LNG: The price of consent

Pacific NorthWest offers C$1 billion to gain aboriginal approval for project; package averages C$320,000 per person over 40 years

Gary Park

For Petroleum News

An Asian partnership led by Malaysia’s Petronas has placed more than C$1 billion on the table in its effort to gain consent from aboriginal communities for British Columbia’s Pacific NorthWest LNG project.

In an unparalleled offer to win over First Nations, the corporate joint venture has made the cash offer to the 3,600 members of the Lax Kw’alaams community based in Prince Rupert, working out at C$320,000 per person to be paid over 40 years, including an upfront C$20 million.

In addition, the British Columbia government is including more than C$100 million worth of government land in the groundbreaking pact.

But final approval still hinges on a ruling expected in September by a Canadian government environmental agency that must precede a final corporate investment decision.

British Columbia Aboriginal Relations Minister John Rustad described the deal, which members of the Lax Kw’alaams will put to a vote in May, as “significant and serious. There is no question liquefied natural gas sets the stage for an incredible opportunity for all of British Columbia and especially the First Nations.”

As well as Pacific NorthWest’s C$11.4 billion export terminal - to be built by Petronas, China’s Sinopec, Indian Oil Corp., JAPEX and Petroleum Brunei - TransCanada is a participant through its proposed Prince Rupert Gas Transmission pipeline project.

“Lax Kw’alaams has been offered benefits, including significant cash payments, job training and employment,” the aboriginal community said in a bulletin. “Membership will be asked to vote by a show of hands after the presentations.”

Other incentives to win over aboriginal consent for the LNG terminal and the pipeline include money for a local road and the establishment of a fisheries compensation fund to protect a salmon habitat.

A spokesman for Pacific NorthWest said the partnership believes the offer “addresses the fundamental areas of importance as they relate to the Lax Kw’alaams” and represents a “multi-generational opportunity.”

A year ago the Lax Kw’alaams said Petronas was “aggressive to the point of being offensive” to the community and showed “no idea how to successfully operate in Canada with aboriginal people. Petronas does not seem to understand that a social license to move ahead with their project is not something they give to themselves.”

More labor available

He said a “bearish” outlook for steel prices also improves the cost structure for LNG developments in Canada to a greater extent than those in the United States “because of the need for long-distance feed-gas pipelines.”

Munton said recent tax concessions proposed by the Canadian and British Columbia governments (including a lowering of corporate tax rates to 8 percent from 11 percent by the provincial government) are also improving project profitability.

“A window of opportunity is opening for Canadian LNG to become potentially cost competitive with U.S. LNG into Asian markets,” Munton said.

He said that for Petronas to give the go-ahead it will seek cost reductions of 15 percent from contractors compared to levels tendered in 2014.

Otherwise, he noted that 50 million metric tons a year of LNG production capacity is under construction in the United States, compared with none in Canada.

The analysis pointed to cost as the key reason behind the different pace of U.S. and Canadian LNG development.

TransCanada said it expects the British Columbia Oil and Gas Commission to decide this quarter on the two pipeline applications to support Pacific NorthWest.

One 540-mile pipeline section across northern British Columbia made a breakthrough in late April when TransCanada signed an agreement covering financial and other benefits with the Kitselas First Nation, having previously signed parallel deals with two other communities. The details were not released.