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LNG Canada Nabs Construction Permit, ‘Important Step Forward,’ Says Shell

One month after a community ceremony broke ground for site preparations, the formal construction permit has been given to an international group led by Shell Canada Ltd. for a liquefied natural gas (LNG) export terminal on the northern Pacific coast of British Columbia (BC).

The BC Oil & Gas Commission (BCOGC) on Tuesday authorized, subject to local safety and environmental conditions, a Kitimat processing and tanker-loading complex for up to 3.7 Bcf/d planned by the group of Shell (50%), PetroChina Corp. (20%), Korea Gas Corp. (15%) and Mitsubishi Corp. (15%) (see Daily GPI, July 6, 2015).

The approval is the first of many in the works at the BCOGC, which last year delegated exclusive power to make terminal site construction decisions on the long lineup of BC overseas gas export projects to the commission.

LNG Canada previously received federal and provincial environmental approval, hired a construction general contractor, made a power supply deal with provincial government-owned BC Hydro, and lined up benefit agreements with the Kitimat native community.

The LNG Canada group has been working on its export scheme for about five years, and Shell had said it would make a final investment decision about the project in 2016 (see Daily GPI, Nov. 10, 2014).

In the biggest part of the preparations, Shell has emerged as a top producer in the Montney formation, tapping the shale-like and liquids-rich “tight gas” formation straddling northern BC and Alberta for about 410 MMcf/d with horizontal drilling and hydraulic fracturing techniques (see Shale Daily, Jan. 4).

The gas currently goes to traditional markets in Canada and the United States, including northern Alberta thermal oilsands extraction where Shell is senior partner in one of the biggest bitumen mining and synthetic crude upgrading complexes.

In announcing the BCOGC permit, Shell indicated full-scale construction remains a considerable time away and is not a sure bet.

The company called the ruling “an important step forward” but added that “the project must ensure it is economically viable and meets several other significant milestones including finalizing engineering and cost estimates, supply of labor, and achieving other critical regulatory approvals before making a final investment decision.”

Shell has been pulling back across North America and in December sharply reduced its development plans for 2016 (see Daily GPI, Dec. 23, 2015).

Pending approvals still include a ruling by the National Energy Board on an application for a 15-year extension of LNG Canada’s long-term gas export license. The request is the first one for maximum 40-year authorizations made available by a recent federal energy policy change, in response to industry reports that the super-long licenses would strengthen Canadian LNG projects’ appeal by catering to overseas customers’ desire for supply security.

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