Lexpert Magazine

Nov/Dec 2017

Lexpert magazine features articles and columns on developments in legal practice management, deals and lawsuits of interest in Canada, the law and business issues of interest to legal professionals and businesses that purchase legal services.

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LEXPERT MAGAZINE | NOVEMBER/DECEMBER 2017 75 | LNG DEVELOPMENT | vironmentally responsible way and as long as they can get what they perceive as a fair share of the benefits." But for all the goodwill, Hudec ac- knowledges that a number of different things conspire against developers when they consult with First Nations. e most problematic, he says, is the territorial over- lap, which makes it difficult for a developer to know which band they should be con- sulting with. "You're probably dealing with mul- tiple bands, so getting a deal in those circumstances can present challenges." He points to Prince Rupert Harbour, at one point the location for several planned LNG facilities. "ere are three, maybe five bands that assert conflicting territo- rial claims over the harbour, and between 16 and 24 bands along each of the associ- ated lateral pipelines." Achieving unanimous Aboriginal con- sent on a pipeline was only ever done once, he says, on the Pacific Trail Pipeline as- sociated with the Kitimat LNG project co-owned by Chevron Corp. Hudec acted for the bands in that deal, helping them get together to form the First Nations Limited Partnership to support the project. One of the big challenges in the regulatory permitting world, says Ques- nel, is that the federal government and whatever province happens to be involved "don't always have the same priorities or the same objective." Governments change, she points out, and so do policies. "e Paris agreement for example is fairly recent, so our commitment and our focus on carbon emissions is a lot higher than when most of these LNG projects first started their development." Osler's Igasiak says he's concerned the LNG permitting process is turning it into a lightning rod for debating the much larger issues — "whether it's climate change or In- digenous rights or land use" — instead of focusing on the project. "I don't think it's the time to give up on the possibility that we will become a major exporter through LNG facilities of natural gas," he says. "But what it is time to do is have a seri- ous discussion and put in place regulatory mechanisms that will allow for the timely development of these infrastructure proj- ects the next time market conditions say they should go ahead and we have people prepared to invest significant amounts of money in the Canadian industry." Don Greenfield of Bennett Jones says that there is no way to attract that kind of money without having committed buyers for the natural gas far in advance. "In or- der to borrow money, the banks will want to see long-term purchase contracts from creditworthy buyers. You have to have one or more 20-year contracts to [buy] your product at an ascertainable price that you can take to the bank. "So you need purchasers, and you need regulatory approvals, which are largely around environmental issues and First Na- tions consultations. e projects need to get the pipeline and new infrastructure, which also needs regulatory approvals, and we're talking billions of dollars there, too." In terms of dreams, it sounds a bit like climbing Mount Everest. Is Greenfield op- timistic Canada will make it to the summit of major LNG exporters five or 10 years from now? "I don't think I'm optimistic," he says, af- ter a pause. "I wouldn't be prepared to say it won't happen, but it certainly doesn't look as rosy as it did four or five years ago." Sandra Rubin is a Toronto-based writer and strategic consultant. PROSPECTS FOR LNG A report from the NEB nicely summarizes Canada's LNG problem Canada is a late entrant to an increasingly competitive global lique- fied natural gas market, making the next several years "critical" to the development of a Canadian LNG export industry, the National Energy Board warns in a July 2017 report entitled Canada's Role in the Global LNG Market. Technological advances in horizontal drilling and hydraulic fracturing have led to the development of tight and shale resources that were previ- ously uneconomic to extract, the federal agency says. Shale gas represent the main area of future growth for Canadian natural gas — and exporting it is going to be key to the country's sizeable energy industry. The NEB says that, since 2010, it has received 43 LNG export licence applications, 35 of which were approved, but it notes there are no LNG export projects currently under construction in Canada. Looking ahead, it concedes "not all of the projects will go ahead" due to very real challenges including the high cost of building terminals and the difficulties and expense of constructing "major long-haul pipelines" from the gas fields in northeast BC and Alberta. Low natural gas prices and a surplus in supply are challenging proposed Canadian LNG projects' ability to secure long-term contracts. "The current market environment is trending towards short-term or spot price-based transactions that generally make it more difficult to finance multi-billion dollar investments in new LNG facilities." The report also says Canadian LNG projects would have some advantages. Coastal BC terminals would not only be closer to Asian markets than US terminals on the US Gulf Coast, but any East Coast export terminals would be closer to European markets than leading international LNG exporters such as Australia, Qatar, and Malaysia — and they would be about 2,000 nautical miles closer than the Gulf of Mexico, where the majority of US LNG facilities are located. The report also notes LNG facility tax incentives in Canada "provide a significant financial advantage." Under the National Energy Board Act, the board has to authorize all exports of natural gas from Canada. Proposed LNG projects also require regula- tory and environmental approvals from other federal and provincial regulators, and consultation with First Nations if any of the proposed projects touch their land before the project can proceed.

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