Compared to the nearby $18 billion LNG ÎÚÑ»´«Ã½ complex on which it will piggyback, the $5.5 billion Cedar LNG project in Kitimat is small.
But it’s a very big deal for the Haisla First Nation and, indeed, Indigenous communities generally, as it will be the first multibillion-dollar industrial project built in ÎÚÑ»´«Ã½ in which the majority owner is a First Nation.
It may help blaze a path for another First Nations-backed liquefied natural gas (LNG) project—the Ksi Lisims LNG project near Prince Rupert—which is supported by the Nisga’a First Nation.
In September, Haisla Chief Crystal Smith will travel to Japan as part of a trade mission organized by Energy for a Secure Future to talk about Cedar LNG and the increasingly important role First Nations are playing in the LNG, resources and energy sectors.
“Japan is very interested in Canadian LNG,” said Shannon Joseph, chair of Energy for a Secure Future. “They’re interested in it from an energy security standpoint, but they’re also interested in it from an environmental standpoint. Japan is looking at us and looking at what we’re going to export and getting in on it.”
“I’m excited to do this and to actually speak to representatives of a country that are literally begging for our resources here in ÎÚÑ»´«Ã½,” Smith said
On June 25, the Haisla and their industry partner Pembina Pipeline Corp. (TSX:PPL; NYSE: PBA), made a final investment decision on Cedar LNG, which will be a floating LNG terminal in Kitimat with a capital cost of $5.5 billion.
At 50.1 per cent, the Haisla are Cedar LNG’s majority owner; Pembina Pipeline owns 49.9 per cent.
Smith said the Haisla are demonstrating that First Nations are capable of taking on major economic development endeavours, which necessarily means taking financial risks.
“For Indigenous communities—regardless of the sector—this project being the first of its kind is showing Indigenous communities how it can be done,” Smith told BIV.
“When you consider Indigenous communities, they’re not willing to take on any risk. They’re terrified of that risk aspect. And I think what we’ve been able to display is that it can be done.”
Prime Minister Justin Trudeau has praised the Cedar LNG project as “the world’s first Indigenous majority-owned liquefied natural gas export project.”
“With Cedar LNG, Haisla Nation has been a leader in demonstrating how Indigenous Peoples and governments can and should work together in partnership to create prosperity and opportunities for the next generation,” Trudeau said.
One observer suggests the prime minister’s moral support for the Cedar LNG project may need to be translated into financial support as well. Richard McCandless, a former ÎÚÑ»´«Ã½ government civil servant who now blogs about public policy issues, thinks the project may require government backing.
Forty per cent of the project will be financed through equity investments (20 per cent or $950 million each for Haisla and Pembina), and 60 per cent through debt financing.
The Haisla will borrow their share from the First Nations Finance Authority (FNFA), and the Federal Export Development Corp. will provide a $400 million to $500 million loan to Cedar LNG.
Based on population numbers, McCandless estimates that the Haisla’s equity share in the project amounts to $2.26 million per adult Haisla member. And he questions the FNFA’s ability to loan close to $1 billion to a single project.
“This would be, by far, the largest loan it has made to date, and would add a high degree of concentration risk to its loan portfolio,” McCandless told BIV. “Can they take on a $950 million loan to the Haisla?”
He suggested senior governments may need to backstop the project, and one source of funding may be the federal government’s new $5 billion Indigenous loan guarantee program.
“If the size of the loan from the FNFA proves too onerous, one can expect that one or both levels of government will step in and provide some form of financial support,” McCandless said. “I just figure there is going to be more government money going into this thing than we were led to believe initially.”
Heather Exner-Pirot, director of natural resources, energy and environment for the Macdonald-Laurier Institute, expects the project is on sound footing.
“The fact they went ahead with FID means to me they have sufficient and serious interest from buyers,” she told BIV. “Japan and South Korea are both looking for additional and diversified sources, and ÎÚÑ»´«Ã½ would be on top of their list.
“LNG demand from southeast Asia is going to provide substantial growth and market for Cedar for the long term. I don’t expect they will have trouble finding buyers willing to enter into long-term contracts that would backstop the ability to enter into favourable financing agreements.”
Cedar LNG is something of an offshoot of the LNG ÎÚÑ»´«Ã½ project. When the Haisla were negotiating with LNG ÎÚÑ»´«Ã½ for their support and for a benefits agreement, the Haisla were shrewd in securing an offtake agreement that gave the Haisla 400 million cubic feet per day of natural gas from the Coastal GasLink pipeline.
This eliminated a major cost barrier for any coastal LNG project in ÎÚÑ»´«Ã½—the multibillion-dollar expense of building a pipeline to get gas from northeastern ÎÚÑ»´«Ã½ to the coast.
Unlike LNG ÎÚÑ»´«Ã½, which is being built in Kitimat on a 400-hectare footprint the size of 550 soccer fields, Cedar LNG will be a floating LNG terminal, and will take up little land. It will be built by Samsung Heavy Industries and Black and Veatch in Korea, and then towed to Kitimat. Smith said the Haisla opted for a floating LNG design to reduce its terrestrial footprint.
“It was important for our leadership to display the fact that we were going to do everything that we possibly could to ensure that there would be minimal impact in our territory,” Smith said.
Cedar LNG will use electric drive to for the liquefaction process, which dramatically reduces the amount of CO2 emissions that would otherwise be produced if natural gas were used.
Electrification means the plant will initially produce less than one-third of the global industry average for emissions from an LNG plant, according to the First Nations LNG Alliance.
The plant will produce three million tonnes of LNG per year, or about one-fifth the initial annual export capacity of LNG ÎÚÑ»´«Ã½’s two-train plant: 14 million metric tonnes per annum.
Cedar LNG has secured 20-year take-or-pay liquefaction tolling agreements with Pembina and ARC Resources Ltd. for 1.5 million tonnes per annum each.
The project is expected to generate $257 million in GDP spending over a four-year construction phase, and annual GDP contributions of $85 million in the operational phase. It will generate 500 jobs during construction and 100 ongoing during operation.
