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Canadian LNG Projects Facing Multiple Challenges

Industry and the pro-development British Columbia (BC) government have been warned not to count Canadian liquefied natural gas (LNG) exports before they flow -- by the National Energy Board (NEB) as well as aboriginal protesters.

The NEB sounded a cautious note in a decision to grant the 13th long-term export license for a proposed tanker terminal, as a warning that overseas sales are unlikely to grow enough to strain supplies or drive up prices on domestic gas markets.

"Not all LNG export licenses issued by the board will be used or used to the full allowance," said the approval for WesPac LNG to ship out up to 400 MMcf from a Pacific Coast site in the Vancouver suburb of Delta.

"All of these LNG ventures are faced with a growing but limited, global market for LNG, and they face numerous challenges," the ruling said.

"Factors such as global LNG demand, lack of existing infrastructure, remoteness, changing market dynamics, and the Canadian cost structure are among the issues that Canadian LNG ventures are facing."

As a partnership of veteran gas merchants -- Houston-based WesPac Midstream and FortisBC Energy Inc., BC's primary gas and power utility -- WesPac LNG is structured to avoid, or at least minimize, the challenges recited by the NEB.

Rather than a start from scratch like almost all other Canadian LNG export schemes, the project is an expansion of a plant that since 1971 has made, stored and trucked out up to 5 MMcf/d of LNG during peak fuel demand seasons in communities as far away as the Yukon.

Although the Vancouver region is notoriously hard on any industry that threatens to change or disturb the natural environment or neighborhoods, the plant has succeeded in making a C$400 million (US$320 million) start on growing. An initial expansion to 33 MMcf/d is under way, driven by sales to truck fleets that are doing fuel conversions to LNG from diesel.

WesPac LNG stands on the economy-model side of the size spectrum in the lineup of 25 Canadian tanker schemes that have matured enough to apply for export approvals. The 13 licenses granted to date permit overseas shipments of up to 23 Bcf/d -- a volume 35% greater than the 17 Bcf/d Canadian production peak hit in 2005.

Canadian LNG tanker loadings would nudge 45 Bcf/d if all 25 licenses sought by the industry were used to the fullest. The WesPac export license approval decision recited evidence that total shipments could turn out to be as low as 2 Bcf/d. The NEB said it would not predict export volumes or try to guess which projects would succeed.

As the NEB awarded the WesPac export license, the seven-fold larger Pacific NorthWest LNG project led by Progress Energy, the Canadian arm of Malaysian state conglomerate Petronas, ran into a common risk of starting from scratch in northern BC.

A community plebiscite in the aboriginal community on Pacific NorthWest’s proposed tanker terminal site near Prince Rupert, Lax Kw’alaams, rejected a tentative benefits agreement that industry promoters and political boosters hailed as a breakthrough.

The rejected deal promised C$1.2 billion (US$960 million) in direct payments, jobs and other revenue streams over 40 years. But native protesters called the project a threat to traditional salmon fishing livelihoods and the northern Pacific Coast environment.

The Lax Kw’alaams also issued a blunt reminder that BC projects run a notoriously labyrinthine gauntlet of customs, resistance, competition and conflict among aboriginal interests, industry and the provincial and federal governments.

A statement distributed across Canada by the northern native band’s chief and council said, "Hopefully, the public will recognize that unanimous consensus...against a project where those communities are offered in excess of a billion dollars, sends an unequivocal message this is not a money issue: this is environmental and cultural."

Lax Kw'alaams leaders promised to listen to other proposals by Pacific NorthWest, which likewise circulated a statement pledging to make more efforts to reach an agreement.

Elsewhere in BC, the provincial government claims to have persuaded 28 native communities to make agreements at least tolerating gas and LNG development, but it has not identified the co-operating groups.

As sponsor of the Prince Rupert Gas Transmission pipeline proposal to fill Pacific NorthWest with northern BC gas, TransCanada Corp. has announced agreements with four inland native groups along the 900-kilometer (540-mile) route: Lake Babine, Nisga'a Lisims, Gitanyow and Kitselas.

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