Shell gets go-ahead to export natural gas from B.C. coast

The Globe and Mail

Shell hopes to push natural gas into the transportation sector and sees ‘a real opportunity in heavy duty transport for LNG.’ (TOBY MELVILLE/REUTERS)

The National Energy Board has granted Royal Dutch Shell PLC and a group of foreign partners authority to export natural gas from the coast of British Columbia.

Shell has been granted a licence to export up to 24-million tonnes of natural gas a day for 25 years. That’s the equivalent of 3.23-billion cubic feet per day, a little less than the roughly four-billion cubic feet per day currently produced in British Columbia.

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The licence is the third for a major West Coast liquefied natural gas export project – two others have gone to Chevron Corp.-backed Kitimat LNG and BC LNG, a smaller export cooperative.

A series of other major companies, including Petronas and BG Group plc, have discussed plans to build large natural gas export terminals in B.C., although they have yet to secure licences to do so. Others, including Exxon Mobil Corp., are also looking at the possibility of large new projects in the region, drawn by the prolific natural gas reserves in northeastern B.C. and the possibility of lucrative gas sales to Asian markets.

Shell’s partners in LNG Canada Development Inc., its gas export company, are Korea Gas Corporation, Mitsubishi Corp. and PetroChina Co. Ltd. Construction is not, however, certain. LNG plants are extraordinarily complex and expensive – the Shell plan could cost well over $10-billion for a project that exports half the volumes the NEB approved – and others have struggled to secure sufficiently lucrative contracts to underpin such a massive investment.

In the oil patch, however, Shell is considered among the most likely to proceed, given its own stature and that of its partners.

In a statement, Shell spokesman David Williams said the company “welcomes the decision as a key milestone in the LNG Canada project to transport abundant Canadian natural gas to the fast growing economies of Asia.”

A key element of the NEB’s consideration was whether there is enough gas in Canada to permit exports. It concluded there is, writing in its reasons for decision that “the Board is satisfied that the gas resource base in Canada, as well as North America, is large and can easily accommodate reasonably foreseeable Canadian demand as well as the proposed LNG exports.”

With the Shell licence, the NEB has now approved LNG exports of nearly 36-million tonnes a year. That’s roughly 4.8-billion cubic feet per year, more than B.C. produces today. It’s equivalent to 40 per cent of Alberta’s 2011 gas output.

The NEB pointed out that its review of the Shell licence was constrained by new rules that came into effect last year. Under the federal Jobs, Growth and Long-term Prosperity Act, the NEB no longer has the latitude to take into account “all considerations that appear to it to be relevant” in examining a gas export licence request.

Recent changes to the NEB Act also prevent the regulator from examining the impacts an export licence could have on areas where, for example, natural gas supplies would be developed through heavy drilling activity.

“In the past, the Board applied a ‘necessary connection’ test to determine the type of potential environmental effects and directly related social effects it would consider in its assessment of a gas export licence application. In the Board’s view, the ‘necessary connection’ test is no longer relevant,” the NEB wrote.

In part for that reason, it discounted first nations concerns about the impact of export-related development activity, saying those concerns are best addressed to others. Approval of an export licence does not constitute approval of gas drilling or construction of a marine terminal.

“In the Board’s view, the regulatory and environmental assessment schemes that are in place relating to the review and approval of the terminal and associated facilities and marine shipping, and upstream gas exploration, development and production are the appropriate contexts in which the concerns of the Fort Nelson First Nation, Gitga’at First Nation and Gitxaala Nation should be raised and considered,” the NEB wrote.

Under the terms of the licence, Shell’s 25-year window for exports begins when it sends its first shipment.

The NEB noted that, for now, the LNG project is, legally speaking, Shell’s alone. Its Korean, Japanese and Chinese partners “intend to enter into a shareholding agreement whereby each will own shares in LNG Canada,” the NEB said.

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