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North American Gas Strategies Client Alert – Pacific NorthWest LNG (PNW) Decision Review

October 7, 2016

CALGARY, ALBERTA – 07 October 2016 – The North American Gas Strategies (NAGS) Retainer Service is provided by Solomon Natural Gas Services, a division of HSB Solomon Associates LLC (Solomon). In addition to monthly NAGS topic reports and biannual site debriefings, Solomon provides occasional client alerts on time-sensitive information as an added service at no charge (this correspondence is the third client alert of 2016).

On Tuesday, 27 September 2016, the Canadian Environmental Assessment Agency conditionally approved the Petronas-led liquefied natural gas project Pacific NorthWest LNG (PNW) on Lelu Island near Prince Rupert, B.C. that proposes to ship 19 million tonnes a year of liquefied gas to markets in Asia. This determination was the last major government approval required for PNW project sponsors before making a final investment decision.

Solomon believes the intent of the announcement and conditions were designed to address and create a level of acceptance from vocal opposition and stakeholder groups. The Decision Statement (Decision) to PNW listed 190 conditions, but most of them are best practices that PNW intended to implement as a prudent project developer. It is important to note that PNW and the Canadian Environmental Agency had an extensive exchange of information during the whole review, which ensured that all requirements were clearly understood by PNW and conditions could be met.

Key insights:

  • Most major conditions will not cause any significant increase in project cost. The majority of the conditions, such as building a suspension bridge, are already incorporated into the project design.
  • Greenhouse gas emissions pose the biggest challenge; 900,000 tonnes less than the original PNG proposal. Canadian commitment[1] to implement a national floor price for carbon in conjunction with BC’s current carbon tax could result in long-term operational cost savings in meeting this challenge.
  • Ongoing environmental monitoring showing adverse impacts on the environment can potentially result in additional mitigation measures. The Decision requires establishing an “independent environmental monitor” with inclusion of indigenous groups in ongoing monitoring efforts. Good forward success will enhance and foster greater cooperation for future industry developments and opportunities.
  • Solomon does not believe the environmental monitoring measures including the introduction of an “independent environmental monitor” will lead to significant cost increase compared to the previous cost assessment.

On the surface, the 190 conditions appear to be onerous and very specific, a deliberate action by the government with the intent implication of enhanced credibility to the regulatory process. The added implication to project sponsors is a clearly binding and defined regulatory path that addresses direct stakeholder concerns. Solomon believes that the risk to FID will not be these 190 conditions, but rather, the overarching market conditions for global LNG. For additional information, please contact Cameron Gingrich, Director, Gas Services, by phone at 403.234.4296 or by email at Cameron.Gingrich@SolomonOnline.com

[1] From 2015 United Nations Climate Change Conference (COP21).