Small-Scale Canadian LNG Projects Quietly Growing As An Alternative Power Source

The development of Canada's liquefied natural gas (LNG) export industry has attracted much attention in recent years as large and mid-scale LNG export projects in British Columbia and Eastern Canada have shifted from a surge in initial project development to increased uncertainty in the face of depressed global LNG prices. What has attracted less attention over this time is the slow but continuous growth of Canada's domestic LNG market as LNG gains traction as an alternative power source for both remote resource projects and remote communities.

LNG AS AN ENERGY SOURCE FOR REMOTE AREAS

A report submitted by ICF International to the Canadian Gas Association in 2016, titled Economic and GHG Emissions Benefits of LNG for Remote Markets in Canada (ICF Report), surveyed the Canadian market potential for smaller-scale LNG projects and operations as a source for power generation in remote areas.

The ICF Report addressed the areas where LNG could be used as a substitute for other fuels like diesel for power generation and reasoned why LNG can be an attractive alternative to such traditional fuels. It found that "approximately 200,000 people live in nearly 300 remote communities spread across Canada that are disconnected from central energy supplies."

According to the ICF Report, these remote energy markets are "off-grid" regions of Canada that are not connected to the North American electrical grid or to natural gas distribution pipelines. This includes both remote communities and remote industrial energy users, such as mines. In these remote regions, reliable and cost-effective energy supply is a challenge for communities and industry, and serves as a barrier to economic development.

The ICF Report found that these remote communities and industry "typically rely on diesel, propane, or other fuel oils for heating and to generate their own electricity, all of which have to be shipped in by truck, rail, or marine vessel" and that many are increasingly considering LNG as an option to meet their energy requirements:

"Advances in the technology used to liquefy, transport, and re-vaporize natural gas, have made LNG a viable option for remote customers. . . . Although LNG has many advantages, including environmental and safety benefits, cost savings are the primary driver of its adoption. In recent years, due to low natural gas prices, LNG has emerged as an affordable alternative to diesel or fuel oil in remote communities and mining sites."

For energy lawyers, the growth of small-scale LNG in Canada therefore begs the following two questions:

To what extent does the value chain in small-scale, local LNG operations differ from the value chain in large-scale LNG export...