What's in an FID

In my role as CEO of LNG Canada, I am often asked about the term, FID -- what it means, and even more often, when is it going to happen?

For the communities that are waiting for LNG Canada to make its Final Investment Decision – which is what FID stands for – they more likely refer to FID as “Finally, an Investment Decision!”

It takes time to get to an FID

We recognize that it has been a lengthy process for the supporters of our LNG Canada project, made even lengthier by a delay in 2016 due to prevailing market conditions. It often takes more than seven years to develop and de-risk an LNG project. The good news is that we used the intervening time to return to market so we could deliver the most cost- competitive project possible. 

There is only one kind of FID

When it comes to an FID, there is only one Final Investment Decision. A “conditional” FID can result in projects being abandoned a short time later. A political FID, can also lead to similar outcomes. In 2018, a Canadian LNG project announced a “soft” FID targeted for 2018, and a “hard” FID for 2019. 

Make no mistake: The only announcement a community can depend on is a Final Investment Decision that comes with no qualifiers or conditions – where after the project immediately moves forward into construction. This is the kind of FID we are waiting to hear about on the LNG Canada project, with the exact date for that decision up to our Joint Venture Participants to make.

What’s considered in an FID?

A Final Investment Decision for LNG Canada is a final decision about the capital investment required by our joint venture participants – Shell, PetroChina, Mitsubishi, Kogas and subject to deal closure, PETRONAS.

Our JVPs need to weigh their capital investment decision against other opportunities within their portfolio of projects. They will look for how cost competitive our project is, and that we have certainty in the measures that all levels of government have said they will take to provide a level playing field to ensure our project can compete with LNG export projects in other countries.

Our JVPs will examine what they can expect in terms of a return on their capital investment, and what risks may be in place that could impact project planning and execution.

What's in an FID review?

To get to a Final Investment Decision, our JVPs will review, in no particular order: 

•  The business case for the project in the global gas and LNG industry, including the cost of delivering LNG from Kitimat to Asian markets
• Plans to manage safety to ensure there are no injuries or fatalities during construction, a safe start-up and safe future operations
• Key commercial agreements with Rio Tinto for land
• Export license from the NEB, and environmental permits from Canadian regulators
• Stakeholder support including from the community, First Nations, governments and business partners
• A detailed execution plan and schedule, EPC contracting strategy, technology choices, modularization plans and cost estimates for the LNG Plant
• Plans, costs and schedule for TransCanada’s Coastal GasLink Pipeline to connect gas supply to our terminal
• JVP’s gas supply plans from their own resources in the Fort St. John area and beyond
• Tax payments to the Federal, Provincial and District governments - all part of ensuring society benefits from our project
• Benefits to First Nations through employment, training, contracting and more
• Power supply arrangements and agreements with BC Hydro
• Sensitivity and risk analysis on all of the above

Until there is an FID announcement, there is no FID.

You may have come across announcements about the companies LNG Canada selected as its Engineering, Procurement and Construction contractor, and announcements by TransCanada, our pipeline partner, on a number of contractors they have selected to build the pipeline and the various work camps required to house the workforce. In all cases, award of these contracts is contingent on LNG Canada’s JVPs making a Final Investment Decision. But we need to make these conditional awards now, so if there is a positive FID, we are ready to move directly into construction.

If the FID is a positive one, our JVPs release funding to construct the LNG Plant and provide the necessary guarantees to TransCanada for the Coastal GasLink pipeline project to proceed.

And if the decision is to not move forward, LNG Canada exits the project and works to meet any regulatory requirements of that action, as well as ensure that our stakeholders understand the reasons behind the decision.

Setting LNG Canada up for success

To ensure that LNG Canada does not become another mega-project that overruns its budgeted cost and schedule -- repeating what has happened in Australian, but this time in Canada - and to maintain the overall project schedule and advance work that is seasonally sensitive, some construction activities need to be started this summer, in advance of an FID. This work, however, is not a guarantee LNG Canada will move forward. Because the work will place the project in the best position to start strong and remain on schedule should the JVPs make a positive FID later in 2018, it is a risk the JVPs are willing to take.

Community support

Our project has benefitted greatly from the support First Nations and local communities have shown to both LNG Canada’s proposed LNG export terminal and TransCanada’s Coastal GasLink pipeline project. Thank you again for that support. As we all eagerly wait to hear the outcome, we appreciate the strong relationships that have been built, and hope we have the opportunity to nurture them further over the coming decades.