After relying entirely on pipeline deliveries into the United States to date, Canadian exporters received the green light Thursday to break into overseas markets for liquefied natural gas (LNG).
The National Energy Board (NEB) granted Canada's first LNG export terminal project a 20-year export license to load up ocean tankers with 9.3 Tcf of liquefied gas, or up to 1.3 Bcf/d. The ruling effectively enables the KM LNG partnership of Apache Canada, EOG Resources Canada and Encana Corp. to proceed into construction of its proposed C$5.5 billion (U.S. dollar at par) terminal at Kitimat on the northern Pacific coast of British Columbia.
The project obtained BC and federal environmental approvals as an LNG import terminal in 2006 and 2007. After emerging gas surpluses prompted the sponsors to switch to exports, authorities approved the conversion in 2008 and 2009. The NEB further paved the way for the export scheme by rejecting critics' claims that national environmental reviews are required for drilling and production development that the terminal project is sure to accelerate in northern BC shale gas areas.
The board said no particular drilling and production schemes have emerged that can be directly attributed to the LNG program and therefore special inquiry is not required. Field activity will be reviewed and approved as need arises, primarily by the BC Oil and Gas Commission, but also in Alberta if effects of the project ripple across the provincial boundary. Tanker traffic plans for BC coastal waters are under study by other environmental authorities and there is no need for duplicate efforts, the NEB added.
An affiliated pipeline project to fill the terminal with BC gas, called Pacific Trails, has already obtained approvals, too. Also like KM LNG, the pipeline has secured aboriginal cooperation, a critical ingredient of development in the region. The package includes an agreement with a commercial coalition of 15 BC native First Nations.
The ruling said the NEB "recognizes that forecast demand growth for LNG in the Asia Pacific region provides a new opportunity for Canadian producers to diversify their export markets." In addition, the overseas pattern of "long-term, oil-indexed sales contracts could provide for higher netbacks to Canadian producers," the NEB said.
The board went an extra mile to help the overseas gas marketing drive by granting a special exemption from conventional Canadian gas export rules. KM LNG will not be required to reveal identities of customers or other details of Asian export contracts even to the NEB. This was a provision it had sought earlier at the behest of its prospective Asian customers (see Daily GPI, May 2).
The project's sponsors requested strict secrecy, saying it was demanded by potential overseas customers as a condition of contracts currently being negotiated. As a result, gas market rivals and other interests will be unable to probe into the new overseas trade by making freedom of information requests. The only export reporting requirements will be quarterly sales volumes, their total value in Canadian dollars, and a breakdown by destination country, the NEB ruled.
The KM LNG consortium has predicted sales contracts could be obtained within months, enabling a prompt start on terminal construction. A decision on whether to proceed with the project is expected early next year (see Daily GPI, Oct. 5).
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