Anyone following the development of British Columbia's
nascent liquefied natural gas (LNG) export industry will have a lot
to watch out for in 2016. According to both government and
industry-watchers, two major LNG projects – Pacific NorthWest
LNG and LNG Canada – may reach final investment decisions
(FID) in 2016.
In June 2015, Petronas-owned Pacific NorthWest LNG announced a
positive FID on its proposed export facility on Lelu Island near
Prince Rupert, B.C. subject to two conditions. The first condition,
approval by the B.C. Legislature of the Project Development
Agreement with Pacific NorthWest LNG, was satisfied in July 2015.
The second condition, Federal environmental assessment approval, is
anticipated to be obtained in 2016. In mid-January 2016, Fisheries
and Oceans Canada issued a letter to the Canadian Environmental
Assessment Agency indicating that the potential impact of Pacific
NorthWest LNG's proposed suspension bridge and pipeline from
Lelu Island to its tanker loading docks would be low.
Unlike Pacific NorthWest LNG, LNG Canada (led by Shell) has yet
to announce an FID but in the first week of 2016, became the first
LNG proponent to receive a permit from the B.C. Oil and Gas
Commission to construct an export facility. Among other things, the
permit sets out the environmental and safety requirements for the
design, construction and operation of LNG Canada's Kitimat
facility. Within days of receiving its facility permit, LNG Canada
also obtained a 40 year export license from the National Energy
Board, replacing the 25 year license previously granted for its
Kitimat project. LNG Canada's extended export license must
still be approved by the Prime Minister and his Cabinet.
B.C. Natural Gas Minister Rich Coleman has stated that four
additional FIDs could be reached in 2016 by two major plants and
two smaller plants, bringing the total to six. Douglas Channel, a
smaller liquefaction facility located on a barge off the coast of
Kitimat, is a likely candidate. However, the Company is currently
disputing a 25 per cent excise levy imposed by Customs Canada on
the import of its floating terminal which could prevent a 2016 FID
if a resolution is not achieved soon. Other potential candidates
for 2016 FIDs include the Woodfibre LNG Project near Squamish and
the Tilbury LNG Project in Delta.
We cannot underestimate the impact of the global economic
climate on the timing and nature of such FIDs (i.e. whether they
end up being positive or negative). Recently, certain analysts have
suggested that the prospects of B.C.'s LNG industry are grim in
light of low oil and gas prices and falling demand. Japan's
move to restart its nuclear reactors is a likely factor
contributing to this fall in global demand. However, the long term
economic prospects are more optimistic, particularly given the
decades-long timelines of most LNG projects. Future demand for LNG
may also receive a boost as more countries adopt increasingly
stringent environmental policies, particularly in the wake of the
2015 Paris Climate Change Summit, and actively shift away from coal
generation. Furthermore, oil prices could turn around rather
swiftly, particularly in the event of escalating conflict in the
Shifting focus to upstream developments, LNG proponents are
continuing to build new gas processing infrastructure in northeast
B.C. Construction on Veresen's new Sunrise gas processing plant
near Dawson Creek began in October of 2015 and construction on
another plant of similar size near Fort St. John is expected to
begin this year.
Stay tuned as we follow the progress of B.C.'s LNG export
industry throughout what should prove to be an eventful year.
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