Copyright 2012, Blake, Cassels & Graydon LLP
Originally published in Blakes Bulletin on Energy–Regulatory/Environmental, February 2012
On February 2, 2012, the National Energy Board (NEB) granted a 20-year licence to BC LNG Export Co‑operative LLC (BC LNG) to export liquefied natural gas (LNG) from Canada to markets in the Pacific Rim.
Although opposition to the application was virtually non-existent and relatively small volumes of LNG were at play, this decision, made on the heels of the NEB's approval of LNG exports from Kitimat, British Columbia in October 2011, demonstrates a continued willingness by the NEB to consider export markets for Canadian LNG beyond the U.S.
The proposed but not-yet-approved LNG facility to be located near Kitimat, B.C. is comprised of two barge-based liquefaction trains to be constructed in stages. Natural gas feedstock for the first train will be transported via pipeline to the facility. From there, tankers will follow established shipping lanes to transport LNG to markets located primarily in Asia.
As one of the first applicants seeking a licence to export LNG under the current regulations for the purposes of accessing offshore markets, BC LNG was presented with the challenge of fulfilling the NEB's mandated application requirements which do not contemplate offshore LNG exports.
This cleavage between the NEB-mandated application requirements and the realities of offshore LNG exports can render certain regulatory requirements unanswerable or, arguably, not relevant or inapplicable. Accordingly, BC LNG applied for and was granted exemptions from certain of the application requirements. As it has previously stated, the NEB acknowledged that not all application requirements are relevant in the context of LNG export licence applications.
The proceeding was undertaken by way of written hearing with significant support and little to no opposition from intervenors.
The NEB released its decision on February 2, 2012. In an export licence decision, the NEB assesses the merits of the application through a surplus determination procedure known as the Market-Based Procedure, designed to establish whether the proposed export is both a) surplus to reasonably foreseeable Canadian requirements having regard to trends in the discovery of gas in Canada and b) is in the public interest.
Acknowledging that BC LNG had no LNG sales contracts at this time, the NEB's decision was founded in part on the most general of export market information provided by BC LNG. The NEB accepted the BC LNG submission that, due to the size of Canada's natural gas resource, the proximity to Asian markets and a stable political and regulatory environment, Canada is viewed as a desirable source of supply for Asian LNG purchasers.
The NEB was also satisfied that, having regard to the trends in the discovery of gas in Canada, the quantity of gas to be exported did not exceed the surplus remaining after due allowance has been made for the reasonably foreseeable requirements for use in Canada.
The NEB was also satisfied that there was adequate supply to support the export volume over the term of the licence. The NEB noted that parties were "contractually bound" to provide the applied-for export volume over the 20-year term and found that the size of the producer-controlled resource and the producer's expected daily and annual productive capacity exceeded the requirements for the applied-for export licence.
Regarding transportation, the NEB found that BC LNG was sufficiently incentivized to ensure that additional pipeline capacity to the facility would be acquired so as to fully utilize the requested export volumes. The NEB noted that BC LNG's option to acquire capacity on the Pacific Northern Gas system was sufficient to supply the first train of the facility and that additional pipeline transportation capacity was being negotiated with the proponents of Pacific Trail Pipeline, among others.
The NEB concluded that the intent and objectives of the Complaints Procedure had been satisfied. The NEB found that BC LNG had provided natural gas market participants with a reasonable level of information about its proposed exports and that the Hearing Order was sufficiently publicized. The NEB noted that no parties came before it to complain that they did not have an opportunity to purchase natural gas on terms and conditions, including price, similar to those of the export proposal.
The NEB acknowledged that the application for a natural gas export licence does not trigger an environmental assessment under the Canadian Environmental Assessment Act; however, the NEB stated that it was not precluded from considering potential environmental effects and directly related social effects of gas exports when assessing the application. Regardless, the NEB declined its own invitation to undertake analysis on this point.
The NEB found that the potential environmental effects and directly related social effects would be considered either through the environmental assessment of the terminal or through Transport Canada's TERMPOL Review Process. The NEB further noted that other agencies, federal and provincial, will continue to assess any environmental and social effects associated with these aspects of BC LNG's export proposal.
The NEB found that duplicating the work of these other agencies was not warranted. Considering that, in the context of an export licence application, the assessment regarding environmental and social effects will either be completed prior to, or assessed subsequent to, the granting of the export licence, the specific factors that would be considered under this criterion in an export licence application remain in question.
The NEB decided to issue a licence to export liquefied natural gas to BC LNG, subject to the approval of the Governor in Council. The licence is conditional on export commencement on or before March 31, 2016 and will terminate on that date if exports do not commence by that time.
Although this decision may not serve as an accurate blueprint for larger LNG projects and export licence applications, it does support the view that the NEB is open to offshore LNG exports, recognizes that many of its prescribed application filing requirements are not strictly relevant or can be addressed through other means, and is willing to adjust its process accordingly.
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