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LNG Canada: A giant energy project finds a way forward after a string of industry failures

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Saturday, November 17, 2018 – Page B1

KITIMAT, B.C. -- A long a rugged shoreline in Northern British Columbia, Canada's global energy ambitions are taking a longawaited step forward.

At the head of the Douglas Channel, an inlet lined with rolling coastal mountains, workers are busy developing the expansive $18-billion LNG Canada export terminal, which will launch tankers full of liquefied natural gas to energy-hungry markets abroad. The ships will navigate pristine inland waterways before reaching the open Pacific Ocean and setting sail for Asia.

On a recent fall day at nearby Kitamaat Village, the main community and seat of government of the Haisla Nation, killer whales glide through the channel. For the revered sea mammals, the waterway is a hunting ground rich in marine life. For the Haisla, it's a source of everything from halibut and cod to prawn and crab.

It's the same area where, only a few years ago, the Haisla helped put a stop to another massive energy project, Enbridge Inc.'s Northern Gateway pipeline. Enbridge was planning to send bitumen from Alberta's oil sands across British Columbia to a terminal near Kitimat before shipping it overseas.

But Northern Gateway was widely despised by local residents and many others in the province and was officially killed by the federal government in 2016.

In fact, one by one, projects designed to bring Canada's energy riches to global markets have failed or become entangled in a mess of politics and popular opposition. After Northern Gateway, TransCanada Corp. gave up on its Energy East oil pipeline, and the company's Keystone XL project is mired in its 11th year of political and regulatory muck. The Trans Mountain pipeline expansion ran into so much resistance from environmentalists, First Nations and B.C. politicians that the federal government, desperate to keep the project alive, spent $4.5-billion this year to take over both the existing Trans Mountain pipeline and the expansion - a twinning of the original - from Kinder Morgan Canada Ltd., which had grown weary after years of opposition and delays.

But the LNG Canada project is a different story. Instead of facing grinding opposition, the project has been embraced by politicians, regulators and, crucially, the Haisla and other First Nations in the Kitimat area and along the pipeline route.

Lawns around Kitimat and Kitamaat Village are dotted with "We Want LNG Canada" signs and people in the area eagerly speak of the promised economic benefits of the project.

Even among other liquefied natural-gas projects, which are generally seen as safer and less environmentally risky than oil pipelines, LNG Canada is a standout. In mid-2013, there were more than 20 LNG proposals in the province. Today, only LNG Canada, an international consortium led by global energy giant Royal Dutch Shell PLC, and three other projects remain active. Pacific NorthWest LNG, led by Malaysia's state-owned Petronas, gave up on its own project amid various environmental and business issues and acquired a stake in LNG Canada this year; other participants in the venture include PetroChina, Japan's Mitsubishi Corp. and South Korea's Kogas.

The megaproject, which includes the Kitimat terminal, an accompanying pipeline, related infrastructure and producers drilling in northeastern British Columbia, is projected to cost as much as $40-billion for the first phase, which Shell and the four co-owners approved last month.

How did LNG Canada do it? How did the project achieve a breakthrough after years of failed or stalled energy proposals?

Winning the support of the Haisla and others took years of careful planning and relationship-building by a corporate entity that had the benefit of being able to study the previous, flawed attempts of others.

LNG Canada officials were aware of the tense relations that developed between Enbridge and local residents over the Northern Gateway project. In a 2012 letter to the National Energy Board, Joanne Monaghan, then the mayor of Kitimat, said the Haisla found Enbridge's consultations with First Nations to be "brash and insincere." Kitimat residents would later vote 58.4 per cent against the project in a non-binding plebiscite.

In the fall of 2012, then-Haisla Nation chief councillor Ellis Ross outlined his blueprint for a make-or-break set of negotiations with backers of LNG Canada. The Haisla were skeptical that the conglomerate would negotiate in good faith. Inside the community's office in Kitamaat Village, Mr. Ross presented his vision for being taken seriously at the table. "I wanted legally binding commercial agreements and strong commitments with definitive numbers," he recalled.

In the fall of 2013, LNG Canada head Andy Calitz, who had become the project's top executive only a few months earlier, approached Mr. Ross at a business conference in Vancouver. Mr. Calitz, a Shell veteran known for his ability to close deals, shook hands with the Haisla leader and made a pledge.

"Andy Calitz made an impression and told me, 'I understand and I'm here just to tell you that we're going to do things differently and put things together. That's my promise to you: to do things better.' He committed to sitting down with us," Mr. Ross said.

Mr. Calitz said he encourages his staff, notably Indigenous relations manager Mike Eddy and his team, to listen carefully and discuss the potential economic benefits of the project.

"We are sensitive to justice and equity in First Nations matters," Mr. Calitz said as he looked out over the forested area where the export terminal will be assembled over the next six years with massive modules imported from China.

He and director of external affairs Susannah Pierce have been working on the project for more than five years. "We don't want First Nations to be surprised," said Ms. Pierce, seated at a picnic table on the site. "It's about trust and it's not a cookie-cutter approach. It's a collaborative, listening-type of engagement."

Everyone concedes the talks got off to a rocky start.

"But to their credit, they fixed it. It was different than dealing with Enbridge," said Mr. Ross, who stepped down as chief councillor two years ago and was elected to the B.C. Legislature in last year's provincial election.

LNG Canada has been working closely not only with the Haisla but with six other Indigenous communities along the shipping route: the Kitselas, Gitxaala, Kitsumkalum, Gitga'at, Lax Kw'alaams and Metlakatla.

Joe Bevan, the elected chief councillor of Kitselas First Nation, said the company earned his community's trust by showing respect for his group's rights and title after a series of meetings in 2014.

"At first they said, 'What are we buying here?' But we said, "No, you can't buy our rights. They're constitutionally protected.' We told them that what they're buying is an Indigenous social licence," Mr. Bevan said. "After a few sessions together, they eventually understood and we worked together."

Clifford White, the elected chief councillor and a hereditary leader of the Gitxaala Nation, said he appreciated that Mr.

Calitz and Ms. Pierce presented a unified message of respecting Indigenous rights and title and didn't try to play games. "Andy and Susannah were pretty much joined at the hip," Mr. White said. "They worked well together and they listened to our concerns about the tanker traffic, because as you go down the channel, it crosses into our territory."

A key part of the discussions was ensuring minimal impact on fish and habitat along the Douglas Channel. Officials agreed to operate ships at reduced speeds and have them escorted by specially built tugboats. Indigenous groups negotiated a site for the disposal of material from dredging the waters near the wharf. And project officials agreed to elevate a pipeline in Kitimat to avoid disrupting the movements of grizzly bears and moose.

Of course, talks also focused on money and economic benefits. LNG Canada estimates it will be providing $100-million in contracting opportunities to Indigenous businesses during the construction of the terminal. It also forecasts billions of dollars in economic benefits for 25 Indigenous groups in the form of training, employment and payments to bands during the project's 40-year life. (The B.C. government estimates that LNG Canada has spent $60-million on agreements with Indigenous groups, but company officials declined to discuss any direct payments to First Nations.)

The project's accompanying pipeline operation also won support by offering benefits to those communities. TransCanada has been tapped to build the $6.2billion, 670-kilometre Coastal GasLink pipeline, which will transport natural gas from the North Montney region in northeastern British Columbia to the terminal site in Kitimat. The pipeline has been approved by all 20 bands along the route and TransCanada has conditionally awarded $620-million in contracts to Indigenous businesses in the region.

Karen Ogen-Toews, the former elected chief councillor of the Wet'suwet'en, founded the First Nations LNG Alliance three years ago to give Indigenous leaders greater clout in discussions with industry executives. "LNG Canada has been very inclusive, even with First Nations that

don't have direct agreements with them," she said.

For almost two decades, both the B.C. NDP and Liberals have dreamt about exploiting the vast natural-gas fields in northeastern British Columbia. Former Liberal premier Christy Clark, who touted the prospect of LNG riches during her 2013 provincial election campaign, knows her prediction of three LNG terminals operating by 2020 won't come true, but she remains optimistic that other projects will be built in the long term. "LNG Canada's approval is confidence building for foreign investment in Canada," she said.

The new, NDP government, while vociferously opposed to the Trans Mountain expansion project, has also put its weight behind the natural-gas pipeline.

Shortly after forming a political alliance with the Green Party last year, the NDP cancelled an international LNG conference that had been slated for Vancouver, marking a low point for the province's LNG aspirations. Analysts were forecasting a global glut of LNG that would weigh on prices for years and obviate the need for new export terminals.

Behind the scenes, however, the NDP worked diligently to make LNG attractive to First Nations, following up on the legwork of the previous, Liberal government.

By September, 2017, the province had agreed to signing bonuses totalling $4.5million to Indigenous communities that backed the Coastal GasLink pipeline.

"First Nations that sign pipeline benefits agreements receive one-time signing payments," said an NDP government document marked "confidential issues note," released in response to a freedom of information request. "Entering into these agreements with First Nations is part of our commitment to ensure First Nations are partners and benefit from LNG development."

The NDP and the First Nations LNG Alliance organized meetings between government officials and Indigenous leaders across the province over a five-week period in the fall of 2017, gathering in Prince George, Smithers, Fort St. John, Vancouver and Terrace, the confidential note said.

Premier John Horgan reached out to LNG Canada, asking what he could do.

Then, in its budget in February, 2018, the government included new incentives to spur LNG development, including salestax relief for construction and the elimination of a specific income tax on the industry.

Ottawa played a key role, too. The federal government cleared the path for LNG Canada by agreeing that the massive terminal modules could not be made in Canada, so it effectively lifted the tariffs on the fabricated steel components from China.

In Kitimat last month, more than a thousand residents gathered to celebrate the LNG Canada project go-ahead with a party capped by fireworks. Mr. Horgan said the venture is in the national interest, partly as a way of explaining why his government supports this project but not the Trans Mountain pipeline, which would originate in the neighbouring province. "I understand the disappointment and frustration of Albertans, but I think they have to look at this as a benefit to all Canadians," he said in an interview.

Natural gas - which is supercooled to minus-162 C to reduce its volume by turning it into a liquid, making it possible to transport by tanker ships - is considered less environmentally risky to export than oil. First Nations leaders say they fear the B.C. coast would be ruined by a bitumen spill, whereas a leak of LNG, which would likely evaporate, is viewed as an acceptable risk.

"Gas vents, diluted bitumen doesn't. It's pretty simple. They're two different substances," Mr. Horgan said.

In Kitamaat Village, Kitimat and communities along the pipeline route, the massive LNG development will be transformative.

Crystal Smith, who has been the Haisla's chief councillor for the past two years, said LNG Canada will be significant for the community's economic well-being while also helping to address its social ills, such as alcoholism and mental-health issues.

"I'm trying to provide economic opportunities, but also healing from all the trauma that our community has gone through," Ms. Smith said. "It just means so much," she said, as she surveyed the waters off the eastern shore of Douglas Channel, a short walk from her home. "We feel validation."

The region welcomed the opening of an aluminum smelter in 1954 but watched other industries abandon Kitimat, a community founded by Alcan Aluminum Ltd.

in the early 1950s. A 24-year-old methanol plant shut down in 2006, then a 40-yearold pulp and paper mill closed in 2010.

Now, Kitimat Mayor Phil Germuth is bracing for a boom in the months and years ahead. More than 4,500 workers will be required at LNG Canada's construction peak in 2022-23, ballooning the population of 8,000. Work camps will have to be built to house the bulk of the out-of-town employees.

There are plans to finally construct headquarters for the District of Kitimat, whose offices are located on the third floor of the community's aging mall. "We will have a great tax base after LNG Canada gets built, and it would be nice to have a nice city hall that we can be proud of," Mr. Germuth said. A new fire station, upgrades to the water-treatment plant and even a new museum and art gallery are also on the wish list.

Dianna Merkley has another reason to toast the LNG project: One of her sons works in Fort St. John in northeastern B.C.

and flies in and out of a work camp there; another son moved away because he couldn't find work as an electrician. Now, the prospect of thousands of jobs will make it possible for people who grew up in Kitimat to stay or return to their hometown.

"There will be opportunities for my sons to work in town," said Ms. Merkley, an educational assistant who has lived in Kitimat for 37 years. "And it will be exciting when more families come in because we'll have more kids in our schools."

Haisla leaders say the economic spinoffs will go a long way toward reducing poverty and unemployment in Kitamaat Village. The Haisla have formed partnerships with construction company Ledcor Group, Triton Environmental Consultants Ltd. and forestry management firm Brinkman Forest Ltd. to win subcontracting work with LNG Canada. And almost $3million has been spent so far to provide education and training for First Nations - a drop in the bucket compared with what's in store.

Marilyn Furlan, a 70-year-old Haisla elder, opposed Northern Gateway but believes LNG Canada sees the Haisla as true partners. "It has been a long time coming," Ms. Furlan said, moments before giving her blessing at an LNG Canada cakecutting ceremony in the lobby of Tamitik Arena. "Our elders care about the future of our children and grandchildren."

Associated Graphic

Fireworks go off as more than a thousand residents celebrate a new LNG export terminal on Oct. 6 in Kitimat, B.C.



Farrell Stewart works on his boat in the Haisla community of Kitamaat Village, located in Northern British Columbia, on Oct. 7.


Despite getting off to a rocky start, there is all-around happiness now that the LNG Canada project is poised to get under way. LNG Canada workers, top, are seen at a barbecue on Oct. 5 to celebrate the final investment decision for the new export facility. Former Haisla Nation chief councillor Ellis Ross, second from top, credits the consortium for approaching Indigenous communities differently than other energy companies. Haisla Chief Councillor Crystal Smith, seen embracing elder Marilyn Furlan, third from top, says the project will be significant for the community's economic well-being while also helping to address its social ills. Meanwhile Kitimat Mayor Phil Germuth, above, says, 'We will have a great tax base after LNG Canada gets built.'


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