Varcoe: Canada offered ‘second chance’ to be global player in LNG

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As the United States pauses the approval of all new LNG export projects, Canada has two projects now being built and a few more at the starting gate.

After standing on the sidelines for much of the past decade while the United States transformed itself into a global LNG powerhouse, Canada now has a monumental decision to make.

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Does it also want to become a serious player in the global LNG game or be a small exporter to the world?

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“It’s not very often that you get a second chance on an opportunity. And I think this may perhaps bode extremely well for that second chance, from a policy and support perspective in Canada — if we take advantage of it,” said Greg Ebel, CEO of Calgary-based Enbridge, which is a partner in the Woodfibre LNG project.

“If, in the United States, the next round of decisions are pushed off 12 to 18 months, that means Canada can make decisions now that actually have longer-term implications.

“Will we? I don’t know.”

On Friday, the Biden administration announced it was placing a pause on approvals for licences surrounding new LNG export projects, saying it will take a “hard look” at the effect of such exports on the environment — including greenhouse gas emissions — energy security and energy costs.

Within a decade, the U.S. has become the world’s largest LNG exporter, with seven LNG terminals and 14 billion cubic feet (bcf) per day of current export capacity.

The U.S. Department of Energy notes four other terminals are being built, with another 12 bcf per day of export capacity.

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Reuters reported the U.S. review will take months, and be open to public comment.

The industry’s development south of the border has been astonishing, with American LNG export capacity skyrocketing from about one bcf a day in 2016 to more than 11 bcf a day by the end of 2022.

In Canada, progress has been much slower, to put it kindly.

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In 2010, the National Energy Board (now the Canada Energy Regulator) began getting applications for long-term licences to export LNG.

A 2017 report by the regulator noted there were 24 separate project proposals in Canada, with 18 pitched for the B.C. coast. However, high capital costs to build greenfield projects, weak LNG prices at the time and the need for pipelines to move gas to export facilities were among the major hurdles.

Since then, the massive LNG Canada project led by Shell received the green light from its partners in 2018. The project at Kitimat, B.C., is under construction and more than 90 per cent complete.

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It “remains on track to ship first cargoes by the middle of the decade,” project officials said in a statement.

The project partners “continue to evaluate the timeline and scope for a second phase expansion,” said Teresa Waddington, LNG Canada’s vice-president of corporate relations.

The smaller Woodfibre LNG project, co-owned by Pacific Energy Corp. and Calgary-based Enbridge, is also being built near Squamish, B.C. There are about 350 workers on site, and construction is expected to peak later this year and into 2025.

A final investment decision on the proposed Cedar LNG development, a partnership between the Haisla Nation and Calgary-based Pembina Pipeline Corp., is expected by the end of the first quarter.

Meanwhile, the proposed Ksi Lisims project is also progressing. It’s a partnership between the Nisga’a Nation, a consortium of Canadian gas producers called Rockies LNG Partners, and Western LNG.

In October, Ksi Lisims LNG filed an application with the B.C. government for an environmental assessment certificate for the development, located on the province’s northwest coast.

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Earlier this month, Ksi Lisims LNG announced it has signed a 20-year LNG sale deal with Shell Eastern Trading, which will buy two million tonnes of LNG annually from the project.

Ksi Lisims LNG spokeswoman Rebecca Scott said a final investment decision is expected by the first half of 2025. She said Friday’s decision by the U.S. administration could put a new spotlight on Canadian LNG projects.

“Up until last week, our potential customers would have been evaluating us against the U.S.,” Scott said.

“There’s no doubt that some of that attention is going to turn to us to say, ‘Hey, we’re looking for responsibly produced LNG supply from a democratic country.’ ”

But what will a short-term pause mean for the Canadian sector?

LNG expert Geoffrey Cann, a principal at MadCann Alberta, views the U.S. decision as a political one, given that Europe and Asia need gas and security of supply issues persist.

The American move doesn’t change the underlying economics of Canadian projects, as developments on the B.C. coast already have access to cheap natural gas supplies, he noted.

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Ian Archer, an associate director with S&P Global Commodity Insights in Calgary, said the U.S. decision could include some downside for Canada, as some domestic gas producers are delivering gas to existing U.S. Gulf Coast export facilities.

However, the pause south of the border may provide some opportunities, depending on its length.

“There could be some renewed impetus in Canadian LNG facilities . . . It really just depends on what happens in a year,” he said.

“But building LNG in Canada is not without its own challenges.”

Ebel doesn’t believe the pause will have a material affect on the company’s plans on either side of the border. And he’s not convinced it sends a long-term signal.

However, for Canada, it could present an opportunity to back LNG projects and support the country’s allies by responding to their energy needs.

Ottawa can help back Indigenous ownership in resource developments through a federal loan guarantee program, he said. And the government can ensure timely regulatory decisions are made on major infrastructure.

“The second chance is to play a bigger role in energy transition beyond our borders,” he said.

“We have the skill set, we have the resources. Do we have the will to play a bigger role in other parts of the world?”

Chris Varcoe is a Calgary Herald columnist.

cvarcoe@postmedia.com

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