What the Pacific NorthWest LNG decision could mean for Trans Mountain

This story was originally published Sept. 29.

TheLiberal government gave itsapproval this week for a major liquefied natural gas hub on the B.C. coast. If built, itwillcreate jobs and get aCanadian resource to a new, more lucrative market.

There was opposition from environmental groupsand First Nations and some real questions about how this project will affect Canada's commitments to lower greenhouse gas emissions. The federal government decided tostrike 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 energyproject is up for cabinet approval. Kinder Morgan's Trans Mountain pipeline expansionwouldalso create jobs and get aCanadian 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 TransMountain pipeline expansion: One natural gas, the otheroil. Both controversial, one approved, one waiting in the wings. The question is whetherthe federal government says yes to LNG and no to an oil pipeline.

Buildingpolitical capital to say yes

"The Petronas decision signals that Ottawa thinks it can thread the needle," said Trevor McLeod, the director of natural resourcespolicy for the CanadaWest Foundation.

• Trudeau government at pains to explain Pacific NorthWest LNG

• Giant LNG project proposed for B.C. not yet a done deal

"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 theregulatoryprocess.

For TransMountain in particular, a panel wascreated 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 anational carbon price is coming.

"[Prime Minister JustinTrudeau has] been building significant political capitalto approve at least one pipeline," said HilaryNovik, who follows global energy trends with the Eurasia Group.

"The list goes on and on of all the things that he's creating for more political room to manoeuvre."

Yes to gas, no to oil

The PacificNorthWestLNG decision did not pass by this week without controversy. Environmental groups condemned the approval andFirst Nations oppose it.

"We have no alternative now but to take it to the courts," said Donald Wesley, a hereditary chief representing theGitwilgyootstribe of the LaxKw'alaams.

• Gas field workers push for LNG while Indigenous protesters vow to stop it

• LNG project approval won't mean green light for other pipelines, resources ministersays

That First Nations opposition is much strongeragainst 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. Hewas unconvinced that the LNG approval boded well for TransMountain.

"It is oil, and that seems to be wherethere's more pushback than on the natural gas side."

B.C. needs to come onside

Another obstacle, of course, is that the British Columbia government supports the LNG hub, but not theTransMountain pipeline.

But that may also be changing. In July, B.C.'s energy minister said that Kinder Morganwas 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 TransMountain outright.

• Christy Clark says LNG talks are not linked to pipeline approvals

• What B.C. needs to hear to support the Kinder Morgan expansion: Angus Reid Institute

"The fact that they're coming around and saying,'Oh wait, Kinder Morgan actually is starting to prove they can meet them,'itshows that they're softening their position a bit," said Novik.

Notably, before the TransMountaindecision bycabinet, a call will have to be made onthe Enbridge Line 3 replacement, essentially a rebuild of Enbridge'soil pipeline from Alberta to Wisconsin.

lf approved, Enbridge will be able toincrease 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 theTransMountaindecision, which is due before Christmas.

Novik expects a yes.

"Trudeauand his cabinet are viewingthese major energy infrastructureprojectsmore in terms of a balancing act, between the environmental ambitions thatTrudeaudefinitely has, againstthe economic realities of the low oil price environment and theimpact that it'shavingin Canada.

"We think he's building up the political capital to make a yes decision."