Shell Canada has cancelled the facility which was supposed to supply Yukon Energy with liquefied natural gas to power a new back-up generating plant.

Yukon Energy on Thursday filed notice of the cancellation with the Yukon Utilities Board.

In the letter to the board, Yukon Energy pointed it's going with an alternative supplier from the Lower Mainland.

"Yukon Energy will now secure LNG supply from the FortisBC LNG facility at Tilbury (Delta, B.C.) until such time as a lower cost source of LNG is available,” says the letter.

"Because the FortisBC is a favorable (and regulated) rate the impact on Project economics is not expected to be material.”

In fact, supply of LNG from Delta may be slightly less expensive, says the letter.

Next week, the utilities board will begin four days of hearings into the proposal by Yukon Energy to build a new plant next to Robert Service Way at an estimated cost of $38 million.

Going with natural gas instead of the traditional diesel fuel to power three new generators would result in huge savings in fuel costs and cleaner air emissions, Yukon Energy maintains.

The public utility says the cost of a natural gas facility is slightly higher than going with new diesel engines, but the savings would pay off the difference in a few short years.

Yukon Energy had entered into a five-year supply contract with Shell Canada's Jumping Pound LNG facility outside Calgary. Shell announced this week it's cancelling the project.

Yukon Energy president David Morrison has made a point in the past of noting the supply of natural gas to the Jumping Pound facility was by conventional drilling and not hydraulic fracturing.

Morrison was out of the office this morning and unavailable for comment.

Sources of natural gas for the FortisBC facility are from both fracking and conventional drilling, municipal leaders were told last spring during their annual general meeting.

Yukon Electrical Co Ltd. is moving forward this year with plans to convert six diesel generators in Watson Lake to hybrid engines capable of burning both diesel and natural gas.

When asked by municipal leaders if Yukon Electrical could say how much of the natural gas would come from hydraulic fracturing and how much would come from conventional sources, a company official said it would be impossible to tell.

The representative said once the gas enters the facility, it's mixed.

At the public meeting hosted by the Yukon Environmental and Socio-economic Assessment Board to review Yukon Energy's LNG proposal, the company received a rough ride for switching to natural gas.

Some argued natural gas is not cleaner than diesel, given the full life cycle from the drill hole to the burner.

Using natural gas, they suggested, embraces hydraulic fracturing. And fracking is a disaster for the environment, some argued.

Six parties have been granted intervener status for next week's hearing, which will begin 9 a.m. Monday at the Westmark Whitehorse. Yukon Energy will kick off the hearings with its explanation of its application.

A three-hour session for the public to present their views will be held Monday evening beginning at 7 p.m.