Canada Conditional Approval of Petronas LNG

Sep 27, 2016


I took a quick look thru the Canada decision statement on the “approval” of Petronas BC LNG project [LINK], and provide my strategic/common sense comments.

I worry that the Govt of Canada isn’t leaving a lot of wiggle room for flexibility on moving on the 190 conditions.

  • Pg 1 and 2.   Starts off with the environment minister statement “In accordance with paragraph 52(1)(a) of the Canadian Environmental Assessment Act, 2012, after considering the report of the Agency on the Designated Project and the implementation of mitigation measures that I consider appropriate, I have determined that the Designated Project is likely to cause significant adverse environmental effects referred to in subsection 5(1) of the Canadian Environmental Assessment Act, 2012”.  But then goes on to say that “In accordance with paragraph 52(4)(a) of the Canadian Environmental Assessment Act, 2012, the Governor in Council decided that the significant adverse environmental effects that the Designated Project is likely to cause are justified in the circumstances
  • In the press release, they call these “legally binding” conditions.  I did a search in the decision statement and didn’t see the legally binding words.  But on pg 2, they say “In accordance with subsection 53(1) of the Canadian Environmental Assessment Act, 2012, I have established the conditions below in relation to the environmental effects referred to in subsection 5(1) of the Canadian Environmental Assessment Act, 2012, with which the Proponent must comply.

Its hard to see how Petronas can respond right away to these 190 conditions. They would have had marine, wildlife and all types of consultants (I doubt they hired all these experts on staff) so I would think they have to get some consultants back to help look at each of the 190 conditions, see what it does to the process and logistics and practicality of getting this done.   And also the capex for the project (see my comment on clause 3.1 below).  And also timing to get done (see my comment on clause 6 below)  If you flip thru them, on an individual basis, most don’t look crazy, but there is a lot consulting with the First Nations and things that have to be thought thru for practical application.

There are a lot of conditions that are going to add costs, ongoing monitoring, some in advance studies, etc, BUT one condition that is likely to add to the capital cost is 3.1.  One condition that was alluded to in the Premier Clark statement was the lowest emission LNG anywhere in the world (or words to that effect), so that links to 3.1 on air quality and greenhouse gas emissions.  There are certain specific limits and I have no idea if this is consistent with the Petronas plan or not.  Plus there is a lot of other emissions control items.  As a general statement, I believe emissions control/capture is something that will be increasingly required of all new energy plants and eventually all existing plants.  It simply costs money to do so.   So I have to believe this is an area that will add to the capital cost of the project.

I would also expect that these conditions will make the construction longer to get done.   One example is clause 6 that has a number of periods in the year when they can’t do certain things.   That is assuming Petronas didn’t already build in all these restrictions.  I have trouble believing they did so.

Section 12 on the independent environmental monitor.   When I hear the word monitor, I worry.   Especially with 12.2, “The Proponent shall give the independent environmental monitor the authority to stop Designated Project activities that do not comply with the conditions set out in this Decision Statement”.  That clause is one worries me.  and I link it back to the opening statements that this is likely to cause significant adverse environmental effects and not leaving a lot of wiggle room for flexibility.,

Clause 15.1 says they have 5 years to start “in-water construction

Again, I caveat that I can’t assess the details conditions but rather look at from a strategic review.  But here is my take on the approval.  I haven’t looked at the press but did watch the webcast of the announcement.  Politicians spin is they are being supportive of development but mindful of environment.   I would expect that Petronas will say they will be reviewing the conditions, and doing a total review of the project (as they have said they would do) and speak to their partners.   Plus Petronas is not having a good year so with that in the background, I have to believe there won’t be a quick response from Petronas as to a FID.   Ultimately, I still see them going back to negotiate with BC for a better deal and Canada for some sort of CCA or other win for more given there will be added costs.