Once heralded as a boon to British Columbia’s economy, the future of the province’s nascent Liquefied Natural Gas (“LNG”) industry is now far from certain. While there has been incremental progress, lengthy and ambiguous regulatory processes as well as prevailing market forces and stakeholder opposition have delayed final investment decisions.

One of the main factors discouraging investment in LNG is its price. In Japan, LNG prices dropped from more than US $18 per thousand cubic feet in March 2014 to US $7.50 per thousand cubic feet at the end of 2015.¹ Low spot prices pose the biggest threat to the negotiation of long-term offtake agreements essential for the construction of export facilities.²

Demand for LNG has also weakened amidst a global supply glut. Exports to key markets in Asia are falling at a time when 140 million tonnes per annum of new LNG capacity is being built on top of the 250 million tonnes per annum already on stream.³ Development of half of North America’s planned export capacity may keep the Asian market oversupplied through 2025.⁴ Furthermore, the International Energy Agency recently lowered its global demand forecast for heating and power plant fuel by 5%.⁵

As a result of these unfavourable market conditions, Altagas Ltd. announced in February 2016 that it was halting further development of its Douglas Channel LNG project.⁶ Similarly, Royal Dutch Shell PLC recently postponed a final investment decision on its LNG Canada project until the end of 2016, effectively signaling a shift away from investment in LNG.⁷

Regulatory uncertainty has also delayed LNG investment. In January 2016, the federal government announced a new interim regulatory approach for energy projects guided by, most notably, the consultation of Indigenous peoples and assessment of upstream greenhouse gas emissions.⁸ While further details have not been forthcoming, additional regulatory hurdles are expected to be put in place outside of current quasi-judicial processes. The Liberal government has since commenced a comprehensive review of several key regulatory regimes, with Panel Recommendation Reports for the Canadian Environmental Assessment Act, 2012 and National Energy Board not expected until January 2017.⁹

Amidst this uncertainty, the Canadian Environmental Assessment Agency began a final 90-day review of the Pacific Northwest LNG project in June 2016 with a decision anticipated in September 2016.¹⁰ The Trudeau government has faced increasing pressure from environmentalists and Indigenous groups concerned about threats to juvenile salmon populations and Canada’s international emissions obligations.¹¹ It is unclear if or how these interim regulatory measures will be used to address these concerns and arrive at a final decision on this project.

Despite this turbulent economic and regulatory environment, the federal government approved Woodfibre LNG in March 2016, effectively concluding the project’s environmental assessment process.12 The Squamish First Nation has also conditionally approved the project.13 The Woodfibre consortium plans to make a final investment decision by the end of 2016 and has secured a long-term LNG offtake agreement with Guangzhou Gas Group Co.¹⁴

In light of prevailing market forces, an uncertain regulatory environment, and continued stakeholder opposition, it is likely that final investment decisions for many BC LNG projects will continue to be delayed. However, Woodfibre LNG demonstrates that success is possible. The pace of development may increase with changes in the international market or regulatory conditions going forward.

1-14 Click on footnote numbers above for more information.