​Two hurdles LNG Canada still has to cross

Judging by recent investment decisions, contract awards and the general buzz in Kitimat, it almost seems like a foregone conclusion that a final investment decision on the $40 billion LNG Canada project will be taken this year.

But the export project still faces a couple of hurdles, one of which is Canadian tariffs on steel imports from China and South Korea, which would add hundreds of millions to the cost of LNG modules.

The problem can be solved with the stroke of a pen in Ottawa, as the U.S. White House did recently, when the Donald Trump administration exempted Chevron and Shell from American steel tariffs.

A bigger obstacle could be the Unist’ot’en.

The aggressive and determined clan of the Wet’suwet’en First Nation has occupied a region near Houston, B.C., since 2010, blockading the Morice River Bridge, building permanent cabins and successfully threatening and chasing away pipeline survey crews, including ones from TransCanada Corp. the company that would build the Coastal GasLink pipeline that would supply natural gas to LNG Canada’s Kitimat plant.

The Unist’ot’en have even stopped the RCMP from crossing the Morice River Bridge.

“The only issue outstanding now is that blockade on the pipeline outside Moricetown,” said Ellis Ross, Liberal MLA for Skeena and former Haisla Nation chief.

Aside from the Unist’ot’en clan, the Wet’suwet’en generally support the LNG Canada and Coastal GasLink projects. The Coastal GasLink pipeline corridor is just a kilometre south of the Unist’ot’en blockade.

The Unist’ot’en protest group is led by Freda Huson, who is an elected band councillor with the Moricetown Band, which signed a benefits agreement with Coastal GasLink.

The Unist’ot’en have posted videos showing masked members evicting Coastal GasLink surveyors, warning that their equipment will be confiscated if they return and threatening “war” if peaceful means of keeping out industry fail.

Despite the blockade, TransCanada spokeswoman Jacquelynn Benson said the company is ready to start pipeline construction once there is a final investment decision.

“We have all of our major permits needed,” she said. “We have the majority of our fieldwork completed and done.”

As for the other obstacle – Canadian duties on Chinese and South Korean steel – it’s still not clear whether Ottawa plans to provide an exemption for steel tariffs, which could make the project uneconomic.

Canada has tariffs of 45% on prefabricated steel products from China, South Korea and Spain. LNG Canada and Woodfibre LNG have asked for exemptions. Ottawa also recently imposed duties on American steel and aluminum imports in response to American duties on Canadian steel and aluminum.

The federal Ministry of Finance declined to speak to Business in Vancouver to answer whether it will grant the exemptions.

Dale Bumstead, mayor of Dawson Creek, was among seven northern mayors who travelled to Ottawa in April to lobby for the tariff exemptions. He said it was clear that Canada is afraid there could be implications for North American Free Trade Agreement negotiations if the duties are waived.

“They were just worried [that] if they waived that steel tariff on that steel coming from Korea or China, if those components were built outside Canada, what kind of message that sends to the U.S.,” Bumstead said.

“They were dancing around U.S., Canada and China,” said Fort St. John Mayor Lori Ackerman. “Although we did not get a firm commitment from them, they were fully cognizant of the fact that this was an issue. How they move forward is anyone’s guess.”

Despite the obstacles that remain, there has been some significant progress on the LNG Canada and Coastal GasLink projects and, as a result, resumed optimism in Kitimat, where the plant would be built.

Several important milestones have been reached since March, including:

  • the B.C. government scrapping special LNG taxes to put the LNG industry on the same footing as other industries (March);
  • LNG Canada awarding the engineering, procurement and construction contract to Fluor Corp. and Japan’s JGC Corp. for the Kitimat LNG plant (April);
  • Malaysia’s Petronas announcing it will take a 25% stake in the LNG Canada project (May);
  • TransCanada Corp. announcing the awarding of construction contracts for the Coastal GasLink pipeline and $620 million in benefits agreements with First Nations along the pipeline corridor (June); and
  • Black Diamond Group (TSX:BDI) announcing it has been awarded a $42 million contract to provide a 908-bed work camp for the Coastal GasLink pipeline, and Horizon North Logistics (TSX:HNL) raising $50 million in equity to build a 1,000-person work camp in Kitimat (July).
  • LNG Canada has already begun preliminary site preparation work in Kitimat.

At the beginning of the year, Ross was pessimistic about Kitimat’s economy. But he said that things look very different today.

“The activity here, the amount of people moving in, the amount of workers moving in, is just amazing. There’s a lot of heavy equipment being moved around. There’s a lot of workers moving into the camps.

“The Haisla Town Centre condominium is full. And contracts – and the talk about contracts – being settled in Kitimat, that’s going on on a daily and weekly basis.”

Earlier this year, LNG Canada CEO Andy Calitz said the joint venture plans to begin construction in 2018.

— Business in Vancouver

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