to make it because the treatments have come that far in the 20 years. And by supporting this cause, we’ve all helped move the research along, so it’s a great cause. And Jackie, if you want to ride next year, we’re happy to have you on the AltaGas team.
Jackie Forrest:
Well, I have a question though, because I’m not as fit as you, Vern. Do you allow e-bikes?
Vern Yu:
Yes, we allow e-bikes.
Jackie Forrest:
All right. Peter and I can come.
Peter Tertzakian:
Yeah. No, actually, I might do it as well.
Jackie Forrest:
Yeah.
Vern Yu:
It’s amazing.
Jackie Forrest:
Maybe I’ll just get a really light normal bike though. Yeah.
Peter Tertzakian:
I have a good bike.
Jackie Forrest:
Yeah. No, because the road bikes, they have the e-bikes now.
Peter Tertzakian:
Yeah.
Jackie Forrest:
You don’t even know.
Peter Tertzakian:
I know.
Vern Yu:
Yeah. There’s an e-assist road bike. I’ve seen it.
Jackie Forrest:
Yeah.
Peter Tertzakian:
Yeah.
Jackie Forrest:
I’m sure Vern doesn’t ride that.
Peter Tertzakian:
Technology. Well, thanks for doing that, Vern. You’ve given us a great lesson on pipelines, chemistry lessons on LPGs, the Asian markets, ports and rail, the intertwined nature of US-Canada relations, including the corporate interests of Canadians in the United States. So thanks very much in coming to the program and educating our audience on what you’re doing and what AltaGas is up to.
Vern Yu:
Well, thanks for having me. And I’ve always been listening to your podcast, so it’s incredible that I’m on the podcast.
Jackie Forrest:
Yeah. It’s great to have you on, Vern. After all these years of talking pipelines, we get you on the podcast.
Vern Yu:
Yeah.
Jackie Forrest:
And thanks to our listeners. If you enjoyed this podcast, please rate us on the app that you listen to and tell someone else about us.
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