Two Indigenous-led LNG developments raise hopes of new West Coast natural gas export projects

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CALGARY — After a string of cancelled liquefied natural gas projects in British Columbia, a pair of new proposals led by Indigenous groups is reinvigorating hope that additional Western Canadian natural gas exports to Asia could finally become a reality.

The Nisga’a Nation, whose traditional territory is north of Prince Rupert near the Alaska border, and a Calgary-based consortium of natural gas producers called Rockies LNG Partners, plan to file a project description for the Ksi Lisims LNG project in the next month or two, the Financial Post has learned.

“I am pleased to advise all of you about a collaborative endeavours agreement the Nisga’a Nation has recently entered into for the assessment and development of an LNG facility in the Nass Area,” Nisga’a president Eva Clayton wrote in a letter to members of her community in March. The letter is the only publicly available information about the project published to date.

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“We are working with Western LNG and Rockies LNG Partners to advance an LNG project named Ksi Lisims LNG, a name graciously provided by the Nisga’a Executive,” Clayton wrote, adding that the Nisga’a have been trying to attract an LNG project to the community for over a decade.

An accompanying fact sheet outlines the scope of the LNG project, which would be a floating liquefaction facility capable of producing 12 million tonnes of the super-cooled natural gas per year near the village of Gingolx. The project aims to be a net-zero LNG facility and would generate 4,000 construction jobs.

The Nisga’a did not respond to questions about the project. Talks between the community Rockies LNG Partners are ongoing on how to structure the project.

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The Royal Dutch Shell Plc.-led $40-billion LNG export project in Kitimat is the only project that has secured final investment decision from its backers. Woodfibre LNG, a smaller project located in Squamish, B.C., is awaiting a final approval from its Singapore-based owner Pacific Oil & Gas Group.

The projects are the only two survivors after a string of cancelled multi-billion-dollar LNG export projects — including the $36-billion Pacific NorthWest LNG project near Prince Rupert and Exxon Mobil Corp.’s $25-billion West Coast Canada LNG project.

But the two new projects — the Cedar LNG project and the Ksi Lisims LNG project — have injected fresh optimism in the Canadian oilpatch, and are moving forward with strikingly different ownership structures than those that were scrapped by international oil majors in recent years.

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Both projects have given natural gas producers drilling in Alberta and British Columbia new confidence that LNG projects might still be built to ship chilled gas to Asia, Raymond James analyst Jeremy McCrea said.

“There have been a lot of lessons learned over the last decade over the best way to go about doing this so that a project actually does get built,” McCrea said. “I think what it comes down to is these companies all looked at the process in terms of, ‘What were the mistakes those projects made?’ The big one was there wasn’t proper consultation with the First Nations groups. That’s the big difference now with these projects.”

On June 15, the Senate passed Bill C-15, which calls on the Canadian government to bring Canadian laws into line with the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP), which is a series of articles ratified by the U.N. enshrining Indigenous rights including the right to self-determination.

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Bill C-15 is expected to cause more direct partnerships with First Nations groups on resource projects because UNDRIP requires “free, prior, informed consent” on projects.

As the new projects move forward and LNG commodity prices have strengthened around the world, gas buyers are once again reaching out to Canadian gas producers and looking to ink supply contracts.

Both PetroChina Canada Ltd. and KOGAS Canada Ltd., which are partners in the $40-billion, under-construction LNG Canada export project are in talks with Calgary-based natural gas producers to secure gas for the under-construction gas liquefaction project.

Neither PetroChina or KOGAS responded to requests for comment.

LNG prices have also firmed up lately, with the Japanese JFK benchmark up nearly 366 per cent to US$10.92 per mmBtu in May, compared to rock-bottom prices during the same period last year. Delays in new projects should  make for a tighter market in the next few years.

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The market could see up to 9 million tpa of supply removed between 2026 and 2030, disrupting global balances, according to Rystad Energy, which expects LNG prices to remain above U$8 per MMBtu in 2025.

Indeed, market dynamics have changed to such a degree that buyers are now concerned about gas supply in Western Canada, according to McCree, the Raymond Jame’s analyst.

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In past years, when LNG Canada was the only project out of a total of 20 to begin construction, those natural gas buyers had a significant amount of market power in negotiating with producers and trying to secure streams of the commodity for export to buyers in Asia.

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GLOBAL LNG LANDSCAPE
There continue to be challenges globally as 21 export terminals with a combined output volume of 265 million tonnes of LNG per year, or 38 per cent of the total capacity under development, continue to report serious delays, according to a June report from Global Energy Monitor.

Those delayed projects include the Kitimat LNG project, which had been led by Chevron Corp. and Australia’s Woodside Petroleum Ltd. Chevron announced its intention to withdraw from the project in 2019 and Woodside pulled out in May.

But not far from the troubled Kitimat LNG project, the Haisla Nation has been pushing their Cedar LNG project through the regulatory process in recent years. On June 8 it inked an agreement with Calgary-based Pembina Pipeline Corp. to partner of the $3-billion floating liquefaction facility, with the capacity to export 3 million tonnes of LNG per year.

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“Our biggest key driver was minimal impact on our environment,” Haisla Nation Chief Councillor Crystal Smith said as she described why the nation was focused on building a floating LNG facility.

The partners hope to reach a project sanctioning decision on Cedar LNG by 2023, which would make Pembina an LNG player after years of being frustrated in its attempts to build the Jordan Cove LNG project on the Oregon coast.

“I like the Cedar project, it’s kind of a smaller bite of the apple at $2.5 billion or so,” said Cameron Gingrich, managing partner at Calgary-based natural gas consulting firm Incorrys Inc., adding the project would face less project risk because it would use existing pipeline space from the under-construction Coastal Gaslink.

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“Building a pipeline anywhere in North America these days is quite a risky venture, especially when it can cost you half a billion to a billion dollars to get through the regulatory process to get to that FID,” Gingrich said.

Further south, Woodfibre LNG is now on pace to reach a final investment decision on its project later this summer or fall. The project, which was the first to submit itself to a First Nations-led environmental review, has delayed an FID on multiple occasions.

“We’re optimistic about our FID target of Q3 this year,” Woodfibre LNG spokesperson Rebecca Scott said in an email, adding the company believes its LNG facility will have some of the lowest emissions of any export project because it will be using renewable electricity rather than natural gas for power.

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“Our key objective in order to reach FID is to make the project as cost-competitive as possible so we can start construction on what we hope will become the most innovative and sustainable LNG facility ever built,” Scott said.

Across the country, LNG project proponents are focused on First Nations engagement and partnerships ahead of moving towards a sanctioning decision. Analysts consider LNG Canada, still the only large liquefaction project under construction in the country, a model for other companies to follow because it secured significant support and signed impact benefit agreements with all elected Indigenous groups for its export facility and pipeline before it moved to a final investment decision.

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Tony Le Verger, president of GNL Quebec, which is looking to build the Énérgie Saguenay export project in the province, said that Indigenous ownership stakes in energy projects are becoming more common.

“We are not opposed to First Nations ownership. This is something that’s newly being done now on the West side of the country,” said Le Verger. Institutional investors are not keen to invest in projects that face the level of regulatory risk that exists in Canada, but agreements with affected First Nations are critical to de-risking energy infrastructure projects across the country, he said.

“Not all First Nations are the same in terms of how they want to be involved in a project,” Le Verger said, noting that some communities are looking for different types of benefits in an impact-benefit agreement.

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