LNG Canada produces its first cargo as nation swings to oil and gas

The winds in Canada have recently been blowing in the oil and gas industry’s favour.

Canada’s first major LNG export terminal just achieved first production, and the Canadian parliament passed legislation that may fast-track more oil and gas infrastructure. While the Canadian energy industry sees growth ahead, critics warn the potential building spree will knock Canada’s climate progress badly off track.

The Shell-backed LNG Canada, a $40 billion project in northwestern British Columbia, produced its first cargo of LNG in late June. Not only does it establish Canada as a significant LNG exporter, but LNG Canada is also the first major LNG terminal on North America’s Pacific Coast. That could speed up the flow of North American gas to Asia.

The project was riddled with problems that resulted in years of delays and billions of dollars in cost overruns. The associated Coastal GasLink pipeline ferries gas from northeast British Columbia hundreds of kilometres across the province to LNG Canada. A multi-year resistance from Indigenous communities delayed construction and sparked nationwide solidarity protests. The pipeline was originally supposed to cost around $4.5 billion but ended up with a final price tag around $14.5 billion.

Canadian Prime Minister Mark Carney has vowed to remove obstacles for similar projects. He was elected on a “nation building” platform of strengthening Canadian sovereignty in the face of pressure and threats from the United States. Part of that platform included accelerating the construction of new infrastructure, and reducing the time and difficulty required during the permitting process.

The cornerstone of this effort is Bill C-5, which the House of Commons passed on June 20th.

Bill C-5 removes federal barriers to trade between provinces, and it expedites permitting for infrastructure projects the government deems to be in the “national interest.” Exactly which projects qualify for such a designation remains to be seen, but Carney has emphasised the need for new oil and gas pipelines, transmission lines, and other energy projects.

The legislation will allow the Canadian government to select projects that would effectively be “pre-approved,” and any subsequent technical review would not be able to derail the project. Critics warn it grants far too much power to the federal government and will diminish the obligation to consult with and gain the consent of First Nations.

“Allowing Cabinet to decide whether projects proceed before reviewing them is like building a house and then calling an engineer to ask if it’s safe,” Anna Johnston a staff lawyer at West Coast Environmental Law, said in a statement before the vote. “This bill lets Cabinet put people and the planet at risk with no knowledge of the consequences.”

Carney said that the government would still consult with First Nations, although the legislation does not require their consent on projects the government wants to push forward.

“These projects will build our national economy — and through Indigenous equity and resource management, these projects will be built with Indigenous nations and communities,” Prime Minister Mark Carney said after the bill passed in the House of Commons. “This is not an aspiration. It is the plan embedded in the bill itself.”

That effort at fast-tracking infrastructure at the national level is mirrored by a similar piece of legislation by the provincial government of British Columbia. In B.C., Bill 15 passed into law in May. Bill 15, like its national equivalent, slashes the environmental review process and allows the provincial government to quickly approve projects deemed “provincially significant.”

At the national level, Carney’s Liberal government received the backing of many Conservatives on Bill C-5, even as it faced opposition from smaller parties. In B.C., the ruling New Democrat Party, which is ostensibly on the Left, has also supported the oil and gas sector for many years.

The office of B.C. Premier David Eby and the Ministry of Energy and Climate Solutions did not respond to questions from Gas Outlook.

The major overhaul of how energy projects are treated and permitted in Canada, at both the provincial and national level, is occurring with remarkable speed. And the reforms are unfolding at a time when new oil and gas infrastructure is coming online — and many more projects are on the drawing board.

The oil and gas industry welcomed the new regulatory landscape, adopting Carney’s “nation building” language and applying it to fossil fuel infrastructure. 

“The Canadian Association of Petroleum Producers (CAPP) strongly supports fast-tracking necessary infrastructure to develop new markets to achieve the Prime Minister’s vision of making our country into a global energy superpower,” Lisa Baiton, CAPP President and CEO, told Gas Outlook in an email. “The oil, natural gas and LNG industry has the potential to position Canada’s West coast as a globally significant energy export hub supplying critical resources to our trading partners and new markets, while contributing to growing a strong and resilient national economy.”

LNG and pipelines

The startup of LNG Canada — often billed as the largest private sector investment in Canadian history — launches Canada into the small club of nations exporting LNG around the world.

When fully operational, LNG Canada will become the single largest source of climate pollution in the province. The first phase of the project alone is expected to release greenhouse gas emissions that are equivalent to one-fifth of B.C.’s total emissions from 2020.

And as Gas Outlook has previously reported, the LNG expansion is likely to wreck B.C.’s climate targets.

But the buildout continues. In southwestern B.C., Woodfibre LNG is under construction. And the B.C. government recently provided a boost to a larger project in northwestern B.C.

Ksi Lisims LNG is a proposed floating LNG terminal that would have a capacity of 12 million tonnes per year. It is backed by a partnership between the Nisga’a Lisims First Nation, a series of Canadian gas producers, and a U.S.-backed LNG developer.

Ksi Lisims would need a new long-distance pipeline from the Montney shale in northeastern B.C. to the Pacific Coast. That pipeline, called the Prince Rupert Gas Transmission (PRGT) pipeline, would run 900 kilometres across steep terrain.

In early June, the province of B.C. ruled that construction of PRGT had “substantially started” late last year, a key decision that upholds the project’s environmental certificate and validates it in perpetuity. If a decision had gone the other way, the certificate would have expired, and the future of the project would have been in doubt.

In effect, the decision from B.C. gave a green light to the pipeline and provided a jolt of momentum for Ksi Lisims LNG.

Environmental and public health groups were aghast.

“Not only does approving PRGT threaten B.C.’s ability to meet its own carbon pollution targets, but it also threatens the lives and health of people living in the communities where even more gas will be extracted,” Dr. Melissa Lem, president of Canadian Association of Physicians for the Environment, said in a statement. “Research ties fracking to higher risks of lung disease, heart disease, adverse pregnancy outcomes, cancer and mortality.”

The pipeline is opposed by the Gitanyow hereditary chiefs. Last year, the chiefs established a blockade to block construction.

The project is not a done deal. A report from the Institute for Energy Economics and Financial Analysis (IEEFA) found that Ksi Lisims LNG faces significant risks related to a lack of infrastructure, regulatory challenges, community opposition, questionable market demand, and competition from an expected LNG glut.

“Western Canada’s location in closer proximity to key Asian markets presents a structural advantage, but it may be insufficient to ensure long-term project competitiveness,” Mark Kalegha, an energy finance analyst, wrote in the report.

As the saga with LNG Canada shows, such a complex project carries tons of risk, potential for delays, and a reasonable likelihood of costs that balloon much higher than initially anticipated. Indeed, the pipeline was originally expected to cost around $5 billion when it was envisaged back in 2013. It may now cost around $10 to $12 billion, according to Western LNG, one of the developers of Ksi Lisims. A more detailed picture of the finances for the pipeline is expected later this year.

Ksi Lisims LNG did not respond to questions from Gas Outlook.

Opponents have pointed out that Ksi Lisims has received significant financial backing from private equity giant Blackstone, whose CEO has been an ally of President Trump. That link is notable, given that one of the main justifications for a major oil and gas buildout to Canada’s Pacific Coast — from both industry and the Canadian Prime Minister — is to insulate the Canadian economy from American pressure.

But the main obstacles are likely to be commercial. Ksi Lisims has signed up roughly 30 percent of its capacity with customers under long-term contracts, leaving around 70 percent still without a buyer. Hunting for business in a market that is staring down several years of oversupply could prove to be challenging.

“Unforeseen cost escalations, extended commodity price slumps or regulatory challenges could effectively erode the project’s economic returns,” Kalegha wrote. “The presence of massive sunk capital costs and a protracted payback period for LNG projects, typically stretching over a decade or two, highlight the speculative nature of the sector, underscoring a sometimes-thin line between viable and uneconomic projects.”

(Writing by Nick Cunningham; editing by Sophie Davies)