Canada’s Cedar LNG moves to finalization of FSRU design stage with 20-year commercial offtake in the bag

Cedar LNG, a partnership between the Haisla Nation and Canadian energy infrastructure player Pembina Pipeline Corporation, has notched new milestones for the Cedar LNG project, thanks to a notice to proceed (NTP) that has been sent to the engineering, procurement, and construction (EPC) contractors in the aftermath of the finalization of long-term commercial offtake agreements.

With the NTP in hand, Samsung Heavy Industries and Black & Veatch can work on finalizing engineering and design and begin construction of Cedar LNG’s FLNG. Upon completion, subject to a final investment decision (FID), the FLNG unit will be transported from Korea to the Cedar LNG site in Haisla traditional territory in the Douglas Channel.

As a result, the project is preparing for construction, with pre-FID early works starting in May 2024, including tree clearing and rough grading activities at Cedar LNG’s proposed marine terminal near Kitimat. This project will now be able to proceed to secure financing as required before making a FID, which is expected by the middle of 2024, with an anticipated in-service date in late 2028.

Crystal Smith, Chief Councillor for Haisla Nation, commented: “Today’s achievements mark an exciting time for our Nation as we seek to make Cedar LNG – the world’s lowest carbon and first Indigenous majority-owned LNG facility – a reality in the coming months. I am incredibly grateful to our Nation, all levels of government, Pembina and all our partners who have supported our journey to advance a project that protects our environmental and cultural values, while delivering prosperity for decades to come.”

Under a 20-year take-or-pay fixed toll contract, which has been signed with ARC Resources for 1.5 million tons per annum (mtpa), ARC will supply Cedar LNG with around 200 million cubic feet per day of sustainable, Canadian natural gas for liquefaction at the project facility. While Pembina has executed an identical bridging agreement with Cedar LNG for 1.5 mpta of capacity, commercial offtake discussions are ongoing with multiple other customers as this player intends to assign its capacity to a third party following FID.

Scott Burrows, Pembina’s President and Chief Executive Officer, remarked: “We are on-track to deliver an Indigenous majority owned, best-in-class LNG facility – one that will benefit the Haisla Nation, Pembina and its customers, the region, and all of Canada, while meaningfully contributing to the transition to a lower-carbon economy.”

The Cedar LNG project is located in Kitimat, British Columbia, within the traditional territory of the Haisla Nation. As the first majority Indigenous-owned LNG facility in Canada, this project is anticipated to provide economic and social benefits to the Haisla Nation in support of reconciliation, while providing opportunities for Canadians more broadly.  

Terry Anderson, President and Chief Executive Officer of ARC, highlighted: “Today, we take another step forward in supplying low-cost Canadian energy to our partners overseas, bolstering energy security and helping to reduce emissions world-wide. Located on Canada’s West Coast, Cedar LNG will produce some of the lowest-carbon, cost-competitive LNG with one of the shortest shipping routes to key Asian markets.”

This announcement marks the third long-term agreement ARC has entered into that provides exposure to foreign indices. The company disclosed a deal to supply 140,000 MMBtu/day of natural gas to Cheniere‘s Corpus Christi Stage III expansion in 2022 with pricing linked to JKM. The following year, the firm revealed its second agreement with Cheniere to supply 140,000 MMBtu/day to Cheniere’s SPL expansion project with pricing linked to the Dutch Title Transfer Facility (TTF).

“ARC has reached an important milestone in our strategy to diversify and expand margins through participation in the global LNG market. The demand and level of interest in our low-emissions natural gas from key consuming nations and global LNG counterparties is evident. With our agreement with Cedar LNG, we are able to achieve our target of linking approximately 25 per cent of ARC’s future natural gas production to international pricing,” added Anderson.

According to Pembina, Cedar LNG has completed a detailed class III level capital cost estimate of around $3.4 billion (gross), including $2.3 billion (gross), or approximately 70%, which is under a fixed-price, lump-sum agreement and $1.1 billion (gross) related to onshore infrastructure, owner’s costs, commissioning and start-up costs, financial assurances during construction, and other costs. The total project cost, including $0.6 billion (gross) of interest during construction and transaction costs, is expected to be about $4 billion (gross).

While Cedar LNG is pursuing asset-level debt financing for around 60% of the project cost and has engaged MUFG Bank to act as financial advisor on the project financing, the remaining 40% is expected to be financed through equity contributions from both partners. The Haisla Nation, with its financial advisor CIBC, has initiated the financing process to raise capital to fund its 20% equity contribution. On the other hand, Pembina expects its part to be financed by cash flow from operating activities.

During 2023, Cedar LNG received all material regulatory approvals, including an environmental assessment certificate from the British Columbia government, a positive decision statement from the federal Minister of Environment and Climate Change, and a pipeline permit for the Cedar LNG pipeline connection to CGL, as well as an LNG facility permit from the BC Energy Regulator. Powered by BC Hydro, this project is anticipated to bring one of the lowest emissions LNG facilities in the world to life.

“Cedar LNG is competitively advantaged to supply Asian markets due to a low-cost, abundant natural gas feedstock from the growing Montney play and a shorter shipping route, along with providing offtakers with geographic portfolio diversification and the avoidance of Panama Canal shipping delays,” underscored Pambina.