Copyright 2012, Blake, Cassels & Graydon LLP
Originally published in Blakes Bulletin on Energy–Regulatory/Environmental, February 2012
On February 3, 2012, against the backdrop of the BC Jobs Plan released in September 2011, the province of British Columbia unveiled its Natural Gas Strategy. At the same time, the LNG Strategy, identified as the cornerstone of the province's Natural Gas Strategy, was released by the provincial government to support development of the new liquefied natural gas (LNG) industry in B.C.
The LNG Strategy details B.C.'s commitment to LNG exports and outlines the critical priorities that will guide the development of this new industry:
- to remain competitive in a global LNG industry;
- to maintain leadership on climate change and clean energy; and
- to keep energy rates affordable.
What follows is a summary of each of these priorities (including how the province intends to honour them) and a brief overview of the implications of the LNG Strategy for B.C. citizens and industry.
PRIORITIES FOR DEVELOPMENT OF B.C.'S LNG INDUSTRY
1. Keep B.C. Competitive in the Global LNG Market
Natural gas has always been one of B.C.'s most abundant resources and modern drilling technology is now making this gas more readily accessible. Over the next 20 years, global demand for natural gas is expected to rise dramatically, fuelled by rapid economic growth in Asia where the cost of natural gas is approximately four times that in North America. (In late 2011, 1,000 cubic feet of natural gas cost under $4 in North America versus $16 in Asia.)
With the development of LNG – a shippable form of natural gas (compared to conventional natural gas, LNG takes up 600 times less space) – B.C. is ideally positioned to compete for a share of that lucrative market. However, B.C. faces stiff competition from jurisdictions such as Australia, the U.S., Qatar and Africa in securing long-term contracts to supply LNG to Asia. Recognizing that time is of the essence, the province has taken, and continues to take, an aggressive approach to developing the sector. To date:
- an efficient regulatory system for LNG growth has been established in B.C.
- overseas marketing (primarily to Asia) is ramping up, supported by the New West Partnership between B.C., Alberta and Saskatchewan (B.C., Alberta and Saskatchewan signed the New West Partnership in April 2010; one of the four main components of the New West Partnership is an international co-operation agreement that will see the three provinces co-operate on trade and investment missions to international markets, and share foreign market intelligence to advance joint interests and increase business competitiveness)
- work is underway to streamline federal and provincial environmental assessments to create a single, more efficient process
- approaches to collaborative solutions for natural gas pipeline development are being explored
- collaboration with local communities, First Nations, industry and other levels of government is being strengthened to define more effective working relationships that benefit the entire province.
In line with its priority to keep B.C. competitive in the global LNG market, the province has committed to having the first LNG plant in B.C. (Kitimat LNG) up and running by 2015, with a total of three LNG facilities, including BC Douglas Channel, operating by 2020.
The next steps in keeping B.C. competitive in this new global market will include investments by the province (and likely, industry) in skills training.
2. Maintain B.C.'s Leadership on Climate Change and Clean Energy
Kitimat LNG and BC Douglas Channel are the first LNG plants in the world that are anticipated to use clean electricity to drive the liquefaction process. As a result, LNG development in B.C. will have lower life cycle greenhouse gas emissions than any of its competitors in the global LNG export market. Additionally, as new or proposed projects come on stream, the province and BC Hydro will continue to work with industry, First Nations, and with clean-energy producers to develop clean-reliable sustainable sources of supply.
The province is also examining ways to grow the market for natural gas as a transportation fuel, in both compressed natural gas (CNG) and LNG forms. These alternatives can replace diesel in heavy duty fleets and other vehicles, and thereby help to lower emissions.
3. Keep Energy Rates Affordable
LNG production requires a steady source of power and, therefore, may necessitate the construction of new transmission lines or other types of infrastructure which have the potential to affect BC Hydro rates. However, through two primary measures, the province has committed to ensuring that energy rates remain affordable.
First, the government will ensure that LNG developers contribute capital for infrastructure development and to the electricity supply required to serve each operation. Second, the government will be making changes to the implementation of its electricity self-sufficiency policy. In particular, moving forward, the new self-sufficiency definition will require BC Hydro to meet customer demand on an average water year, instead of historically low water levels. Further, BC Hydro will no longer be required to acquire an additional reserve of electricity for insurance purposes. These changes are intended to allow the utility to "optimize" its system and profit from short-term trading opportunities in power, and will ensure BC Hydro customers continue to pay some of the lowest prices for electricity in North America, while demand for electricity grows.
As noted by BC Chamber of Commerce President and CEO, John Winter, the LNG Strategy represents the first time in over a decade that the B.C. government has attempted to create an entirely new industry. As such, not surprisingly, the LNG Strategy is expected to have significant impact on B.C. citizens and industry alike.
For citizens, the direct effects of the LNG Strategy are likely to be increased job opportunities and, possibly, increased BC Hydro rates. Indirect effects will include increased government services like health care and education, as a result of the billions of dollars in new investment (and, therefore, increased government revenues) the industry is predicted to bring to the province. For industry, the LNG Strategy is a strong message from the government that it will support proponents' LNG projects in any way that it can, including working to minimize historical barriers – whether regulatory, administrative or socio-economic – to construction and operation. In any event, the LNG Strategy is sure to add fuel to the proponents' race to operation, and we expect that many will be watching with great interest the progress of the Kitimat LNG facility, which already has federal and provincial environmental approvals and the first-ever federal LNG export licence in place.
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