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Minister said to refer Petronas gas project to Trudeau cabinet

Environment Minister Catherine McKenna stands in the House of Commons during Question Period in Ottawa, Monday, March 7, 2016.

FRED CHARTRAND/THE CANADIAN PRESS

Petroliam Nasional Bhd.'s proposal to build a liquefied natural gas terminal on Canada's Pacific Coast faces further delay as the minister responsible prepares to declare it will likely have a significant environmental impact, according to people familiar with the matter.

Environment and Climate Change Minister Catherine McKenna will refer a verdict to Prime Minister Justin Trudeau's cabinet rather than approving the $36-billion project with conditions, said to two officials who spoke on condition of anonymity because the decision isn't yet public. The government's review period ends March 22 but the cabinet has no deadline for its deliberations.

The Pacific NorthWest LNG decision is among the first tests of the Trudeau government's handling of energy and climate issues. Earlier this year, it overhauled the environmental– review process to consider greenhouse-gas emissions from proposals and boost the role of cabinet in approvals. Liquefied natural gas proponents in Canada were already playing catch-up with global competitors before the oil-market collapse brought down LNG prices and caused companies to crimp spending on megaprojects.

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"This is going to be widely watched as a barometer on the government's interest in supporting what is the driver of the Canadian economy, which is energy," said John Stephenson, chief executive officer and founder of investment firm Stephenson & Co. in Toronto. Petronas could abandon the project if the government imposes costly conditions on development, he said. "Any hiccup from the government's side, I could see these guys walking."

'Last' on LNG

None of the almost two dozen Canadian LNG proposals designed to ship fuel to Asia have been given a green light by backers including Royal Dutch Shell Plc and Chevron Corp. Shell said in February that it's putting off a decision on construction of its project until the end of the year, citing reduced spending in the market slump. A smaller $600-million project led by AltaGas Ltd. was also put on ice last month after proponents failed to line up customers.

Analysts are doubting how competitive Canada can be on LNG, as a supply glut forms and demand slows in Asia. Canada, with East Africa, is "last to the LNG party" behind the U.S. and Australia, CIBC World Markets commodities strategist Katherine Spector said in an October report.

On the Pacific NorthWest LNG proposal, McKenna is essentially following the advice of the Canadian Environmental Assessment Agency, which said in a report last month that the project would have a significant environmental impact because of its carbon emissions. In an e-mailed statement, McKenna's press secretary Caitlin Workman said it's "premature" to comment on the minister's decision about the project, which will consider significant new information filed by the proponent.

Balancing Act

The Canadian government "recognizes the importance of new infrastructure development but has also been clear that any development must occur in an environmentally sustainable manner," Workman said.

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Trudeau faces political pressure from the government of British Columbia, Canada's westernmost province. Premier Christy Clark is in favour of LNG development and backs the Pacific NorthWest proposal. One provincial government official, speaking on condition of anonymity, said the government expects McKenna to refer the case to cabinet and to then receive a decision within a few weeks.

The added delay is the latest setback for the project, which has been held up by opposition from an aboriginal group near the site of its proposed shipping terminal. While the proponents have changed the project design to address concerns that it would harm salmon habitat, a legal claim asserting title to the land by the Lax Kw'alaams Band continues to wind its way through the courts.

No Ultimatum

The Pacific NorthWest LNG partners, which also include Indian Oil Corp., Japan Petroleum Exploration Co., China Petroleum & Chemical Corp. and Brunei National Petroleum Co., are prepared to wait for Canada's ruling to make a final investment decision and the expectation is that the government will act quickly, said Michael Culbert, president of both the project and Petronas's Canadian subsidiary, gas producer Progress Energy Canada Ltd.

Sending the final decision to cabinet would allow the government to consider the development's impact on the economy and job creation, as well as support from some aboriginal groups, in addition to its climate impact, Culbert said. While increasing emissions in Canada, the project will displace higher-carbon fuels such as coal in Asia, he said.

"We are encouraging a timely decision but have not given the government any kind of ultimatum," Culbert said by phone Tuesday. Gas drilling tied to the project has slowed and pipeline construction plans are on hold as the proponents await a ruling, he said. "We're shovel-ready."

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About the Author
Parliamentary reporter

Josh is a parliamentary reporter in Ottawa. Before moving to the nation's capital in 2013, he covered provincial affairs in Edmonton and throughout Alberta. He joined the Globe in 2008 in Toronto before returning to his home province in 2010. More

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