The Environmental Assessment Office of British Columbia approved three separate liquefied natural gas (LNG) projects on November 25, 2014, two of which are located at Prince Rupert Island. The island, roughly 750 kilometers (465 miles) north of Vancouver, is proposed to be a major LNG export plant with an expansive customer base in Asia.
Malaysia-based Petronas, along with large energy companies in India and Japan, hold interests in the Pacific Northwest LNG project, which is believed to require an initial investment of $11 billion. Petronas, the majority owner, believes the two newly approved projects will require an estimated capital cost of approximately $16 billion, and operations are tentatively scheduled to begin in 2019.
The company said additional permits and regulations are the next step in the process. The Wall Street Journal reports 18 such Canada LNG projects are currently under review.
Different Path than the U.S.
British Columbia’s aggressive attempt to lure LNG facilities in recent years has not matched the United State’s level of boosting its LNG capacity. Faster turnaround times by the U.S. Department of Energy and Federal Energy Regulatory Commission has led to the approval of three LNG export terminals since May 2014. The only other terminal to have approval is the Sabine Pass Terminal in Louisiana. The terminal, operated by Cheniere (ticker: LNG), is expected to go online in 2015.
Canada’s LNG scene is a much different animal. Its first fully approved LNG terminal, called the Kitimat, is about 130 miles inland from Prince Rupert Island but has not yet begun construction. A glaring issue in B.C.’s LNG future is simple yet expansive: It lacks the infrastructure.
At a conference in May, Edward Kelly, Vice President of Natural Gas at IHS CERA, described U.S. projects as “starting on second base” due to its network of pipelines, harbors and tanks. Canada projects have not established such an infrastructure-heavy presence, leaving it to the energy companies to pour more capital into building out the midstream and downstream segments.
Therefore, it is highly unlikely all 18 proposed projects will even be built. Christy Clark, the Premier of British Columbia, is trying to secure more investments by holding conferences and even cutting the imposed government income tax in half to 3.5% overall. Petronas had threatened to halt its potential operations if the taxes weren’t revised.
In June, Tan Sri Dato’ Shamsul Azhar Abbas, Chief Executive Officer of Petronas, said: “This is a once-in-a-lifetime opportunity for B.C. We must be careful to not squander it away by banking on unrealistic expectations and misconceptions.”
Canada’s Finance Minister, Mike de Jong, believeed the time was right to adjust the tax structure in order to maintain investor interest. “Developing a tax framework for a promising new industry has been a complex process,” he said. “We believe this overall framework strikes the right balance between a competitive economic environment and a fair return to British Columbians.”
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