Canada Climate Test Seen as Another Hurdle for Gas Export Plans

  • Petronas shipping project worth $26 billion faces more study
  • Greenhouse gas emission impact added to environmental reviews

A climate test Canada has added to resource project reviews is being seen as one more obstacle holding back the nation’s fledgling liquefied natural gas industry, including a C$36 billion ($26 billion) project led by Petroliam Nasional Bhd.

Proponents of a handful of gas-shipping terminals on the nation’s Pacific Coast are set to decide this year whether to proceed with construction. One of the front runners, the already-delayed project led by Malaysia’s Petronas, is now caught up in additional government review.

Pacific NorthWest LNG is coming under new policies announced by Prime Minister Justin Trudeau’s Liberal government last week, including more consultation and an assessment of the carbon emissions tied to the facility and gas-field drilling. Trudeau, who took power Nov. 4, campaigned on overhauling resource project reviews to overcome environmental opposition that has dogged proposals, particularly oil pipelines.

“It’s made a process that is already difficult even more difficult,” John Stephenson, chief executive officer and founder of Stephenson & Co. in Toronto, said in a phone interview. “We’re already, in the case of LNG, way behind the competition.”

Growing Competition

The almost two dozen gas megaprojects proposed for Canada’s westernmost province of British Columbia are vying with supplies coming on stream from Australia and the U.S., as Asian demand slows and the oil slump lowers LNG prices and reduces companies’ ability to fund major developments. None of the Canadian ventures being considered by companies including Royal Dutch Shell Plc and Exxon Mobil Corp. have started construction.

The climate test, a consideration of greenhouse-gas emissions impact, affects projects under review when it was announced, not those already with approvals, such as the Shell-led project. The federal announcement last week came as a British Columbia delegation including Premier Christy Clark prepared for a trip to Ottawa Feb. 3-5 in part to push for federal support for the LNG industry, which is seen as a significant economic driver for the province.

Regulatory Approvals

Petronas and other backers of Pacific NorthWest LNG last June gave the project a conditional go-ahead, conditional on receiving regulatory approvals. Still awaiting those approvals last month, Petronas Chief Executive Officer Wan Zulkiflee Wan Ariffin said in an interview that the project “can’t be held in abeyance indefinitely. The window is closing fast."

Project officials in Canada aren’t weighing in on the specifics. “Following the 2015 election, Pacific NorthWest LNG has enjoyed a constructive, science-based discussion with the government of Canada,” Spencer Sproule, a spokesman, said in an e-mailed response to questions and an interview request.

The implications of the climate test on the LNG industry are so far unclear, other than that it adds more uncertainty for international investors, said Judith Dwarkin, chief economist at RS Energy Group in Calgary.

“The language so far is long on principle and short on detail,” Dwarkin said. “At a minimum, more uncertainty isn’t positive for people looking at investing great big bucks in LNG projects.”

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