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Examining the carbon cap on oil and gas emissions that's coming to B.C.

Cedar LNG is approved, but viability of other LNG proposals uncertain under new regime
Haisla Chief Crystal Smith at last week’s announcement of a green light for the Cedar LNG project in Kitimat

In 2020, B.C.’s oil and gas sector produced 12.8 million tonnes of carbon dioxide (CO2) equivalent, according to the Canadian Energy Regulator – about one-fifth of B.C.’s total greenhouse gas output.

To hit CleanBC’s ambitious emissions reductions targets, the province’s oil and gas sector would need to eliminate about a third of those emissions by 2030.

The big challenge for B.C., with respect to climate change policies, has been how to fit a nascent liquefied natural gas (LNG) industry into an ever-shrinking carbon container.

Last week, B.C. Premier David Eby and his ministers of environment and energy and mines announced a new energy “framework” that they say will allow B.C. to have its cake and eat it, too. 

Central to the new clean energy framework is an emissions cap for the oil and gas sector – something applauded by the David Suzuki Foundation, Pembina Institute and former Green Party leader Andrew Weaver.

The announcement coincided with a green light given to the Haisla First Nation’s $3 billion Cedar LNG project.

Cedar LNG will be the last project to be permitted in B.C. under the old rules. Henceforth, LNG projects that are not yet approved will need to demonstrate their proponents have plans to get to net zero by 2030.

“We will require all newly proposed LNG facilities in, or entering, the environmental assessment process to have a credible plan to reach net zero emissions by 2030,” Eby said.

LNG projects that haven’t yet made it through the BC Environmental Assessment Office process yet include the Ksi Lisims project in Prince Rupert and the FortisBC Tilbury Island LNG plan expansion proposal.

The Cedar LNG project will produce an estimated one million tonnes of CO2. The project’s planned use of electric drive will make it one of the lowest-emitting LNG projects in the world, so getting any further emissions reductions to meet net-zero-by-2030 requirements would likely require carbon offsets. 

Jan Gorski, director of oil and gas for the Pembina Institute, said there is a 3.5-million-tonne CO2 gap that needs to be filled. That gap is the difference between the emissions produced now by the oil and gas sector (12.8 million tonnes) and what will be added as new LNG projects go into production. Closing that multimillion-tonne gap will require LNG developers to use a variety of tools, including electrification and carbon offsetting.

“It’s some combination of them reducing their emissions from the project and potentially using offsets to offset the rest,” Gorski said.  

One of the suppliers of natural gas to the Cedar LNG project will be ARC Resources (TSX:ARX), a major natural gas producer in the B.C. Montney formation. Some of ARC’s B.C. infrastructure, like its Sunrise gas processing plant, is already electrified. It’s too early to say how the cap will work and what kind of impact it will have on oil and gas producers like ARC Resources, said the company’s chief financial officer, Kris Bibby.

“We will be collaborating with the government and engaging with them to understand what they really mean,” he said. “But we will continue to use innovation and technology to work with the government.”

It’s unclear what the new emissions cap will mean for the LNG Canada project, which is about 80 complete for its first phase. That project is already approved and permitted for up to four trains. It is currently being built at half that capacity – two trains. 

Whether the new emissions cap would prevent the consortium partners from sanctioning a phase 2 expansion to four trains is unclear. When asked about LNG Canada and its potential to expand, Eby was vague,  saying only that one of the five LNG partners – Shell Canada – has its own emissions reduction targets “that are very much in line with the targets we have provincially.” 

LNG Canada also wasn’t clear on what the new caps will mean for its Phase 2 expansion. 

“LNG Canada and its five joint venture participants are looking closely at the new energy action framework announced March 14, 2023 and what it means for future developments,” Teresa Waddington, vice-president of corporate relations for LNG Canada, said in an email to BIV.

Details on how the emissions cap will work, and how it might be met, will be fleshed out in the coming months through consultations with industry.

If achieving more than a 30-per-cent reduction in emissions in just seven years through an emissions cap sounds like a tall order, that’s because it is. Better management of methane emissions could go a long way to meeting some of the reductions. But Eby and his ministers also clearly believe industrial electrification will provide a lot of the heavy lifting. 

Some of B.C.’s upstream natural gas sector has already been electrified, but a lot more electrification will be needed under the new emissions cap. The problem with electrification, however, is that it can take eight to nine years just to get a connection to tie into BC Hydro’s grid, Eby said.

“Obviously, that is not consistent with where we need to be to build a clean energy future,” Eby said.

The government plans to launch a BC Hydro task force to tackle these kinds of barriers.

“We’re going to have to work closely with BC Hydro,” Eby said. “We’re going to have to make sure that the BC Utilities Commission regulation is consistent with where we need to go around where we need to go around electrifying our province’s economy.”

While he was an MLA and Green Party leader, Weaver was skeptical that the government could both have an LNG industry and still meet its own commitments under CleanBC. Weaver, who is a climate scientist, last week praised the Eby government’s new energy policies, notably the emissions cap for oil and gas. 

“In essence, it’s sending the right signal to the sector,” Weaver said.

But that doesn’t mean he has changed his thinking on LNG. He says he still thinks LNG simply can’t fit into B.C.’s climate action plan.

“What the government has been very clear with is that any development must fit within the CleanBC 2030 roadmap,” Weaver said. “And I don’t see how an LNG company can do that.” 

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