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Routes of energy controversy

Vote rejecting $1.1 billion offer to Lax Kw’alaams underscores opponents’ LNG environmental concerns and complexity of challenges facing proponents in B.C.
Four pipelines needed to carry natural gas to LNG plants on the B.C. pas through dozens of First Nations communities. | Source: Ecotrust Canada

From the Petronas Towers in Kuala Lumpur, what unfolded in B.C. last week must have looked strange.

While the Lax Kw’alaams First Nation was voting against a $1.1 billion offer of cash and land to support Petronas’ $11 billion Pacific NorthWest LNG (PNW) project in Prince Rupert, some members were reportedly giving a tentative thumbs-up to the Eagle Spirit Energy refined oil pipeline proposal.

Following a series of community votes that rejected the Petronas offer (plus $108 million worth of land from the province), the Lax Kw’alaams issued a statement affirming its support for liquefied natural gas in general – just not on Lelu Island, due to its potential impact on Flora Bank in the Skeena River estuary.

“Lax Kw’alaams recognizes the positive economic impacts for all British Columbians that might result from a positive final investment decision by PNW,” Lax Kw’alaams Mayor Garry Reece said in a press release. “Lax Kw’alaams will continue to work with PNW in good faith to find a solution.”

The vote raises a number of questions, however, not the least of which is whether Petronas, which has yet to make a final investment decision, might cut its losses if First Nations mount an all-out battle.

The Lax Kw’alaams is not the only First Nation opposing an LNG plant near Flora Bank. The Luutkudziiwus house of the Gitxsan First Nation has been building cabins as part of a roadblock in the path of the pipeline that would supply the LNG plant.

On the other hand, two of five key Tsimshian First Nations bands in the Prince Rupert-Terrace area – the Metlakatla and Kitselas – have signed undisclosed benefits agreements with PNW. So have five of the 19 First Nations along the Prince Rupert Gas pipeline corridor, including the Nisga’a.

The pipeline that would feed the LNG plant in Prince Rupert is one of four that have been proposed to supply LNG projects in Prince Rupert and Kitimat. The B.C. government says it has negotiated 28 benefits agreements with First Nations along the various pipeline corridors.

PNW is also still negotiating with other key First Nations in the Prince Rupert area, including the Gitxaala to the south and the Kitsumkalum near Terrace.

The Canadian Environmental Assessment Agency (CEAA) is expected to make a decision on the proposal in the fall.

Robin Junger, a lawyer specializing in aboriginal and environmental law with McMillan LLP, said some of the concerns the Lax Kw’alaams have could get resolved through the CEAA process.

“I’ve seen in other situations where sometimes agreements are reached later in the regulatory processes after some of those questions have been answered,” Junger said.

He also points out that the benefits agreements offered to First Nations may help win  buy-in but are not required by law.

“There’s no legal requirement for such deals. The First Nation doesn’t have a veto, and there’s no requirement for government or a company to pay money as part of the duty to consult.”

Should the project get the green light against the Lax Kw’alaams’ wishes, however, the First Nation could file an aboriginal title claim, which could bog the project down in the courts.

“From a legal perspective, it would be a very complex case that would take an awfully long time to wind its way through the courts,” said David Austin, a lawyer at Clark Wilson LLP specializing in energy and aboriginal law.

“Since it is a complex case, would an LNG developer be patient while it was winding its way through the courts, or would it seek alternatives in another part of the world?”

That, of course, is the $36 billion question. In a written statement, PNW president Michael Culbert said the company plans to let the federal environmental review process play out.

“Moving forward, Pacific NorthWest LNG will continue to have open discussion with all Tsimshian leaders and community members,” Culbert said. “Our B.C. environmental review was completed and approved in late 2014. A rigorous environmental review by the Canadian Environmental Assessment Agency is well underway and we will continue to work with all involved constructively.” 

Petronas’ total investment in the LNG plant, Prince Rupert Gas pipeline and upstream natural gas assets is estimated at $36 billion. But global energy companies have been known to shelve projects, even after spending hundreds of millions of dollars on them, when they become too costly.

At the end of January, Royal Dutch Shell (NYSE:RDSA) and PetroChina pulled the plug on their US$20 billion Arrow LNG project in Australia due to cost concerns.

“If you look at the potential LNG projects, the majority of them are backed by large global players,” said Reynold Teztlaff, PwC’s energy leader.

“We need global capital to fund these projects. And these large global players have potential investments around the globe in gas and oil, and they’re going to go where there’s the best conditions and the best returns, and if Canada can’t provide that, they’ll go elsewhere.”

Prince Rupert Mayor Lee Brain does not seem overly concerned that the Lax Kw’alaams’ opposition to the Pacific NorthWest LNG project will put a chill on investment in Prince Rupert. There are other LNG projects planned for his city, including a massive $25 billion plant that Exxon Mobil Corp. (NYSE:XOM) proposes to build.

Brain also points out that the Lax Kw’alaams’ opposition to the Pacific NorthWest LNG project is largely related to the proposed site, not to the industry itself.

“They’re a key player but they’re not against LNG,” Brain said. “The site location is what their issue is. I think the conversation most likely should have been happening a few years ago about this particular concern, rather than right about before the [final investment decision] happens.”

Prince Rupert is also now being asked to consider a proposed oil pipeline project by Lax Kw’alaams writer and businessman Calvin Helin, president of Eagle Spirit Energy.

The project is said to have the backing of Vancouver’s Aquilini family.

The proponents want to bring refined or upgraded oil from Alberta to Prince Rupert, but have yet to identify where a refinery would be built or how it would be financed. The one thing the project may have going for it is the site – it’s not on Lelu Island, but at Grassy Point.

George Bryant, a Lax Kw’alaams band member, said more than 100 Lax Kw’alaams members tentatively voted in favour of a benefits agreement May 8 in support of the project.

“We aren’t saying yes to a pipeline; we are only saying yes to work with Eagle Spirit to see if a pipeline is possible,” Bryant said. 

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