VANCOUVER, Jan 7: 
In another potential setback for Petronas, British Columbia has banned the transport of oil on pipelines built specifically for proposed liquefied natural gas (LNG) terminals, in an effort to quell fears that those lines could eventually be converted to carry oil sands crude to coastal markets.
The regulation covers six proposed pipelines, which would all carry natural gas destined for LNG export terminals planned for the Pacific Coast province.
The government said the legislation could also be applied to future gas pipelines.
The ban is in response to concerns raised by Aboriginal leaders and environmental groups that pipelines built to serve British Columbia’s nascent LNG industry could ultimately be used to transport crude oil or diluted bitumen.
The worries are not without basis. As part of its Energy East project, TransCanada Corp plans to convert hundreds of miles of existing gas pipeline between southeastern Alberta and Cornwall, Ontario to carry crude to refineries and export facilities in Quebec and New Brunswick.
“A regulation prohibiting the automatic conversion of natural gas pipelines for these purposes goes a long way to address the concerns we have heard,” said John Rustad, British Columbia’s Minister of Aboriginal Relations, in a statement.
The ban follows a pledge by the provincial government last year to ensure LNG pipelines would never be converted to carry oil.
British Columbia is banking on an LNG boom to create thousands of new jobs and help bolster government coffers.
While Aboriginal groups in the province have so far been relatively supportive of the fledgling LNG industry, many remain fiercely opposed to the transport of crude oil and diluted bitumen through their traditional territories.
Numerous aboriginal communities have filed lawsuits in an effort to stop Enbridge Inc’s Northern Gateway project in the province’s north, while others are strategising on legal options to stop a proposed expansion of Kinder Morgan Inc’s Trans Mountain pipeline to a port near Vancouver.
Petronas last month delayed giving the final go-ahead for its planned investment in a US$11 billion (RM39.2 billion) LNG export terminal in British Columbia, citing high costs and other outstanding issues.
“Costs associated with the pipeline and LNG facility remain challenging and must be reduced further before a positive FID (final investment decision) can be undertaken,” the company had said in a statement.
Petronas had hoped to be in a position to green light its Pacific NorthWest LNG project before the end of 2014, but said it still needs more clarity on “substantive items of importance” and is reviewing the impact of declining oil prices on the economic viability of the remote development.
The company warned back in October that the economics of the project were marginal and said it could delay an investment by up to 15 years if outstanding issues around taxation and regulation were not resolved.
While British Columbia has since finalised an LNG tax package and approved both the terminal and pipeline, a federal environmental assessment of the terminal is still underway, with that decision not expected until mid-2015 at the earliest.