Resource World Magazine

52 www.resourceworld.com a u g u s t / s e p t e m b e r 2 0 1 5 Oil & g a s T hose banking on the development of a liquefied natural gas (LNG) industry in British Columbia, including that province's government, got a boost recently when the Pacific NorthWest LNG (PNW LNG) consortium announced they had made a conditional investment decision to proceed with the multi-billion-dollar project, the first group to do so. They join 18 other groups who are in various stages of development of LNG projects in BC. "This decision essentially means that the project is economically viable, and all of the core commercial and technical com- ponents have been satisfied. This factors in the federal and provincial fiscal regime," PNW LNG president, Michael Culbert, said in an interview. Led by Malaysian energy giant Petronas [PTG-MK], the PNW LNG consortium, which at one point threatened to cancel the plan, approved the $36-billion project in June, which will include an $11.4-billion facility in the Prince Rupert area on the northwest coast plus other infrastructure, subject to approval by the provincial gov- ernment and the Canadian Environmental Assessment Agency (CEAA). The CEAA has indicated that information is still required about the potential effects of the project on sediment transport and the modeling of hydrodynamics affecting sediment dispersion, as well as potential impacts on the local salmon habitat. In what was largely a foregone conclu- sion, the province approved the project in a special July session of the legislature and the CEAA will issue its review later this year. The project already has received an environmental certificate from the province. The Project Development Agreement (PDA), ratified by the provincial gov- ernment, is designed to provide LNG proponents with long-term cost certainty regarding certain provincial taxation and environmental laws and regulations appli- cable to LNG facilities. Through the PDA, the government has agreed to compensate the consortium if taxes on the industry are raised, if natural gas tax credits are reduced, or new carbon taxes targeting the LNG sector are imposed in the next 25 years. But the agreement does not protect the company from increases in provincial sales and corporate taxes. "Our government has put this new industry in a position of strength to move forward and created certainty for Pacific NorthWest LNG on its path," BC Minister of Natural Gas Development, Rich Coleman, said in an interview, stress- ing that the project will be developed with the "highest standards" of environmental protection and enhancement. "Developing an LNG industry will result in some of the largest private-sector investments in British Columbia's history, stimulating economic activity throughout our province like never before," Coleman added. "Pacific NorthWest LNG is poised to be the first major operation in this new, exciting future." BC Finance Minister, Mike de Jong, said the potential economic returns from British Columbia's first liquefied natural gas deal will outweigh any targeted-tax tradeoffs. De Jong said he expects British Columbians will support the project, which he predicted should generate $9 bil- lion in government revenues in a decade. In comparison, he said BC's entire forest industry generated between $550 million and $600 million for the province over the past five years. Petronas, which delayed signing off on the project in December citing high costs, royalty and tax uncertainty as well as plunging oil and LNG prices, has part- nered with sinopec [SNP-NYSE], which holds a 15% stake in the project, indian Oil Corp. [IOC-NSE] and Japan Petroleum exploration [JPTXF-NASDAQ], both with 10%, and Petroleum Brunei with 3%. The project would see an LNG export facility built on Lelu Island near Prince Rupert. It will be fed by a 900-km, $1.7-bil- lion natural gas pipeline, slated to be built from northeast BC by transCanada Corporation [TRP-TSX], subject to 45 National Energy Board conditions. Nearly 90% of the plant's 12 million tonnes of annual output is contracted to Chinese, Japanese, Malaysian, Brunei and Indian importers. However, there are concerns because the cost of producing LNG in Canada will be among the highest in the world and potential major customer China report- edly is growing lukewarm to Canadian LNG imports in the face of other, cheaper opportunities from Russia and elsewhere in the world. Pacific northWest lng's project advancing slowly by Bruce Lantz Michael Culbert, President, Pacific Northwest LNG.

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