David Yager – Yager Management Ltd.
Oilfield Service Management Consulting – Oil & Gas Writer – Energy Policy Analyst
May 18, 2017
For an industry and province all but obsessed with its lack of pipeline access to Pacific tidewater, this is surely the most attractive oil and gas export option nobody has ever heard of.
Called Kitsault Energy by the owner and promoter Krishnan Suthanthiran, Kitsault is an abandoned mining town on B.C.’s west coast some 140 km. by air north of Prince Rupert or 400 km. by road via Terrace., BC.
Suthanthiran is an entrepreneur and engineer originally from India who passed through Canada in the late 1960s and is now is a self-confessed billionaire living in Virginia. He accumulated the majority of his wealth in the health care and cancer diagnostics industry.
Now 69 but still travelling extensively to promote his diversified empire, how this Indian-born medical engineer ended up owning a Pacific seaport that is closer to the oil and gas than either Prince Rupert or Kitimat is fascinating. And when it comes to development approval, he doesn’t have to ask anybody. He owns the town.
B.C. has many mining towns on tidewater, but Kitsault may be one of the newest. The community website reads, “At no time in the history of British Columbia was there anything even close in size and scale as what would occur in Observatory Inlet of Northern BC. The year was 1979. U.S.-based mining conglomerate Phelps Dodge needed a town built and they needed it built overnight. They had calculated there were 109 million tons of an obscure but ubiquitous metal called molybdenum lying beneath the old growth forest in the remote BC fiord. More importantly, the people who ran the company figured that the time was right to haul it out of the ground and mill it.
This area of BC had been a treasure chest of minerals for some time. Silver, lead, zinc, and copper had been mined at the end of the inlet for close to a century at the boom town of Alice Arm. But in 1979 it was the molybdenum (also known as “molly”) that everyone wanted. The metal was used in alloys to provide hardness and corrosion resistance. In fact, molly was so hard it was commonly used in the nose cones of rockets in the arms race. The existence of molly in the area was old news. In fact, between 1967 and 1972, a total of 10 million tons had already been mined. However, mining had stopped in the early seventies when prices softened. But by the end of the decade prices were going back up on news that many of the known molybdenum deposits in Alaska, British Columbia and the western United States were depleted.
Thus, in 1979, the folks at Phelps Dodge figured the time was right to go into full blown production. However, there was a big logistical problem in opening up the mine; there were no workers. In fact, the only living things in the area were silver foxes and grizzly bears. Kitsault laid at the end of Observatory Inlet in a remote unpopulated region of BC tucked behind the Alaska Panhandle.”
The official website reports creating the new town of Kitsault would cost $50 million, the equivalent of $250 million today. But it is all there and includes accommodations for 1,000, a hospital and schools and everything else you need to attract workers and families to live in the middle of nowhere. There was an established mining community across the inlet, Anyox, and Stewart further north. Kitsault, with big-league backing, was to become the mining community of the day.
However, the molybdenum market proved fickle and the mine was shut down in 1982, only a few years after the main investment. The last of the citizens left in 1983. Kitsault was originally built by Amax Canada Development Ltd., the Canadian arm of the world’s largest molybdenum producer. The total cost was $200 million. Amax was eventually acquired by Phelps Dodge Corp. which decided to put the entire town up for sale. Not only did it have a hospital but according to news reports of the day, the hospital had an x-ray machine that had never been used and was still wrapped in plastic.
The entire town and contents therein was put on the market in 2004. It was listed at $Cdn7 million. In a Globe and Mail Article originally posted September 14, 2004 the story of a complete community with all the amenities was revealed. Suthanthiran bought the town for $7 million a year later. While he attended university in Canada he did not live here. But he told The Globe, “Life is full of opportunities and you can make use of it, you can kick it or you can walk away from it. I think our goal is to make use of this opportunity to do something”.
Feeling philosophical he told the newspaper, “I have a great sense of gratitude for the opportunity for an education in Canada and I feel that it’s my turn to go back and give something back to Canada. None of us live forever. We don’t take anything with us when we die and didn’t bring anything with us. Ultimately what truly signifies us is the contribution we make to the society”.
Wow. Good or bad, righteous or otherwise, Suthanthiran’ s plans for Kitsault have certainly been flexible. He has envisioned an artist’s retreat and a wellness centre. Having the capital to apparently do whatever he wants with the town makes him, unquestionably, a master of his own destiny. He told this writer over coffee in Calgary keeping the town in good working order has cost him some $2 million annually.
However, things changed many years after Suthanthiran purchased Kitsault when he was approached by a pipeline operator who conceived using Kitsault as a route for B.C.’s promising but as yet undeveloped LNG industry. The latest version is Kitsault Energy, a pipeline/resource corridor through B.C. that would solve Alberta’s market access problems and help the promoter make more money. Which is the way it should be when you come up with a commercially valuable idea, however indirect the path.
So in 2013 he reinvented Kitsault as an LNG export hub. He originally envisioned floating LNG liquification facilities assisted by existing local hydroelectric generating facilities. According to a recent Financial Post article, an outfit called Anyox Hydro Electric Corp. is rehabilitating two dams capable of generating 45 megawatts of power, enough juice to “light up the north” according to promoters. This could provide power for Terrace, Prince Rupert, Smithers and, of course, the Kitsault LNG project.
The most recent slide deck for Kitsault Energy bears the title, “Update on Kitsault Energy and the Hypocrisy of Energy Policies”. This was a presentation to a B.C. natural gas symposium in October of 2016. The facts are clear. He owns the town. It is on tidewater on the Pacific Ocean. He doesn’t have to ask anybody if they want an oil pipeline terminal or LNG port in this community. It is north of Prince Rupert and Kitimat and his slide deck shows direct access routes across B.C. for pipelines primarily from Fort Nelson and Dawson Creek. He told this writer there no aboriginal conflict or approval issues, problems plaguing other B.C. hydrocarbon export terminals and transportation routes.
Suthanthiran is a self-described medical missionary. Through his companies, he wants to provide more people with clean drinking water, affordable sewage systems, “a global standard of healthcare delivery systems”, and “reduce suffering/deaths from major diseases such as cardiac, cancer, diabetes by the end of the next decade”. Plus gain Pacific tidewater access for Canadian oil and gas.
This is only part of a slide deck promoting his town as the ideal location as “a dedicated energy corridor and export terminal” for the same hydrocarbon fuels some are increasingly convinced are a threat to the future of mankind and life on earth. He figures using Kitsault can cut the capital costs by as much as US$5 billion, the right-of-way can pass through “primarily …. along less populated Crown Land and some First Nations’ land with little variation in elevation, and therefore causing the least environmental impact”.
While not exactly explaining why existing projects and growing opposition are hypocritical, medical entrepreneur, health care system-improver and successful businessman Suthanthiran concludes, “By establishing a dedicated energy corridor and dedicated export terminal with multiple pipelines carrying range of energy products, Kitsault Energy Port and Terminal will be environmentally sensible, smarter and significantly less expensive than building 10,000 to 15,000 kilometers of pipeline all over Canada and USA at a cost of nearly US$100 billion”. One would assume this includes Keystone XL, Energy East, Kinder Morgan etc.
So your writer asked, “What about Prime Minister Trudeau’s tanker ban for the northern coast of B.C.?” Assuming of course this applied to crude oil, not LNG.
While the answer was somewhat oblique, Mr. Suthanthrian responded via email, “I believe that Canada’s carbon tax or the tanker ban by the Trudeau government will hurt the Canadian energy producers. This is why many international companies are politely selling their Canadian oil sands assets and exiting in a hurry and investing elsewhere. In my opinion (the) Canadian government is anti-business. In Ottawa our company Best Theratronics Ltd ., BTL, is manufacturing the Best Cancer Treatment Radiation Technology. Invented by Canadian Scientists and was honored by Canadian Postal Service with commemorative stamp in 1951. But no Canadian hospitals use this, while 10s of thousands of Canadian Cancer Patients, while waiting for treatment, die without getting the timely treatment. While Canada talks about innovation and entrepreneurism most Canadians find their support in USA, south of the Canadian border”.
Not a concise answer to Trudeau’s tanker ban but now you know. Great story.
About David Yager – Yager Management Ltd.
Based in Calgary, Alberta, David Yager is a former oilfield services executive and the principal of Yager Management Ltd. Yager Management provides management consultancy services to the oilfield services industry in a number of areas including M&A, Strategic Planning, Restructuring and Marketing. He has been writing about the upstream oil and gas industry and energy policy and issues since 1979.