Canada: New Regulations Governing LNG Facilities

On July 21, 2014 the provincial government enacted the long-awaited Liquefied Natural Gas Facility Regulation ("LNGFR") after consultations with the First Nations, industry, government organizations and other stakeholders. Other regulations were amended on the same day for clarity: the Pipeline and Liquefied Natural Gas Facility Regulation was amended to exclude its application to LNG facilities and was renamed the Pipeline Regulation, and the Drilling and Production Regulation ("DPR") was amended to include a definition of "facility" that excludes LNG facilities. It is the LNGFR that now governs LNG facilities while the Pipeline Regulation and DPR do not. The BC Oil and Gas Commission (OGC) has simultaneously released an 80 page guidance document specific to the regulation. It provides a plain language overview of the regulation's requirements as well as significant contextual information about how the regulation fits into existing legislation and OGC standards. For example, it describes how the OGC and Transport Canada regulatory regimes will overlap to regulate floating LNG facilities.

The LNGFR itself is technical in nature and addresses the regulatory aspects associated with applying for an LNG permit, the construction and operation of an LNG facility, and the risks associated with LNG facilities. As stated by the OGC, "included in the regulation are rules around the permit application process, engineering design requirements, hazard analysis, safety and loss management programs, risk assessment, emergency planning and response, flaring limits and noise and light control". Ancillary to these rules are a series of important document retention requirements.

The Consultation and Notification Regulation was also amended so that the notification and consultation distance for an LNG facility is now the greater of 3300m and a risk-based distance proportional to the maximum possible release of hydrogen sulphide from pipelines entering the facility. The risk-based distance is calculated with the multi-step procedure set out in Schedule A of that regulation. The procedure takes the pipelines' physical characteristics and hydrogen sulphide content into account – although large natural gas transmission pipelines typically have low hydrogen sulphide concentrations.

A non-exhaustive list of the information that project proponents must include as part of their application for an LNG facility permit includes:

  • a detailed project description;
  • a preliminary construction schedule;
  • design and safety studies respecting the siting of the facility and all of its equipment;
  • the results of a preliminary hazard identification study; and
  • the results of seismic, geotechnical and tsunami studies respecting the proposed site.

This information must be updated during the pre-construction phase and delivered to the OGC at least two weeks prior to construction, including a notice of intention to commence construction.

The LNGFR's construction requirements contains multiple compliance regimes. A permit holder can, like a pipeline, construct in compliance with the applicable CSA standard (CSA Z276 Standard on Liquefied Natural Gas – Production, Storage and Handling) or, with respect to membrane tank system design, the European EN 14620 Standard. Alternatively, the proponent can complete the engineering design and site the LNG facility in a manner consistent with the results of a quantitative risk assessment. Regardless of which alternative is chosen, the LNGFR also imposes additional requirements. Any construction must take into account the results of a hazard identification study; a process hazard analysis; a safety integrity level study; the noise associated with the normal operation of an LNG facility; and include designs for a storage tank system that takes into account fatigue and complies with the applicable standards.

Another aspect of the LNGFR that may affect permit holders is the requirement in the new regulation to have any "modular units" inspected by "a third-party acceptable to" the OGC. "Modular units" are defined as a combination of equipment assembled into one self-contained unit that is integral to the production, handling or storage of LNG. It is unclear at this stage which third-party inspectors will be deemed "acceptable to the OGC", but the more important issue for project proponents is to ensure that modular units either meet the conditions set out in the Safety Standards Act or receive independent third-party approval prior to integration with an LNG facility.

The LNGFR also mandates that permit holders restore surface land disturbed as part of the construction process if not required for the safe and efficient operation of the LNG facility. Such remedial efforts must include removing any structures installed to facilitate construction as well as the stabilizing, contouring, conditioning or restructuring of the surface land "to the extent reasonable in the circumstances". These efforts must be taken both during construction, where practicable, and as soon as practicable once operations begin. There are similar remediation requirements upon ceasing the facility's operations, but this requirement increases the upfront costs.

Finally, the LNGFR also requires the development of specific operational procedures: a safety and loss management program, pre-operations testing, noise and light control, the sufficiency and maintenance of waste-discharge measurement equipment, and a prohibition on venting and flaring except in limited circumstances and under specified conditions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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