B.C. LNG on standby: part two

Indigenous groups and government consultation

In addition to creating incentives for proponents on environmental and regulatory issues, the province has attempted to create greater certainty for project proponents by negotiating and signing a number of agreements with Indigenous groups across the province to offer benefits and opportunities, including project payments, community development projects, social initiatives, education, development, and skills training, environmental stewardship, and economic participation. Indigenous support for these LNG projects is integral to the development, permitting processes, and operations of these LNG projects. 

As background, in Canada, there exists a legal duty on the government to consult, and in some cases, accommodate Indigenous groups where the government contemplates any conduct that may adversely affect their asserted or established aboriginal rights, particularly concerning Aboriginal ‘title’ in B.C. Aboriginal title confers ownership rights over land, including rights to use, exclusively occupy, manage, and derive economic benefits from the land. According to the Canada’s highest court, the Supreme Court of Canada, in a landmark case from 2014: “[t]he level of consultation and accommodation required varies with the strength of the Aboriginal [Indigenous] group’s claim to the land and the seriousness of the potentially adverse effect upon the interest claimed.”⁵ Such rights are constitutionally protected. For example, every LNG project will affect fish and aquatic life, and lie within marine habitat where one or more Indigenous groups assert title or fishing rights. Often, the legwork to fulfill the duty falls on project proponents, who are tasked with providing information, meeting and gathering information from Indigenous groups, and making changes to their proposed projects to address or mitigate concerns raised by Indigenous groups. 

Where projects sufficiently infringe asserted or established rights, Canadian law requires the government to ‘accommodate’ the infringement. Whether accommodation measures are sufficient to justify infringement is a matter that has received limited scrutiny, to date, in Canadian law. However, according to Canadian courts, “Where consultation or accommodation is found to be inadequate, the government decision can be suspended or quashed.”⁶

Despite the uncertainty about what constitutes adequate accommodation, there have been ongoing legal challenges to major natural resource project approvals on the basis of whether Indigenous groups have been adequately consulted. Not all legal challenges relate to LNG specifically, but the implications of the courts’ decisions extend to many natural resource projects in Canada. 

This duty continues to evolve. Canada’s, and now B.C.’s, controversial statements of intent to adopt of the United Nations Declaration of the Rights of Indigenous Peoples, which describes the rights of Indigenous peoples around the world and suggests obtaining the ‘free, prior and informed consent’ of Indigenous peoples in government decision-making, means there has been greater emphasis on securing consent, or at least non-opposition from Indigenous groups for projects that are often located within Indigenous traditional territories.

In June 2016, Canada’s Federal Court of Appeal quashed the approvals for the Enbridge’s Northern Gateway Pipeline Project on the basis that the federal government had failed to discharge its duty to consult.

Despite lauding the proponent’s extensive, multi-year consultation process, and the content of the environmental assessment and public hearing process, the court found that the stage of the government’s consultation efforts after the hearing process had been rushed, limited in scope, failed to adequately share information with Indigenous groups or accurately characterise their concerns, and had not concluded whether the government had ultimately fulfilled its duty.

In July 2017, the Supreme Court of Canada released two important decisions confirming that, where the regulator is the final decision maker, the federal government may rely on existing environmental assessment processes to satisfy its consultation obligations.  Future similar regulatory decisions should be less susceptible to court challenges as a result – provided that cautions by the Supreme Court about robust and accommodating hearing processes are heeded.  Indigenous groups must be able to “meaningfully participate” in practical ways, and potential effects on their asserted rights must be considered and taken into account.

Technological advances

Despite low natural gas prices, the legal and regulatory uncertainties that exist in B.C.’s LNG landscape, and the slow progress towards FIDs, there remains optimism for B.C.’s LNG industry.

In addition to recovering natural gas prices and higher prices in Asia, several trends suggest demand may grow and stimulate LNG development in places like B.C. For example, LNG bunkering and floating regasification infrastructure are emerging and loom large in B.C. 

LNG bunkering occurs when LNG is distributed to a ship and used as an alternative fuel.⁷ With stricter environmental regulations being imposed, the advantages for ships to switch to LNG fuelling are increasing.

Switching to LNG reduces fuel costs for ships by more than 50% and the initial investment can be paid back within six years.⁸ The switch also allows ships to comply with maritime regulations that require a 90% reduction in fuel sulfur content.⁹ Seaspan Ferries Corp. and BC Ferries, two main providers of commercial and passenger ferry service between Vancouver and Vancouver Island, have announced the addition of dual-fuelled hybrid (i.e. diesel or LNG and battery) ferries to their fleets.¹⁰ 

Another promising trend is floating infrastructure. Several smaller proposed B.C. projects involve floating liquefaction barges manufactured elsewhere and transported to the relatively remote North Coast. 

Elsewhere, floating regasification infrastructure involves using specialised vessels that have the capability to regasify LNG. The use of floating regasification has increased dramatically over the last 10 years and smaller countries, such as Pakistan, Egypt and Jordan, have used floating regasification to address their energy needs.¹¹ 

Status of B.C. projects

There are currently over 20 proposed LNG projects in B.C. at various stages of applying for environmental assessment approvals and export licences from the National Energy Board.

The only two projects that are slated to proceed are: 

• Woodfibre LNG, located in Squamish. Woodfibre LNG is a subsidiary of Pacific Oil & Gas Ltd, which is part of the Singapore-based Royal Golden Eagle group of companies. Its scope is small; it is only expected to produce between 1.5 and 2.1 million tpy of LNG. The project received authorisation to proceed from its board of directors in November 2016. The Woodfibre project is unique because it underwent a separate environmental review led by the Squamish First Nations, who imposed binding conditions on the project.
• FortisBC’s Tilbury Expansion project in Delta, which expands the current storage facility. The expansion will increase the facility’s ability to liquefy gas from approximately 91.7 tpd of gas to 11 009 tpd of gas, and increase the storage capacity by 20 183 t.¹²

The following LNG projects have completed environmental assessment processes and are awaiting FIDs:

• LNG Canada, located in Kitimat. It comprises Shell Canada Ltd, PetroChina Co. Ltd, Korea Gas Corp., and Mitsubishi Corp. It is permitted to export approximately 26 million tpy of LNG to global markets.
• Kitimat LNG, located in Kitimat. It is a partnership between Chevron Canada Ltd and Woodside Energy International (Canada), and permitted to export 10 million tpy of LNG. 
• Aurora LNG, located on Digby Island west of Prince Rupert, is currently undergoing a provincial environmental assessment. The project is a joint venture (JV) between Nexen Energy ULC (a CNOOC Ltd company), INPEX Corp. and JGC Corp., and is expected to produce 24 million tpy of LNG.

Three major projects that have not yet submitted formal applications for environmental assessment are: 

• WCC LNG, located in Prince Rupert. It is led by Imperial Oil Resources Ltd and ExxonMobil Canada Ltd, and is expected to produce 30 million tpy of LNG.
• Grassy Point LNG, located near Prince Rupert. It is led by Woodside Energy Ltd, Australia’s largest independent oil and gas company, which operates 8% of global LNG supply.¹³ The project is expected to produce 20 million tpy of LNG.
• WesPac LNG Marine Jetty, located on Tilbury Island adjacent to the FortisBC Tilbury LNG Plant. It is expected to produce 3 million tpy of LNG.

There are 12 other projects that have not started the environmental assessment process, are stalled, or have been cancelled. Some are serious projects with sophisticated teams, while others are more speculative.

Conclusion

As worldwide demand for LNG continues to grow and gas prices recover from historical lows, a more attractive landscape for LNG investment may emerge. Technological advances and government initiatives to create more certainty for project proponents, including through securing Indigenous support, may mean that a wave of LNG development in B.C. is just a matter of time. 

Notes and references

1. Shell acquired the interest in the project when it acquired BG Group PLC in 2016. 
2. LNG Canada, the project proponent, reported: “Originally scheduled for late 2016, the global energy market and the affordability of the project in that context prevented our joint venture participants from taking an FID at that time. However, they are committed to making an FID when these conditions improve and the project has demonstrated that it remains cost competitive against other investment opportunities.” www.lngcanada.ca
3. http://www.pacificnorthwestlng.com/media/NewsRelease-Backgrounder-PNWLNG-July25-2017.pdf
4. http://www.ey.com/gl/en/industries/oil---gas/global-lng--new-pricing-ahead---lng-demand-growth
5. Tsilhqot’in Nation v. British Columbia, 2014 SCC 44, para. 89.
6. Tsilhqot’in Nation, para. 79.
7. https://lngforshipping.eu/lng-for/bunkering
8. http://shipandbunker.com/news/am/229101-vancouver-positioned-to-be-north-americas-preferred-lng-bunkering-destination
9. http://shipandbunker.com/news/am/229101-vancouver-positioned-to-be-north-americas-preferred-lng-bunkering-destination
10. https://www.seaspan.com/seaspan-ferries-corporation-announces-arrival-second-new-liquefied-natural-gas-lng-fuelled-vessel http://www.cbc.ca/news/canada/british-columbia/bc-ferries-lng-powered-vessel-1.3989201
11. https://www.eia.gov/todayinenergy/detail.php?id=20972
12. FortisBC reports that the facility will increase liquefaction from 5000 GJ/d of gas to 600 000 GJ/d of gas and increase the storage capacity by 1.1 million GJ of gas. The figures above were calculated using a conversion of 54.5 GJ for each tonne of LNG.
13. http://www.woodside.com.au/About-Us/Pages/Global-Interests.aspx

This is part two of a two-part article written for LNG Industry’s Auguts issue and abridged for the website. Subscribers can read the full August issue by signing in. Non-subscribers can access a preview of the August 2016 issue here.

Read the article online at: https://www.lngindustry.com/liquefaction/28082017/bc-lng-on-standby-part-two/