• Peeling Back the Layers of LNG Development: A Primer on the Regulatory Framework for LNG Projects in BC
  • December 4, 2013 | Author: Selina Lee-Andersen
  • Law Firm: McCarthy Tétrault LLP - Vancouver Office
  • In an increasingly competitive global market for natural gas, the race to export liquefied natural gas (LNG) to Asia is on.  With LNG attracting a premium price in Asia, Canada is vying with the US, Australia, Russia, East Africa and the Middle East to rapidly build the infrastructure required to move LNG to key markets in Japan, Korea, Taiwan, China and India.  With the commercial success of shale gas plays in the US, the nascent LNG industry in British Columbia is attracting significant interest from investors as an economically feasible venture. BC is particularly well suited to unconventional gas production, where shale is the most commonly occurring type of sedimentary rock in the northeast part of the province. The big shale plays in BC are Montney, Horn River, Liard and the Cordova Embayment.

    On paper it seems straightforward enough - extract natural gas from BC’s abundant shales in the northeast of the province, transport it to the BC coast, convert it into liquid form, and place it on a tanker for delivery to key export markets.  The reality is that the permitting process for the construction and operation of LNG facilities and upstream infrastructure is a complex affair which entails a multitude of approvals at all stages of the project, including:

    • federal and provincial environmental assessment approvals if the proposed project meets certain thresholds;
    • export license from the National Energy Board for LNG headed to overseas markets;
    • upstream petroleum and natural gas tenures to facilitate exploration and development activities;
    • permits for activities relating to the development, transportation and processing natural gas as well as the construction of related infrastructure; and
    • other land use, transportation and environmental approvals from both federal and provincial regulatory authorities.

    Another layer of complexity that is added to the regulatory mix is the requirement for consultation with stakeholders, particularly with First Nations. Within the context of major resource projects, the duty to consult with First Nations is usually triggered at the start of the regulatory review process. While the duty to consult rests with the Crown, the procedural aspects of this obligation is often delegated to the project proponent. This means that the proponent must be pro-active in engaging with local First Nations and discussing their concerns in a meaningful way.

    As LNG projects advance, key issues for BC include: (i) the scope of the proposed tax regime for LNG exports, which is expected to be unveiled before the end of 2013; (ii) securing First Nations support for upstream activities and the construction of LNG facilities and infrastructure in their traditional territories; (iii) the management of air quality issues in the Kitimat air shed area; and (iv) meeting BC’s emission reduction targets.

    The following article examines the current policy and regulatory framework for the development of LNG projects in BC, as well as some of the challenges facing project proponents. As you learn more about LNG, you will discover that there are many layers of policy, economics and regulation underlying the development of LNG projects in BC.  Given the myriad issues involved in getting an LNG project off the ground, the race to export LNG will need to be run as more of a marathon than a sprint to the finish line.