What the Pacific NorthWest LNG decision could mean for Trans Mountain
Liquefied natural gas hub gets Ottawa's OK — what does that mean for oil pipelines?
This story was originally published Sept. 29.
The Liberal government gave its approval this week for a major liquefied natural gas hub on the B.C. coast. If built, it will create jobs and get a Canadian resource to a new, more lucrative market.
There was opposition from environmental groups and First Nations and some real questions about how this project will affect Canada's commitments to lower greenhouse gas emissions. The federal government decided to strike a balance between these competing demands, but ultimately made the decision to build the economy.
The Petronas decision signals that Ottawa thinks it can thread the needle.- Trevor McLeod , Canada West Foundation
In a few months, another major energy project is up for cabinet approval. Kinder Morgan's Trans Mountain pipeline expansion would also create jobs and get a Canadian resource to new, lucrative markets. There's lots of opposition from environmentalists and First Nations as well, and concern about the project hampering Canada's climate change goals.
Petronas's Pacific NorthWest LNG versus Kinder Morgan's Trans Mountain pipeline expansion: One natural gas, the other oil. Both controversial, one approved, one waiting in the wings. The question is whether the federal government says yes to LNG and no to an oil pipeline.
Building political capital to say yes
"The Petronas decision signals that Ottawa thinks it can thread the needle," said Trevor McLeod, the director of natural resources policy for the Canada West Foundation.
"It signals that they believe economic development, environmental protection and Aboriginal consultation can go hand in hand. This is a very good precedent for Trans Mountain."
The consensus has been growing that the federal government will approve at least one major oil pipeline, particularly as the federal cabinet has thrown resources and time into the regulatory process.
For Trans Mountain in particular, a panel was created to review the project. Cabinet ministers have met directly with First Nations along the route, and the regulatory process was changed to include more consultations, as well as a consideration of upstream greenhouse gas emissions.
The National Energy Board is being overhauled, and a national carbon price is coming.
"[Prime Minister Justin Trudeau has] been building significant political capital to approve at least one pipeline," said Hilary Novik, who follows global energy trends with the Eurasia Group.
Yes to gas, no to oil
The Pacific NorthWest LNG decision did not pass by this week without controversy. Environmental groups condemned the approval and First Nations oppose it.
"We have no alternative now but to take it to the courts," said Donald Wesley, a hereditary chief representing the Gitwilgyoots tribe of the Lax Kw'alaams.
That First Nations opposition is much stronger against bitumen pipelines. As an example, the pipeline that would carry natural gas to the Pacific NorthWest LNG terminal was able to get many First Nations onside, in part because in the case of a pipeline rupture, natural gas evaporates. Bitumen does not. The same goes for a spill. Again, natural gas, even LNG will evaporate, bitumen will not.
That is why there is still some skepticism in the oilpatch whether the federal government will approve Trans Mountain.
Dirk Lever, a pipeline analyst with AltaCorp Capital in Calgary, said the mood in the city after the Pacific NorthWest LNG approval was largely unchanged. He was unconvinced that the LNG approval boded well for Trans Mountain.
B.C. needs to come onside
Another obstacle, of course, is that the British Columbia government supports the LNG hub, but not the Trans Mountain pipeline.
But that may also be changing. In July, B.C.'s energy minister said that Kinder Morgan was working hard to meet B.C.'s five conditions for pipeline approval. Bill Bennett told a Bloomberg reporter that he expected Kinder Morgan to get there. That is an enormous change from B.C.'s stance earlier this year when it rejected Trans Mountain outright.
"The fact that they're coming around and saying, 'Oh wait, Kinder Morgan actually is starting to prove they can meet them,' it shows that they're softening their position a bit," said Novik.
Notably, before the Trans Mountain decision by cabinet, a call will have to be made on the Enbridge Line 3 replacement, essentially a rebuild of Enbridge's oil pipeline from Alberta to Wisconsin.
lf approved, Enbridge will be able to increase the capacity of the existing pipeline to 760,000 barrels per day. That decision must come by Nov. 25, and should offer a signal on the Trans Mountain decision, which is due before Christmas.
Novik expects a yes.
"Trudeau and his cabinet are viewing these major energy infrastructure projects more in terms of a balancing act, between the environmental ambitions that Trudeau definitely has, against the economic realities of the low oil price environment and the impact that it's having in Canada.
"We think he's building up the political capital to make a yes decision."
With files from Betsy Trumpener