Canada gave conditional approval on Tuesday to Malaysia's state-owned energy company to build a natural-gas export terminal in British Columbia, moving the country a step closer to realizing an ambition to compete in the global market for ship-based supplies of liquefied natural gas.
The federal government's decision clears the final regulatory hurdle facing the $36 billion Canadian dollar (US$27.3 billion) Petroliam Nasional Bhd.-led project, known as Pacific NorthWest LNG. The Malaysian company, better known as Petronas, welcomed the approval but has yet to make a decision on whetherâ "and how soonâ "it would begin construction.
The government said the project would be subject to 190 conditions, including a cap on carbon emissions, in an effort to protect the environment. The conditions, the government said, are also meant to allay concerns from aboriginals about the impact from the LNG plant on the local salmon habitat.
"This is part of a new industry for British Columbia and Canada," Canadian Resources Minister Jim Carr said at a press conference in Vancouver. "This project further plants the Canadian flag on the world stage of natural-gas exporters."
Industry officials praised the decision as a step toward providing an outlet for landlocked supplies of natural gas, but environmentalists said it would exacerbate greenhouse-gas emissions and send the wrong message about Canada's global commitments to action on climate change.
Christy Clark, the premier of British Columbia who has staked her political career on supporting LNG projects, said she welcomed Ottawa's decision as a boon to her province's economy and as a step toward reducing global greenhouse-gas emissions by displacing coal-fired power generation in Asia.
Approval of Petronas's plant marks Prime Minister Justin Trudeau's first major public-policy decision on resource development, at a time when the sector and Canada's economy as a whole are struggling amid lower commodity prices. His Liberal government will rule later this year on an expansion of a pipeline connecting the Alberta oil sands with the Pacific Coast-which has attracted stiff opposition in the vote-rich Vancouver region-and is expected to begin unveiling elements of a climate-change policy designed to aggressively cut carbon emissions.
Mr. Trudeau, elected just over a year ago, has made the fight against climate change and reconciliation with Canada's First Nations signature items on his policy agenda. At the same time, he has also spoken about the responsibility Ottawa has in ensuring energy infrastructure-from pipelines to LNG export terminals-can be built in an environmentally sustainable way. This sparked worries among certain deal makers and investors that energy-infrastructure projects, like Pacific NorthWest, might never see the light of day.
Catherine McKenna, Canada's environment minister, said the project was subject to a "rigorous" review, and the 190 conditions Petronas must comply with "will address the most important environmental impacts" from the LNG plant.
Adnan Zainal Abidin, president of Pacific NorthWest LNG, said Petronas and its partners would conduct a review "over the coming months" before unveiling its next steps. The Wall Street Journal had reported Aug. 2 the company was considering a delay due to concerns over oversupply in the LNG market and cheap competing fuels, citing people familiar with the planning process.
The decision may breath new life into British Columbia's hopes of becoming a hub for natural-gas exports. Nearly two dozen LNG export terminals have been proposed for Canada's Pacific coast, but none has been built yet. Most were designed to meet expected demand growth in Asia with cheap supplies of North American natural gas.
The Petronas-backed project isn't the first to win final regulatory approval, but it is considered a front-runner because proponents of several other terminals have abandoned or slowed development. High upfront construction costs for new plants and buyers' reticence to commit to long-term supply contracts at a time of sinking spot market prices for LNG has left many proposed export terminals in limbo.
Natural-gas futures traded on the Nymex exchange ended Tuesday at $2.9960 per million British thermal units, down 80% from the record high of $15.378 on Dec. 13, 2005. New techniques for extracting natural gas developed over the past decade have led to a glut of the fuel in North America and lower prices.
Petronas is expected to consult with its partners-Brunei National Petroleum Co., China Petroleum & Chemical Corp., Indian Oil Corp. and Japan Petroleum Exploration Co.-to make a final decision on whether to move ahead with construction.
It first unveiled plans to build the LNG plant in 2012, when it acquired Progress Energy, gaining access to upstream natural-gas fields in northeastern British Columbia.
Environmental groups and some aboriginal tribes in British Columbia have opposed the development of an LNG industry and signaled dismay at the Cabinet's decision to support the Petronas project.
"This is another example of betrayal of the rights and interests of First Nations people," said Grand Chief Stewart Phillip of the Union of British Columbia Indian Chiefs on Tuesday, warning that the project puts the Pacific Coast salmon fishery at risk.
The government said indigenous people in British Columbia "were meaningfully consulted, and where appropriate, impacts on their rights and interests were accommodated."
Environmental groups also criticized the move. "Approving this project is inconsistent with the federal government's commitments to lead on climate change and clean innovation," said Merran Smith, head of Clean Energy Canada, a climate and energy think tank. Mr. Trudeau has pledged to cut Canada's carbon output by at least 30% below 2005 levels before 2030, or the equivalent to four times the annual carbon output emitted by the Canadian oil sands.
But Canada's leading oil and gas lobby, the Canadian Association of Petroleum Producers, hailed the decision as critical at a time of dwindling demand from the U.S., currently Canada's only export market for gas. "Without access to global LNG markets, Western Canadian natural-gas production is expected to decline over the next 10 years," said CAPP Chief Executive Tim McMillan in a statement.
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