Canada’s $4 billion hydro-powered floating LNG project is a go

Cedar LNG, a partnership between the Haisla Nation and Canadian energy infrastructure player Pembina Pipeline Corporation, has greenlighted a final investment decision (FID) for a floating liquefied natural gas (LNG) (FLNG) facility with a nameplate capacity of 3.3 million tonnes per annum (mtpa) in the traditional territory of the Haisla Nation, on Canada’s West Coast.

The pre-FID early works were due to begin in May 2024 to lay the groundwork in preparation for the construction of the Cedar LNG project, including tree clearing and rough grading activities at the proposed marine terminal near Kitimat. The FID, which was expected by the middle of 2024, has now been made, enabling a floating LNG, said to be the world’s first indigenous majority-owned such unit designed to run on hydropower, to become a reality.

Crystal Smith, Chief Councillor of the Haisla Nation, commented: “The Haisla Nation, with our partner Pembina, have made history as the world’s first Indigenous community to develop an LNG facility as majority owners. Because of our Nation’s determination and environmental leadership, Cedar LNG will make the most significant mark on economic reconciliation ever in our country.

“With Cedar LNG, we have proven that Indigenous communities can successfully forge a path to economic independence and generational prosperity. We have created a model for how sustainable energy development should be done, with Indigenous Nations as owners, balancing environmental interests with global demand for cleaner energy.”

While explaining that the FLNG facility will be powered by renewable electricity from BC Hydro to turn it into one of the lowest-emitting LNG facilities worldwide, Cedar LNG partners claim that the project is strategically positioned to deliver a lower-carbon energy option to global markets.

“We are proud to be moving forward with a project that will deliver industry-leading, low-carbon, cost-competitive Canadian LNG to overseas markets and contribute to global energy security, while delivering jobs and economic prosperity to the local region,” highlighted Scott Burrows, Pembina’s President and Chief Executive Officer.

“Cedar LNG aligns perfectly with our strategy and where we want to be as a company moving forward. The Cedar LNG project will enhance the resiliency of Pembina’s business, provide much needed new egress and greater access to global markets for our customers, and reflects the Haisla Nation and Pembina’s shared values and commitment to supporting a more sustainable future.”

Furthermore, the Cedar LNG project, expected to be funded with asset-level debt financing for approximately 60% of its cost, has secured a construction term loan with a syndicate of banks. On the other hand, the remaining 40% of the costs are expected to be financed through equity contributions from both partners.

While the Haisla Nation has obtained committed capital through the First Nations Finance Authority to fund its 20% equity contribution, Pembina anticipates its equity contribution will be bankrolled by cash flow from operating activities. Cedar LNG has secured a letter of credit facility for the ongoing funding of the required financial assurances.

David Eby, Premier of British Columbia, remarked: “This decision shows not only the perseverance of the Haisla Nation in achieving this historic milestone, but also confidence of investors in B.C.’s economy, and how the future for the natural resources sector is bright and will continue to support B.C.’s strong economic performance, which has led Canada’s large provinces in GDP growth since 2017.

“Cedar LNG is a shining example of how natural resource development should work in our province—in full partnership with First Nations and with the lowest emissions possible. By working together, we can build a stronger and cleaner economy that creates opportunities and benefits for all.”

Majority-owned by the Haisla Nation (50.1%), in partnership with Pembina Pipeline Corporation (49.9%), the Cedar LNG project is said to be strategically positioned to leverage Canada’s abundant natural gas supply from the Western Canadian Sedimentary Basin to access global markets and achieve higher prices for Canadian producers while enhancing global energy security.

Several design decisions were made to minimize the project’s environmental footprint, including the one to power the facility with renewable electricity from BC Hydro, and the choice of site location allows it to leverage existing LNG infrastructure, including the Coastal GasLink pipeline, a deepwater port, roads, and other infrastructure.

Thanks to a long-term transportation agreement with Coastal GasLink Pipeline Limited Partnership, the Cedar LNG facility will receive 400 million cubic feet per day of Canadian natural gas via the Coastal GasLink pipeline.

The partners claim that Cedar LNG’s West Coast location provides one of the shortest shipping routes to key Asian markets, with the Douglas Channel, leading to and from the site, offering an established, reliable shipping route and deepwater marine inlet, with year-round ice-free conditions.

The LNG project has a total estimated cost of approximately $4 billion (gross), including estimated capital costs of around $3.4 billion (gross), of which $2.3 billion (gross), or approximately 70%, is under a fixed-price, lump-sum agreement, and $0.6 billion (gross) of interest during construction and transaction costs.

Moreover, the FLNG facility is being designed and constructed by Samsung Heavy Industries and Black & Veatch, which were selected as engineering, procurement, and construction contractors. Since the project will be a floating LNG facility, manufactured in the controlled conditions of a shipyard, a lower construction and execution risk is expected. Cedar LNG is anticipated to be in service in late 2028.

“With this fundamental financial milestone achieved, we’re eager to continue advancing this project by leveraging our industry-leading PRICO technology and topside expertise in floating liquefied natural gas infrastructure,” underlined Brady Hays, Senior Vice President for Black & Veatch’s fuels and natural resources sector.

While the project secured 20-year take-or-pay liquefaction tolling services agreements with ARC Resources and Pembina for 1.5 mtpa each, commercial discussions are ongoing with multiple other prospective customers as the latter intends to assign its contracted capacity to a third party. Cedar LNG is expected to create up to 500 jobs during peak construction and approximately 100 full-time jobs during operation.

Terry Anderson, President and Chief Executive Officer of ARC Resources, stated: “The demand for cost-competitive natural gas from key consuming nations around the world is evident. We look forward to delivering low-cost Canadian LNG to global markets with partners who share our commitment to responsible energy development and innovation.”