LNG Canada lifts hopes

Shell-led consortium embarks on regulatory phase, estimating C$40B for project; says BC tax regime a ‘step in the right direction’

Gary Park

For Petroleum News

In the midst of gathering gloom over British Columbia’s once-extravagant LNG hopes, a partnership led by Shell Canada has provided a sudden lift by starting an environmental assessment of its plans for spending up to C$40 billion on the LNG Canada project.

Along with that a project executive has described the British Columbia government’s newly-announced tax regime as a “step in the right direction” - the most positive reaction yet to the province’s plans for imposing an extra charge on the LNG sector.

However, Susannah Pierce, LNG Canada’s director of external affairs, said that while “moving the project forward,” the partnership has a “number of new steps that we need to get through, including the overall cost of this facility and how that meets our expectations, (before moving) to a positive final investment decision.”

The joint venture involves Shell with a 50 percent ownership stake, PetroChina with 20 percent and Japan’s Mitsubishi and South Korea’s Korea Gas with 15 percent each.

The application involves a two-phase development, each designed to export 13 million metric tons a year, with construction of the first phase expected to be completed within six years of permits being issued.

Pierce said the plans submitted to the British Columbia Environmental Assessment Office cover the project’s “economic and social benefits, environmental effects and mitigation measures to avoid or reduce those effects.”

LNG Canada said construction spending could range from C$25 billion to C$40 billion, with the range reflecting uncertainty about the costs of labor and plant components.

In a separate element, TransCanada has been hired to build the C$4.7 billion Coastal GasLink pipeline from northeastern British Columbia to the liquefaction plant and marine terminal at Kitimat.

A 180-day time limit has been set on the environmental review, allowing LNG Canada to make its final investment decision in 2016, assuming it is able to secure Asian customers for the LNG.

While the environmental application is a milestone, the proponents sounded a cautionary note that they “must ensure the project is economically viable.”

Pierce said discussions are under way with the Canadian government on ways to reduce federal taxes and make Canadian LNG globally competitive.

She said LNG is “working in a fairly high-cost environment in British Columbia and Canada,” posing a challenge to “make the economic case.”

The application said the plant would be one of the lowest emitters of greenhouse gas emissions among LNG facilities anywhere in the world because it would use natural gas turbines to liquefy the gas and because of an expected agreement to obtain electricity from BC Hydro that would require the consortium to pay some of the cost of upgrading a transmission line from Prince George, in north-central British Columbia, to Kitimat.

The power contract includes a new energy and demand charge of C$83.02 per megawatt hour before taxes, compared with the average rate of C$54.34 per megawatt hour paid by other industrial customers in the province.

The project has the support of the Haisla First Nation near Kitimat and the Coastal First Nations, with other aboriginal communities involved in continuing discussions.

“The Haisla people strongly support this project but have always believed it should be as green as possible,” said Haisla chief councillor Ellis Ross.

Part of the appeal is the possibility of employment and business contracts for First Nations stemming from jobs for 4,500 peaking at 7,500 during the construction phase and as many as 450 full-time jobs for the first phase of operations.

In addition, LNG Canada estimates tax revenues during the 25-year operating life of the project would range from C$17 billion to C$39 billion.