A New Dawn [NGW Magazine]

The positive final investment decision (FID) by Anglo-Dutch major Shell, Malaysia’s Petronas, PetroChina, Japan’s Mitsubishi and Korea Gas is the biggest milestone yet in a project that had its genesis eight years ago, when Shell began reviewing a list of more than 500 possible locations for a western Canadian LNG terminal.

But it’s an even bigger milestone than that: Canada has been pursuing entry into the global LNG market since 1981, when Dome Petroleum reached a deal to export 400mn ft3/day of natural gas as LNG to Japan, beginning in 1985. Weighed down by massive debt, however, Dome pulled out of the project, which was taken over by Mobil and PetroCanada in 1985. The following January it was cancelled, the victim of a global collapse in crude oil prices.

For the next 30 years, Canadian producers were content to focus their marketing efforts on selling their vast supplies of gas to the US, and through much of that period, gas was king in the Canadian energy court, filling provincial coffers far more effectively than oil. Natural gas royalty revenue in Alberta peaked at nearly $8.4bn in fiscal 2005-2006; the same year, conventional oil royalties totalled less than $1.5bn.

But then the shale gale blew through the North American gas industry. Almost overnight, Canada’s biggest export customer became one of the largest gas producers in the world; at the same time, the massive supplies of shale gas south of the border exerted tremendous downward pressure on prices in Canada, and royalty revenue to governments dried up. In fiscal 2016-2017, Alberta’s gas royalties amounted to just $520mn, while conventional oil royalties totalled $600mn.

LNG Canada’s FID has changed that narrative. But it seems that even after eight years of planning, and an “unequivocal” decision to move forward with what Canadian prime minister Justin Trudeau said repeatedly during the FID announcement ceremony was the “biggest private sector investment in the history of the country”, LNG Canada – with five energy majors as partners, and the world’s biggest LNG player leading that partnership – found it an uphill struggle to get where it is.

Part of that difficulty may be traced to the LNG Canada model: its joint venture partners (with the exception of Korea Gas) will provide equity gas from their own western Canadian reserves, primarily in the prolific Montney shale gas play in northeastern BC, and market their own equity shares of LNG output, in whichever market they choose, at whatever price they can get.

In that sense, the first two trains of the terminal, converting 1.8bn ft³/day of Canadian natural gas to 14mn metric tons/year of LNG won’t provide any direct uplift for gas producers not directly involved, and there are plenty of them, in all sizes, in the Montney.

But as LNG Canada pulls gas to the west and gas demand grows in Alberta, Canadian gas prices should begin firming by 2020, and certainly post-2023 when LNG Canada goes into operation.

And that is only from the first two trains: developing the second two trains, to boost output to 28mn mt/yr, will require gas from other producers.

More important than where the gas will come from, however, are the less tangible outcomes of LNG Canada’s decision: a renewed confidence in Canada’s ability to build major energy projects; a major contribution by Canada to reducing greenhouse gas emissions in Asia; and by no means least important, a more robust partnership between indigenous First Nations and the Canadian business community.

Dave Nikolejsin, deputy minister for gas in the BC government, told the Energy Roundtable in Calgary October 10 that LNG Canada has “demonstrated you can actually have these projects happen in the context that we currently exist in; with the cards as they are currently dealt.”

LNG Canada’s output will be the greenest in the world, and it can be delivered to Asia at a profit, even with its proponents on the hook for BC’s C$30/metric ton carbon levy.

Nikolejsin again: “There was no demand to back out of the BC carbon tax – the JV partners will be the biggest payers of the carbon tax in BC, and they can still make money.”

On the First Nations file, LNG Canada is widely recognised as setting a new level of engagement with BC’s indigenous population.

Crystal Smith, chief councillor of the Haisla First Nation, on whose traditional territory the LNG Canada terminal will be built, was moved nearly to tears as FID was announced: “History is unfolding before our eyes. We are having a share, and we are having our say.”

Finally, consider the comments of councillor John Jack of the Huu-ay-aht First Nation, which is co-managing, with Steelhead LNG, the 24mn mt/yr Kwispaa LNG project on Vancouver Island, at the Energy Roundtable: “With LNG Canada, with what we are doing, and other projects are doing, acknowledging First Nations and working with First Nations is something that is really going to be the new process. It’s the new way forward for business in Canada, let alone the energy business in BC and Alberta.”

It’s said that a rising tide floats all boats. As the demand rises for clean energy that has been cleanly – in every sense of the word – produced, other Canadian West Coast projects must be hoping that they can also float, despite their social responsibilities.