Exporters that aim to enter Asian liquefied natural gas (LNG) markets have to break modern North American habits and relearn an old business culture: strict secrecy, Canada’s National Energy Board (NEB) is being told.

As senior partner in the C$4.5-billion Kitimat LNG project, Apache Canada Ltd. is asking the NEB for an exemption from even the mildest disclosure requirement of long-term gas export licenses. By Asian standards, revealing sales contract terms in any way to anyone is interference with commerce that poses an unwelcome trade risk, Apache said on behalf of its northern British Columbia (BC) export terminal partnership with EOG Resources Canada Inc. and Encana Corp. (see Daily GPI, March 21a).

When the project backers filed their application for a 20-year license for LNG exports of 1.4 Bcf/d in December, the sponsors asked for permission to limit sales contract disclosures to confidential information filings with the NEB. Since then, marketing efforts have highlighted “significant differences” between North American and Asian gas markets, Apache said in a new submission to the board.

“Unlike North America, the terms under which Asian LNG is supplied are not set by a dynamic domestic natural gas market but are negotiated bilateral outcomes between buyers and sellers. These terms are protected by confidentiality,” Apache said.

“In the Asia Pacific region, natural gas supply is predominately sourced through imported LNG shipped from sources around the world. Unlike North America, instantaneous access to alternative domestic or regional sources of pipeline-connected natural gas supply is not available to buyers. Alternative sources of natural gas supply are not readily available, should LNG delivery be curtailed. It is for this reason that long-term reliability is a cornerstone requirement of Asia Pacific LNG buyers,” Apache said.

Marketing efforts by Kitimat LNG in Japan, North Korea, Taiwan and China have run into “significant concerns” over the project’s initial plans to give the NEB copies of long-term purchase and sale agreements, “notwithstanding any proviso that the contract information would be filed confidentially,” Apache said. “This concern is driven by both perceived risk of disclosure and the fact that other competing jurisdictions supplying the Asia Pacific region do not impose such requirements.”

The project’s global gas trade consultant, New York City-based Poten and Partners, has confirmed the Asian penchant for secrecy, Apache said.

“Strict adherence to confidentiality of long-term sales and purchase arrangements is of paramount importance to buyers in the region. In 2010, more than 90% of the Asia Pacific (gas) trade was through such long-term sales and purchase arrangements. Strict confidentiality clauses are part of each agreement and strong adherence to these clauses represents the foundation of a sustainable relationship between the buyer and the seller.”

Kitimat LNG is also demonstrating the critical role of relationships in expanding the gas trade on another front: aboriginal affairs, a key feature of the northern BC regulatory landscape. After obtaining C$30 million in cash, a pledge of C$20 million more when construction starts and a long land lease for the terminal from the project, the BC Pacific Coast’s Haisla Nation has stepped forward as an indigenous defender of the gas development against a native rival.

As the most directly affected aboriginal group due to its home base at Kitimat, the Haisla have parted company over the project with Gitxaala Nation. From their capital farther north on the BC coast, Kitkatla on Dolphin Island near Prince Rupert, the Gitxaala have intervened in the LNG export case before the NEB in the name of the environment, always a politically potent force across BC as the California of Canada.

In a motion demanding a long pause in NEB proceedings by its lawyers and in emotionally charged ceremonial messages about aboriginal rights by hereditary chiefs Clarence Innis, Elmer Moody and Larry Bolton, the Gitxaala are calling on the board — and all other federal and provincial authorities — to make the project begin again by formally consulting them on issues from ocean tanker routes to sacred sites and fish stocks.

But the Haisla Nation Council — which has also launched a smaller LNG export terminal project of its own next to the Apache-EOG-Encana site (see Daily GPI, March 21b) — is urging the NEB to save the gas development from sinking into the same regulatory limbo that has slowed down an Alberta-based oilsands export pipeline and Kitimat terminal proposal, Enbridge Inc.’s Northern Gateway scheme.

The Haisla observe, “Gitxaala appears to assert aboriginal rights and title claims over a very extensive area. We wish to make clear that the Haisla do not agree with, and have a longstanding dispute regarding, the territorial boundaries claimed by Gitxaala.”

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