A legal dispute over a major propane export terminal currently under construction at a British Columbia port could have “far-reaching consequences” for future projects in the area, potentially complicating Canada’s energy export ambitions, legal and industry observers say. The terminal, a joint venture between Calgary-based AltaGas Ltd. and Netherlands-based Royal Vopak, would add export capacity equivalent to roughly 20 per cent of Canada’s current propane and butane exports, if it opens this year as planned. But the project at the Port of Prince Rupert is also at the centre of a legal fight over Indigenous consultations and exclusive cargo rights at the federally governed port. After initially consenting to construction of the terminal on its traditional territory, the Metlakatla First Nation has withdrawn it support for the terminal, known as REEF, which is already roughly 70 per cent complete. In January, the B.C. Supreme Court ruled that the Nation’s lawsuit against the Prince Rupert Port Authority could proceed. The claim alleges the port authority failed to disclose a 2015 agreement granting exclusive propane export rights to Vopak — an arrangement the Nation says hurts its economic interests. The court battle is unfolding just as Ottawa is seeking to expand energy exports to Asia and reduce reliance on U.S. markets, with liquefied petroleum gases such as propane and butane emerging as a key pillar of its strategy. Prime Minister Mark Carney and Indian Prime Minister Narendra Modi on Monday signed agreements aimed at deepeninge energy trade, including advancing plans to finalize a long-term liquefied petroleum gas supply deal. AltaGas’s $1.35-billion propane terminal is widely viewed as critical infrastructure in that push. Analysts say the first phase is unlikely to be impacted by the legal dispute, but warned the battle could complicate future expansions. They said it could also impact how the federal government handles consultations and competing interests in other proposed export projects at Prince Rupert — including Ksi Lisims LNG and a potential Alberta-backed oil pipeline. “It’s an interesting legal question: would a judge broaden the duty to consult and accommodate to include economic dealings?” Heather Exner-Pirot, a senior fellow and director of energy, natural resources and environment at the Macdonald-Laurier Institute, said. “It would certainly be novel, and it would have far-reaching consequences that I think would be politically very unpopular in B.C. at this moment, if the duty to consult were interpreted as Indigenous nations are entitled to hear about commercial business dealings between (third parties).” AltaGas reports fourth-quarter results later this week and is likely to face questions from analysts and investors about the terminal dispute and the potential fallout from January’s court ruling — including the status of a $110-million expansion approved last fall. The Metlakatla’s claim has attracted attention in legal and business circles for going beyond a conventional dispute over consultations. The First Nation argues that the port authority — a federally governed entity — failed to disclose an exclusive export arrangement that harmed its economic interests. The First Nation holds a stake in Trigon Pacific Terminals, which announced plans in June to build a rival propane and butane export facility at the Port of Prince Rupert — an project that would require export rights currently blocked by the port authority’s exclusivity agreement with AltaGas and Vopak. “Had Metlakatla known in 2015 that (the port authority) was prepared to grant Vopak exclusive export rights, we would have strongly opposed it,” Metlakatla Chief Robert Nelson said in a statement last month, noting the Nation learned about the exclusivity deal in 2023. “If we had learned about the export monopoly during the REEF consultation process, we would not have consented to the REEF project.” Beyond the commercial rivalry, experts say the dispute is testing the bounds of Canada’s constitutional duty to consult Indigenous groups. Metlakatla’s argument may rest on a broader interpretation of Indigenous rights and title, not just the typical cultural or land-use rights, but economic rights connected to the land, said Dwight Newman, who teaches law at the University of Saskatchewan. “The idea that confidential commercial terms have to be disclosed for the duty to consult to be effective — that does represent an extension from where we’ve usually seen the duty to consult going,” Newman, the Canada Research Chair in Indigenous Rights in Constitutional and International Law, said. U.S. private equity-backed Trigon has characterized the exclusivity agreement as “picking favourites” at the federally regulated port, Canada’s third largest, after Vancouver and the Port of Montreal. It has filed a separate lawsuit in B.C. Supreme Court court over the port authority’s rejection. Exclusivity deals aren’t uncommon, however, and have been used to attract investment in costly energy infrastructure or specialized bulk terminals in ports in Australia, Europe and the U.S. In a statement, AltaGas said the exclusivity rights granted by the port authority allowed it to commit significant capital towards developing the export terminal before it made a final investment decision. “We made long-term capital decisions based on regulatory and commercial certainty, and we continue to work in good faith with (the port authority), local First Nations and our supply chain partners to deliver much-needed Canadian energy products to the world,” the company said. AltaGas said it’s open to continued engagement with the Metlakatla, one of six First Nations that signed mutual benefit agreements in connection with the propane export terminal. The company said its REEF project has awarded $350 million in contracts and services to Indigenous-owned and affiliated businesses to date. In February, the First Nation said it would defend its rights, using “all means necessary” to address the situation, including opposing any further authorizations or permits required to operate and expand the propane terminal. The commercial stakes for oil and gas producers are also significant. Propane and butane — typically produced as byproducts of natural gas extraction — have become an increasingly important revenue stream for Western Canadian producers. This is in large part thanks to AltaGas’s first major West Coast terminal project, which provided direct-access to Asian markets starting in 2019. Over the past two years, exports through the first terminal generated an average netback premium of roughly US$5 per barrel compared with exports by rail to U.S. hubs, AltaGas said in Dec. 2 investor presentation. Every three to four days, a vessel loaded with close to 600,000 barrels of propane and butane departs Prince Rupert, James Shelford, AltaGas’s chief commercial officer, said. “If we didn’t have these terminals and this access to the Asian market, that product would likely sit in the ground and receive no value to Canada and Canada’s producers,” he said. The improved returns have encouraged producers to invest in processing capacity to extract more propane and butane from natural gas streams, Shelford said. RBC Capital Markets analyst Maurice Choy said the withdrawal of support is likely to have limited impact on the propane terminal’s initial phases, given that major approvals are already in place. If it did, he wrote, it would raise broader concerns about the reliability of Canada’s regulatory framework. “Issues like this re-highlight the importance of Indigenous rights and economic partnerships to future developments in the sector,” Choy wrote in a recent note. Choy said that while the dispute is specific to REEF, it could have wider implications for how Ottawa manages other energy projects and Indigenous partnerships in Prince Rupert. The case is unfolding against a backdrop of tensions over other proposed projects in the area. The Metlakatla and the Lax Kw’alaams Band, the two First Nations whose traditional territories include the Port of Prince Rupert, filed separate judicial reviews in Federal Court last October regarding the Ksi Lisims LNG project. Both Nations allege the federal environment minister ignored concerns about the project’s adverse impacts. Exner-Pirot said it is rational for the Metlakatla to use their consent for other energy projects, including Alberta’s proposed West Coast oil pipeline, as bargaining leverage in the current dispute over the propane terminal. Atlantic Canada's energy isolation is getting worseAlberta examining possible oil pipeline routes to B.C. “The Metlakatla have not said that they are for or against the pipeline. They’re obviously not opposed to fossil fuels. They export coal (via their ownership stake in Trigon Pacific Terminals). They wanted to export propane,” she said “It seems obvious to me that they will use it as leverage, anyone would.” mpotkins@postmedia.com