Kitimat LNG has been granted a licence to export liquefied natural gas from British Columbia, clearing the way for new trade with Asia that stands to significantly alter Canada’s energy geography.
The National Energy Board granted the 20-year licence Thursday.
“The board recognizes that forecast demand growth for LNG in the Asia Pacific region provides a new opportunity for Canadian producers to diversify their export markets,” it wrote in awarding its approval. “The board also recognizes that long-term oil-indexed sales contracts could provide for higher netbacks to Canadian producers.”
With “the size of Canada’s natural gas resource, proximity to markets in Asia and Canada’s stable political and regulatory environment, the board is of the view that KM LNG has the opportunity to compete in the global LNG market,” it wrote.
Kitimat LNG is owned by Apache Canada Ltd. , EOG Resources Canada Inc. and Encana Corp. Those companies expect to make a final decision on building the project, which is forecast to cost more than $5-billion, early next year.
“It’s extremely exciting news for the project. This is one of the major milestones that we required for us to take a final investment decision,” said Kitimat LNG president Janine McArdle.
“This puts Canada in a new place in terms of being a new secure supplier to the Asian markets,” she said.
Kitimat LNG is already spending several hundred million dollars to prepare the ground for building the export terminal on the northern B.C. coast. That terminal would allow natural gas from northeastern British Columbia to be loaded onto tankers and shipped to customers in Japan, South Korea and China. Its construction would mark the first time Canadian natural gas producers have the ability to enter markets outside of the United States.
“This is a tremendous decision for the Canadian natural gas industry and for Canada generally,” said Gordon Nettleton, a lawyer with Osler who represented Kitimat LNG in the approvals process.
This is the first LNG export licence approved by the National Energy Board since Canadian gas markets were deregulated in 1985. Although the project will require transporting energy across British Columbia and loading it onto ships sailing through sensitive waters, it has been almost completely unopposed. That has made it a far different proposition from Enbridge Inc. proposed Northern Gateway project, which would export oil along a similar route, but which has stirred great opposition. Many B.C. first nations are firm supporters of an LNG terminal.
The licence allows Kitimat LNG to export up to 10 million tonnes a year of liquefied natural gas. That’s equivalent to the output of two development stages at the terminal; the first is expected to enter service 2015, the second in 2017 or 2018.
Kitimat LNG applied for the licence last December.
Gaining export approval is a critical step for the project in its bid to secure long-term sales agreements with Asian buyers. It hopes it can finalize a number of those in coming months, before the final investment decision is made.
The export licence “gives the buyers long-term certainty of an export of gas from Canada,” said Rosemary Boulton, the former head of Kitimat LNG. “So it’s really a significant piece of regulation that should really go to move the project along to commercial reality.”
In a measure of how much gas the export terminal is expected to move, the licence allows Apache to export more gas than it currently has in established reserves. The 20-year term would use up virtually all of the reserves currently held by EOG, while Encana has substantially more than its export commitment would require.
All companies, however, said future development activities are expected to uncover and produce volumes of gas in excess of what will be exported.
The ability to fetch higher prices on export markets is a key driver of the project. In its approval, however, the NEB rejected arguments that exporting Canadian natural gas could harm Canadian consumers, either by depleting needed supplies or boosting prices.
“The export of the proposed term volume is unlikely to cause Canadians difficulty in meeting their energy requirements at fair market prices,” the board wrote.
“The board is of the view that the proposed export will not only open new markets for Canadian gas production, but that ongoing development of shale gas resources in B.C. and Alberta will ultimately further increase the availability of natural gas for Canadians.”