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British Columbia, Japan Ink Agreements to Further LNG Export Cooperation

British Columbia (BC) Premier Christy Clark used a trade mission to Japan to give formal political support this week to the industry lineup to build liquefied natural gas (LNG) export terminals on the province’s northern Pacific coast.

On the heels of applications to the National Energy Board (NEB) for long export licenses by LNG projects that include Japanese business partners, Clark signed two supportive planning agreements with authorities in Tokyo. A joint, three-year memorandum of understanding with Japanese Industry Minister Toshimitsu Motegi pledges expanded energy co-operation and work on strengthening mutual business opportunities.

The pact between Clark and Motegi calls for accelerated investments in BC gas supply development, timely environmental assessment processes for all aspects of LNG export projects, efficient “infrastructure” or pipeline approvals and construction, and energy policy and technology information sharing.

Similar themes are outlined in a second agreement that renews cooperation commitments first made in mid-2012 by the BC government and Japan Oil, Gas and Metals National Corporation (JOGMEC). The arrangement with the Japanese conglomerate supports feasibility studies of a gas-to-liquids development in BC, as well as LNG projects.

The BC courtship of Asian energy investors and consumers was scheduled to spread on Wednesday to China, where provincial Trade Minister Teresa Wat had a date to open a BC-Guangdong LNG seminar. The trade mission amplifies themes that BC’s Liberal government has sounded with increasing enthusiasm since winning re-election last spring on a campaign platform that relied heavily on LNG development prospects.

The political promises include using future shale gas production royalties and potentially a provincial LNG export tax to build up a C$100 billion (US$94 billion) “prosperity fund” akin to the Alaska Permanent Fund for state oil revenue surpluses.

Back in the BC capital of Victoria, provincial Natural Gas Development Minister Rich Coleman gave the industry further encouraging word by announcing postponement of any decision on the potential export tax. LNG project sponsors have warned Coleman against making hasty decisions that could complicate or jeopardize the intricate economics of assembling from scratch a new supply chain of shale production, pipelines, terminals and tanker shipping.

BC discussion papers indicate the export tax will have an ability-to-pay element by creating a sliding scale of rates, with the province’s take made to vary depending on prices fetched by LNG exports.

The problem for all concerned is that to date none of the nine Pacific coast LNG projects in the NEB lineup for licenses to export BC shale gas have nailed down big enough supply or price contracts with overseas buyers to support starting construction of the multibillion-dollar greenfield development schemes. Japanese commercial interest in principle is a fixture of the lineup, which has been dubbed “the race to Asia” in BC.

As Clark and her trade delegation flew across the Pacific, a project owned by Japanese and Chinese corporations -- Aurora Liquefied Natural Gas Ltd. -- filed for a 25-year NEB license to ship 30.5 Tcf of BC shale production overseas as LNG from a terminal proposed for Prince Rupert (see Daily GPI, Dec. 2).

Nexen Energy, the Canadian subsidiary of China National Offshore Oil Co. (CNOOC), leads the Aurora group with a 60% ownership interest. A 40% minority share is split between two Japanese firms: Tokyo-based INPEX Corp., and JGC Exploration Canada Ltd., a subsidiary of a Yokohama engineering house that has participated in LNG projects in Australia, Malaysia, Brunei, Indonesia, Qatar, Nigeria, Egypt and Yemen.

The Aurora joint venture also includes 40% participation by the Japanese in upstream development of northern BC shale deposits where Nexen-CNOOC hold exploration and production leases to provincially owned mineral rights.

Elsewhere in the BC Pacific coast project lineup, Mitsubishi Corp. is participating in the LNG Canada project led by Shell Canada. JAPEX, short for Japan Petroleum Exploration Co., has a 10% share in Pacific Northwest LNG proposal by Progress Energy, the Canadian subsidiary of Malaysian state-owned conglomerate Petronas (see Daily GPI, March 5).

In a statement from Tokyo, issued by her BC office in Victoria, Clark said, "As the world's largest importer of liquefied natural gas, Japan is a critical partner in the development of BC's natural gas industry." The BC premier added, "We're here to leverage our competitive advantages and make sure BC is top of mind for LNG investment."

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