During 2014, many of the significant LNG projects proposed for
the West Coast of British Columbia seemed to be making
Required environmental and other regulatory approvals at the
federal and provincial levels, including LNG export licenses, were
granted in the ordinary course without the delays and absent the
passionate opposition that proposed oil pipeline projects
experienced. Indeed, in November, provincial Environmental
Assessment Certificates were issued for three LNG projects in
northern BC: the Westcoast Connector Gas Transmission pipeline,
thePacific NorthWest LNG export facility in Port
Edward and the Prince Rupert Gas Transmission pipeline.
There have also been several recent legislative
The Province introduced the
Liquefied Natural Gas Income Tax Act, which
provides tax rates on LNG production that are substantially reduced
from the rates initially proposed by the Province.
The Federal Government released a proposal to allow accelerated capital cost
allowance treatment for certain property acquired for use in
facilities that liquefy natural gas to supply international
markets, domestic markets or to store in periods of low demand and
then regasify it in periods of high demand.
These developments were generally favorably received by project
developers and provided them an important part of the certainty
needed to determine their economics.
However, certain realities regarding fundamental elements of
these projects came into sharp focus, raising serious doubts as to
whether some of the proposed projects will proceed on schedule, or
at all. These include:
The fall in the price of oil: LNG pricing has historically been
effectively linked to the price of oil, and at least some project
proponents expect to price their LNG on that basis if their BC LNG
The challenges of controlling costs, securing sites and
entering into the necessary commercial arrangements and alliances
with First Nations and other stakeholder groups.
The risk that LNG demand will be diverted from Canada to
brownfield LNG projects on the US Gulf Coast, which have proceeded
far more rapidly than expected as a result of fewer regulatory
hurdles and their use of existing infrastructure.
Increased competition for the Chinese market that will result
from the massive gas export deals entered into between Russia and
The possibility of Japan turning back on various nuclear
powered generating stations, reducing the demand for LNG in the
A number of BC LNG Project proponents have delayed or retrenched
in part as a response to these developments:
Petronas recently announced that its Final Investment Decision
would be delayed beyond 2014 citing falling oil prices, rising
construction costs and pending regulatory approvals that have not
yet been obtained.
Chevron and Shell have reduced global capital expenditures
except for a few priority projects (which have not included their
BC LNG investments) and Chevron has specifically reduced the pace
of investment and expenditure on its BC LNG Facility.
BG has delayed a Final Investment Decision, indefinitely, on
its Prince Rupert LNG Export Terminal. The timing for its Final
Investment Decision may be further complicated as a result of the
recent announcement that it will be acquired
Apache sold its JV interest in Chevron's Kitimat LNG
Project to Woodside Petroleum.
According to recent Environmental Assessment Filings, Exxon and
CNOOC/Nexen do not anticipate beginning construction on their
respective LNG projects until next decade.
In 2015, at least some of these BC LNG Projects will struggle
with the viability of their proposed projects. These are all costly
and complex Projects and they face clouded market outlooks and the
development of LNG Projects in some areas, such as the US Gulf
Coast, which appear to enjoy significant competitive advantages
over the BC LNG Projects.
Some smaller Projects (such as Woodfibre and the Douglas Channel
Project led by AltaGas) may proceed on schedule and the Petronas
syndicate – which has made massive sunk investments and may
have special particular commercial and non-commercial reasons to
proceed with a BC LNG Project – may proceed faster than some
other participants. But the bulk of BC LNG proponents appear likely
to take some time to make a Final Investment Decision and to defer
completion until sometime in the next decade – not the end of
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The Government of Alberta recently announced a number of policy changes that will impact the Alberta Electricity Market, composed of its generators, transmitters, distributors, retailers, electricity consumers and wholesale electricity market.
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