BC Government Signs MOU with Pacific Northwest LNG for Facility in Prince Rupert

- May 20th, 2015

A major deal hit the liquefied natural gas space on Wednesday. The BC government announced that Premier Christy Clark has signed a memorandum of understanding with Michael Culbert, president of Pacific Northwest LNG, for a facility in Prince Rupert.

A major deal hit the liquefied natural gas (LNG) space on Wednesday when the BC government announced that Premier Christy Clark has signed a memorandum of understanding (MOU) with Michael Culbert, president of Pacific Northwest LNG, for a facility in Prince Rupert.

The company, which is majority owned by Malaysia-based Petronas, plans to build the facility on Lelu Island in the District of Port Edward on land administered by the Prince Rupert Port Authority. The first phase of the project will consist of two liquefaction trains, two LNG storage tanks, marine infrastructure with two berths for LNG carriers, a material offloading facility and administration and auxiliary buildings.

The MOU sets the stage for a potential $36-billion investment in Northern BC, according to Clark, and will be a key driver of jobs and economic activity in the province.

First Nations approval still pending

However, though an MOU has been signed, Culbert made it clear that the deal is far from done. And indeed, considering the province has yet to gain approval from First Nations, there are likely some hurdles yet to come.

BC and Pacific Northwest LNG have been in talks with various First Nations regarding the Lelu Island facility for some time. But while 14 agreements related to it have been reached to date, a $1-billion benefits package offered to the Lax Kw’alaams First Nation in a bid to win support for the facility was swiftly rejected in a vote last week.

Pacific Northwest LNG has attempted to alleviate the band’s primary concern regarding the pipeline’s potential impact on Flora Bank, an underwater area adjacent to Lelu Island that is home to maturing salmon, by proposing to build a 1.7-kilometer suspension bridge to bypass the sensitive ecosystem.

But considering Lelu Island is Crown land that is managed by the Prince Rupert Port Authority, the province has the authority to push ahead without support from Lax Kw’alaams. ”From a legal perspective it would be very complicated to proceed with the LNG terminal without [First Nations] support,” observer and energy lawyer David Austin told CBC. “But if the circumstances were right not impossible.”

Optimism remains strong

Despite those potential barriers, Clark seems optimistic about the MOU. “Today reflects the beginning of the company’s final decision path toward an investment decision,” she said in a government press release. “Today’s agreement is the product of tremendous effort right across government and among many partners to recognize a generational opportunity and ensure that we are ready to seize it, for the benefit of British Columbians today and those who are to come.”

Michael Levy, a business analyst for CKNW, has also expressed positivity about the MOU, stating that he believes it’s a vote of confidence in BC from Petronas, especially considering the challenges the company is facing with its own infrastructure and business at home.

“[T]he fact they are going to go to the next step and sign this MOU tells us in no uncertain terms that they see a future for LNG and Petronas in BC,” Levy said, also noting that the deal gives the province an advantage in terms of LNG competition from countries like Australia and Qatar.

It will certainly be interesting to see whether the BC government and Pacific Northwest LNG are ultimately able to build the Lelu Island facility. Investors and BC residents will no doubt be watching for the next steps.

 

Securities Disclosure: I, Kristen Moran, hold no direct investment in any of the companies mentioned in this article.

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