Canadian Energy Law : Lawyers & Attorneys for Environmental Energy Law

The size and scope of the Government’s commitment to the LNG industry was clarified through background reports by reputable accounting firms, commissioned by the Province and also released in February 2013. Each report analysed certain long-term economic effects of developing up to five significant LNG Facilities in British Columbia. One report indicated, among other things, that Provincial revenues from the LNG sector over a 20 year period from 2018 to 2037, inclusive, could be in the range of $ 80 - $160 billion. The other report indicated that the aggregate capital costs for LNG Facilities could be close to $100 billion for the period from 2013 to 2021, inclusive.

Of course, these various estimates and/or assumptions could ultimately prove to be optimistic, but there are a number of credible syndicates currently proposing to develop major LNG Facilities in British Columbia, involving world-class participants such as Shell, Chevron/Apache, Petronas, and British Gas/Spectra. As the Government pointed out in the Throne Speech, over $6 billion has already been invested to acquire gas fields and/or related facilities to produce LNG for export. The Throne Speech also estimated that a further $1 billion had already been spent in connection with background work for the development of the various proposed LNG Facilities themselves.

Regardless of the credibility of the proponents or sponsors and regardless of the amount of sunk costs incurred to date, these various projects may not be completed on time or at all. But the commitment, the stakes and the ambition involved here are demonstrably huge. History may well judge the Premier's first full term on her Government's success or failure in facilitating delivery of some or all of these LNG Facilities. From her actions in forming a special Ministry, and putting one of her most experienced Ministers in charge, she appears to share that view.

Recently the Ministry of Forests, Lands and Natural Resource Operations in partnership with the Ministry of Energy, Mines and Natural Gas announced that it is establishing a list of pre-qualified proponents who are interested in acquiring Crown land for the purposes of developing a LNG plant marine export terminal at Grassy Point near prince Rupert, British Columbia.

Imperial Oil Ltd./Exxon Mobil, Nexen Inc./INPEX, Australia’s Woodside Petroleum Ltd. and South Korea based SK E&S have recently submitted non-binding expressions of interest for Crown land at Grassy Point, British Columbia. The submissions are a preliminary step toward evaluating how many LNG sites the Grassy Point location can accommodate.

The following is a brief summary of the proposed LNG export facilities in the province of British Columbia announced to date.

1. AltaGas Idemitsu Joint Venture
   Idemitsu Kosan Co. Ltd. and AltaGas Ltd. have entered into an agreement to form AltaGas Idemitsu Joint Venture Limited Partnership. The partnership plans to pursue opportunities to export LNG as well as liquefied petroleum gas from British Columbia to Asia. Idemitsu Kosan Co. Ltd. and AltaGas Ltd. each own a 50% interest in the partnership. The pipeline capacity required to transport natural gas to the LNG export facility is expected to be provided by Pacific Northern Gas Ltd., a wholly owned subsidiary of AltaGas Ltd. Under preliminary plans, LNG feasibility studies are anticipated to be completed in 2014 with an LNG export terminal in service by as early as 2017.
    
2. LNG Canada
   LNG Canada is proposing to build a LNG export terminal in Kitmat, British Columbia. LNG Canada is a joint venture comprised of Shell Canada Ltd., Korea Gas Corporation, Mitsubishi Corporation and PetroChina Company Limited. The export facility is expected to have an export capacity of 2-3 billion cubic feet a day (Bcf/day). On July 27, 2012, LNG Canada applied to the National Energy Board (NEB) for a licence authorizing the export of up to 24 million tonnes of LNG per year, for a term of 25 years. On February 4, 2013, LNG Canada received approval from the NEB for a licence authorizing the export of up to 24 million tonnes of LNG per year for a term of 25 years. The project is currently undergoing an environmental assessment.
    
3. Kitimat LNG
   Apache Canada Ltd. and Chevron Canada Limited each own 50 percent of the Kitimat LNG project. The facility is expected to have an export capacity of 0.75-1.50 Bcf/day. On December 9, 2010 Kitimat LNG applied to the NEB for an export licence authorizing the export of up to 468 Bcf per year for a term of 20 years. The NEB granted the export licence in October of 2011. The project is currently undergoing an environmental assessment.
    
4. Pacific NorthWest LNG
   Pacific NorthWest LNG is a proposed LNG export facility on Lelu Island within the district of Port Edward on land administered by the Port of Prince Rupert. The companies sponsoring the project are Progress Energy Canada Ltd. and Petroliam Nasional Berhad (Petronas). The facility is expected to have a capacity of 1-2 Bcf/day. It is anticipated that detailed design of the facility will begin in late spring 2013. Construction is anticipated to begin by early 2015, with the earliest LNG shipments to customers occurring in late 2018. On February 19, 2013, Pacific NorthWest LNG submitted their project description to the Canadian Environmental Assessment Agency (CEAA). Currently CEAA is determining whether an environmental assessment is required for the designated project.
    
5. BC LNG Export Co-Operative
   BC LNG Export Co-Operative (BC LNG) will be operated by Douglas Channel Energy Partners, which is a partnership between LNG Partners and the Haisla Nation in British Columbia. Currently, there are 16 members of the Co-operative. All members will be entitled to submit bids to supply natural gas to be liquefied and/or submit bids to purchase all LNG exported by the Co-Operative. The facility is expected to have an export capacity of 0.10 Bcf/day. On March 8 2011, BC LNG applied to the NEB for a licence to export 1.8 million tonnes per annum of LNG for a term of 20 years. The NEB granted BC LNG a 20 year licence for the export of 1.8 million tonnes of LNG annually. Recently, Golar LNG, an Asian and Bermuda-based company that runs a fleet of LNG tankers, announced they have purchased a 25 per cent stake in the project.
    
6. Imperial Oil/Exxon LNG Project
   Imperial Oil Ltd. and its parent, Exxon Mobil Corp., are in the early stages of planning a LNG export business from British Columbia. The facility will build on their $3.1 billion acquisition of natural gas producer Celtic Exploration Ltd., as well as gas holdings they already own in western Alberta and in the Horn River shale gas play in British Columbia. The capacity of the facility has not yet been disclosed. As discussed below, Imperial Oil Ltd./Exxon Mobil have recently submitted non-binding expressions of interest to acquire Crown land at Grassy Point, British Columbia for development of an LNG export facility.
    
7. Prince Rupert LNG
   BG Group Plc (BG Group) is in the early stages of developing the Prince Rupert LNG project. Recently, BG Group announced its plan to invest $16 billion in the proposed export terminal which is expected to have an export capacity of 3.3 Bcf/day. BG Group has also announced plans to partner with Spectra Energy Corp. to build a pipeline capable of transporting up to 4.2 Bcf/day of natural gas from production areas in northeastern British Columbia to the Prince Rupert LNG facility for export.
   
   BG Group has secured an agreement with the Prince Rupert Port Authority to study the feasibility of an LNG export terminal on port lands. Plans call for a final investment decision to come sometime in the next few years. On May 2, 2013 BG Group submitted a project description to CEAA and the British Columbia Environmental Assessment Office.
    
8. Nexen/Inpex LNG Project
   Nexen Inc. and a consortium led by Japan’s Inpex Corp. have a joint venture to develop unconventional shale gas assets in the Horn River, Cordova and Liard basins in northeastern British Columbia. As part of the joint venture, the partners intend to jointly investigate the feasibility of a potential downstream project, including an LNG export facility.
    
9. Kitisualt Energy LNG Project
   Kitisualt Energy intends to establish a LNG export facility at Kitisualt, BC. The plan is in its infancy and Kitisualt Energy has not yet announced export capacity for the proposed facility.

The nature of LNG and domestic security concerns have made proposed LNG developments a hot-button issue in the United States. Deep-water port facilities are required to accommodate an increasingly larger LNG shipping fleet. Proximity to mature natural gas markets brings domestic security concerns to the forefront of any development, particularly where port facilities are co-located with the market. Although the LNG process is inherently safe and enjoys a solid safety record, large shipping and re-gasification facilities could be vulnerable to terrorist attacks, and this has caused widespread resistance to LNG developments near large, urban centres. Currently, four LNG facilities are in operation in the United States, but in the last year there has been opposition to the development of facilities in Mississippi, Louisiana, Texas and California based on a variety of environmental and security concerns.

The development of LNG infrastructure in Canada is seen as a partial solution to some of the risks facing such projects in the United States. Importing LNG to Canada permits the gas to be sold in both Canadian and American markets through existing or planned pipelines. There is less public resistance to LNG developments in Canada due, in part, to the fact that the country is perceived as being less of a terrorist target. There is also the ability to construct LNG ports and re-gasification plants in less densely populated areas, which would minimize the possible impact of any safety or security incidents.

Several LNG projects are now in various stages of development in Canada. The most advanced are the Canaport Project near Saint John, New Brunswick and the Bear Head Project in Point Tupper, Nova Scotia. The Canaport Project is being led by Irving Oil, which has partnered with Repsol YPF, a Spanish oil and gas company that will source the LNG. The Canaport Project has received provincial and federal regulatory approval and plans to produce one billion cubic feet per day [1 Bcf/d]. The Irving group of companies also plans to construct a 500-750 MW gas-fired generating station adjacent to the Canaport site. The Bear Head Project is being developed by Anadarko Petroleum and will use the existing Maritimes and Northeast Pipeline to deliver gas into the New England markets. The Bear Head Project has also received provincial and federal approval and plans to produce up to 1.75 Bcf/d.

Existing pipeline infrastructure in Canada and the United States and the move away from coal-fired generation makes LNG an increasingly important component of the North American energy supply, one that offers the energy sector a wide range of project finance and infrastructure opportunities.