A liquefied natural gas venture led by Royal Dutch Shell PLC is preparing a B.C. site for possible construction, should the Kitimat project receive a favourable court ruling on Canadian tariffs.
Before deciding whether to go full steam ahead, the co-owners of LNG Canada are awaiting a crucial ruling from the Federal Court of Appeal on tariffs in September, according to a government source familiar with the tax implications.
LNG Canada argues imported modules – some up to 10 storeys high – should not fall under the list of fabricated industrial steel components (FISC) subject to Canadian tariffs. If Shell and the co-owners give the green light, imported modules would need to be ordered from fabrication yards in China because they say no domestic producers exist to construct the large modules.
The consortium also filed a request last year for the federal Finance Department to grant a “duty remission” that would exempt the project from hefty import duties of up to 45.8 per cent on FISC.
The Finance Department will first see what the Federal Court of Appeal rules in September, said the source, who emphasized that the federal government would consider intervening with tariff relief only as a last resort.
Analysts believe the Canadian tariffs could inflate LNG Canada’s costs by at least $1-billion in a potentially make-or-break situation. The steel portion typically accounts for 20 per cent of the value of an LNG module. The consortium estimates the project will cost up to $40-billion, including a pipeline across Northern British Columbia.
LNG Canada asked the court last fall for a judicial review of the Canadian International Trade Tribunal’s decision earlier in 2017, when the tribunal claimed it did not have the proper information to exempt the energy project from the federal tariffs.
In the meantime, the Shell-led group is assuring local residents that plans are in place to develop a world-class camp for 4,500 workers with skilled trades who would flood into Kitimat.
The sprawling 64-hectare campsite, equivalent to nearly 100 city blocks, is next door to the planned export terminal in Kitimat. The Northwest B.C. community’s current population is just above 8,000 residents.
A final investment decision by LNG Canada’s five partners is expected by the end of 2018. “LNG Canada continues to advance our project to put it in the best place possible should the decision occur later in 2018,” LNG Canada said in a newsletter sent last week to residents in Kitimat and nearby Terrace, B.C. “Some of this work needs to be started now, to help the project remain on schedule.”
Site preparation on the traditional territory of the Haisla Nation began in July to avoid delays in the project’s timetable, the newsletter said. Priorities this summer include preparation for the planned work camp and preliminary activity for dredging to deepen a marine berthing site.
The proposed camp, dubbed Cedar Valley Lodge, is to be built by Civeo Corp. and Bird Construction Inc.
LNG Canada expects 95 per cent of the construction work force of 4,500 people will be Canadians, with foreign staff required for certain tasks involving the assembly of the massive LNG modules.
“We want to ensure these workers can be accommodated in a suitable and dedicated facility, resulting in the least amount of impact on the community,” the newsletter said.
The two largest partners in LNG Canada are Shell (40 per cent) and Malaysia’s state-owned Petronas (25 per cent). The consortium recently selected its prime contracting team, Japan’s JGC Corp. and Fluor Corp. of Texas. LNG Canada is aiming to have the first phase finished in Kitimat by late 2023.
“Investors have become increasingly cynical about building big energy projects on cost and schedule,” LNG Canada’s newsletter said. “But with uncertainty comes opportunity.”
Separately, Woodfibre LNG in Squamish, located 65 kilometres north of Vancouver, has asked the Canada Border Services Agency to grant tariff exemptions for its small-scale project.
Woodfibre LNG’s modules, to be ordered from China, include complex and specialized machinery, said Byng Giraud, the project’s country manager and vice-president of corporate affairs.
LNG Canada is not seeking tariff relief through the border agency. That avenue of appeal “is not an available trade remedy for LNG Canada,” Susannah Pierce, LNG Canada’s director of external relations, said in a statement to The Globe.
TransCanada Corp.'s proposed $4.8-billion Coastal GasLink pipeline would carry natural gas from Northeast B.C. to LNG Canada, though a regulatory obstacle emerged last week.
On July 30, prominent B.C. environmentalist Mike Sawyer pushed for a federal review of Coastal GasLink, arguing that the National Energy Board should have jurisdiction and not the BC Environmental Assessment Office.