More than a dozen liquefied natural gas (LNG) projects are currently proposed for the British Columbia coast, competing for long-term supply contracts in Asia Pacific markets, but only a few are expected to be built. The race to reach final investment decisions to capture the opportunity depends on aligning regulatory authorizations, customers, labour, infrastructure and financing in time to justify a multibillion-dollar bet.
Project developers seek policy and cost certainty to help manage risks, but the challenges of establishing LNG production on this scale obscure the path forward. The strong commitment from government, especially the province, offers some direction, but areas of uncertainty remain.
First, the National Energy Board regulates the export of LNG from Canada. No export licence has been denied, but the board considers each new application to determine whether it will impair domestic access to natural gas supply. Despite strong supply estimates, effective management and protection of water resources by the B.C. government are critical to the delivery of massive shale gas supply to the coast.
Second, the overlap between provincial and federal jurisdictions must be reconciled for LNG project sites. Some projects involve provincial land, others federal land, and still others a mix of the two. This situation prompts questions about authority to regulate and the potential for differing approaches within the province. Harmonization is preferable to enable regulation by a skilled common regulator.
Third, coordination of the overlapping federal and provincial environmental assessments (EAs) is crucial to establish efficient and timely assessment. An effective EA process helps build social licence – particularly on the B.C. coast, where public sensitivity to environmental risks is high. B.C. and Canada have agreed to harmonize their EA processes, but the effective management of the timelines is a central concern.
Fourth, the duty to consult First Nations is shared by the federal and provincial governments. Strong government leadership in fulfilling that duty is essential to establish a transparent approach that resolves uncertainty about process and cost. Consultation is typically intertwined with the EA process, and developers often assume a proactive role to satisfy the bulk of the early information exchange obligations via consultation leading into the EA.
Fifth, how the projects will be powered and at what cost are unanswered questions that will have implications throughout the province. What power generation and transmission resources will be constructed to meet the large new demand? Should LNG plants be permitted to power plants via “direct drive” natural gas combustion (as done elsewhere)? If so, should the increased carbon load be offset somehow in relation to B.C.'s clean energy and climate change commitments? New infrastructure to support the LNG industry will be substantial.
Sixth, B.C. intends to tax LNG production but has not revealed important details of the proposal. The province must ensure that the level of taxation does not divert investment elsewhere but is sufficient to deliver the much promised economic benefis. Without the details, though, reaching final investment decisions is difficult.
In summary, much development work remains to be done. Most projects have natural gas export licences in place. About half have pipeline proposals attached to them. The projects are at various stages in the EA process, with the bulk of that work to come. Important provincial plans for EA, tax, labour, skills development, water and electricity are still being developed.
Potential investors must assess the relative progress of each project from many economic, environmental and social perspectives before reaching a final decision. The more direction the provincial government can provide to resolve risk and uncertainty through policy statements or project development agreements, the more B.C. will benefit from LNG investment. •
David Bursey ([email protected]) and Matthew Keen ([email protected]) are partners in Bull Housser’s Energy Group.
