The Holy Grail of LNG

By Judith Lavoie, March 1, 2016

The quest of Christy Clark’s government for a BC LNG industry has taken on an increasingly mythical quality.

Andrew WeaverTHE PASSIONATE PROMOTION of liquefied natural gas by the Liberal government and assurances that all is well—despite a worldwide oversupply and the lowest natural gas prices since 1999—brings to mind the classic Monty Python dead parrot skit: “It’s a stiff! Bereft of life, it rests in peace! If you hadn’t nailed it to the perch it would be pushing up the daisies.”

Three years ago Premier Christy Clark conjured up a vision of a fracking-filled future with LNG exports solving a multitude of provincial problems. Royalties from five LNG plants were projected to bring in between $130 and $260 billion and a Prosperity Fund was expected to collect more than $100 billion over 30 years, thereby ensuring the province’s debts would be paid by 2027. The icing on the cake was creation of 100,000 new jobs.

Fast forward to 2016. There have been 20 proposals, but none are yet assured, leading to doubts that BC can have a viable LNG industry, especially given gas prices are in the tank with no end in sight.

There are also growing concerns that the industry’s greenhouse gas emissions would make BC’s climate targets unachievable, and that job numbers would be a small fraction of those projected by the government.

The current LNG Asian spot price per million British thermal units is $5.72. Most studies project the price will remain low into the 2020s due to both decreased demand in Asia and China and increased production from new plants in Australia and the US. Costs are lower in these countries because they can convert existing import terminals for export. 

To Green Party leader Andrew Weaver the prices tell the story and he doubts there will be a successful LNG industry in BC for at least 10 years “and maybe never.” “Why would someone come and build something when they can’t sell [the gas]?” asked Weaver. “Right now, future contracts for natural gas are $4 and change for 2018/19. Why would someone spend $5 to get it out of the ground? And then there’s the cost to ship it. Literally, in BC we would have to pay them to take it. It makes no sense.”

Chemistry PhD Eoin Finn, founder of My Sea to Sky and a retired partner at KPMG, has crunched LNG numbers and concluded that it would take $12 per mBtu to get the gas out of the ground, transport, liquefy and ship it to Asia. “Given that, an LNG-fuelled BC economy is unlikely, at least any time soon,” he said.

Lifting of sanctions against Iran—which has large supplies of natural gas—along with moves towards renewable power, and capital project cutbacks at energy companies struggling with low oil prices are all part of the LNG equation. Beyond those realities, a study by the Oxford Institute for Energy Studies says that Canada’s lack of infrastructure, pipeline distance to liquefaction plants, First Nations issues, and overlapping jurisdictions also all play against the country’s LNG ambitions.

Yet the BC government seems determined to remain positive. It points to a Wood Mackenzie study forecasting global LNG demand will double from 2014 to 2030. Natural Gas Development Minister Rich Coleman is convinced a profitable LNG industry for BC is just around the corner. In an interview he said, “This year could be good if final investment decisions on a couple of these go ahead. There’s no question that there will be a need for LNG in the marketplace. The studies show that there will be a shortage of LNG to meet world demand within four to five years and it takes about four years to build a major plant so their timing is almost perfect.” He added, “If the demand is larger than the supply, the price will start to creep back to an economic level.”

At this point, though, no companies appear ready to make a commitment.

A final investment decision on a $40-billion LNG Canada proposal for a terminal in Kitimat, for instance, has been delayed until at least the end of this year because the joint venture company, led by Royal Dutch Shell, is concerned about weak prices.

The fate of the Pacific NorthWest LNG project, led by Malaysian energy giant Petronas, is in the hands of the federal government. Petronas wants to build a terminal on Lelu Island near Prince Rupert, but the project is opposed by the Lax Kw’alaams First Nation. A decision is expected in late March—and Coleman is confident it will be positive. The new Liberal government, however, may not be inclined to approve it as the decision is seen as a litmus test of the promised new relationship with First Nations. In February, a trio of Russian scientists, hosted by First Nations, concurred that the proposed LNG site was about the worst place for such a facility in terms of the risk to already threatened wild salmon stocks.

The third “most promising” but also much smaller project is Woodfibre LNG near Squamish, which is waiting for a Canadian Environmental Assessment Agency decision. The company is headed by Pacific Oil and Gas Ltd, owned by controversial Indonesian billionaire Sukanto Tanoto. 

On Vancouver Island, Quicksilver Resources has a site near Campbell River, but its US parent company filed for bankruptcy last March. Steelhead LNG has announced plans for plants at Sarita Bay, near Bamfield, as well as a floating plant—something that does not exist anywhere else in the world—in Saanich Inlet, near Bamberton.

The Saanich Inlet proposal faces stiff opposition from southern Vancouver Island residents and the company’s partnership with Malahat First Nation is running into serious bumps with the election of a new chief and subsequent dismissal of several top economic development officials.

So none of the most promising projects seem very promising at this stage.

 

THE HOST OF CHALLENGES and lack of activity on the ground, however, is not stopping the provincial government from kickstarting the Prosperity Fund, which was formally announced in the February budget with a deposit of up to $100 million, not from LNG royalties but from general revenues.

It’s a fantasy fund, charged NDP finance critic Carole James. “It’s a fund for an industry that doesn’t exist, has not decided to come to the province—no one has made a final decision—and there’s no revenue from it, so they have taken $100-million of taxpayer money, which equals almost exactly the amount of the MSP increase for all families in BC,” she said.

With an election looming next year, the premier appears embarrassed that she has put all her eggs in one basket without an LNG terminal in sight, said James, who sees little prospect of the industry getting off the ground in the near future.

The NDP supports an LNG industry in principle provided it is green, there is agreement from First Nations, benefits to communities, and jobs for British Columbians.

The Green Party is the only political party to come out against the industry.

Investigative energy reporter and author Andrew Nikiforuk, who has written extensively on LNG, says British Columbians should worry about how much the government obsession with LNG is costing taxpayers. “There is a substantial cost to the man in the street. The government has subsidized this industry for the last 10 years, by my calculations, by at least $1 billion,” Nikiforuk said.

Perks for companies fracking for natural gas have included low royalties, free water and geoscience, and subsidized pipelines, he said. “The government has lowered royalties to the point that the industry is earning virtually no income for the Province at this time,” he said.

But Coleman scoffed at suggestions that LNG is costing taxpayers. “It is all private investment. There’s no investment by government. Our job is to do the environmental assessment work, which we would do in any major project, and make sure we have a competitive regime,” he said. “There has probably been a good $10-billion invested in BC already on LNG with all the prep work and pipelines.”

Weaver points out there’s a hidden cost in the government’s concentration on LNG and the Site C dam. He believes that it is driving away other renewable power industries and has skewed training at BC’s colleges and universities.

The Canadian Wind Energy Association, for instance, pulled out of BC in February, saying there is more commitment to renewable energy in Alberta and Saskatchewan.

An overarching question is how BC can claim it is reducing greenhouse gas emissions if it approves LNG plants. “It’s one of the things that got me into politics because I knew it meant the government was abandoning any climate leadership,” said Weaver.

My Sea to Sky’s Eoin Finn has calculated that, if four or five plants were built, there would be direct and indirect emissions—from plants, wells and pipelines—of more than 100 million tonnes of CO2 a year. “That would be a 70 percent increase in BC’s emissions,” said Finn, who believes that the government strategy will be to offset LNG emissions with carbon credits for not logging the Great Bear Rainforest.

As communities decide whether to support LNG, for many the question comes down to jobs, and while Coleman says the estimate of 100,000 jobs was solidly researched, a Canadian Centre for Policy Alternatives report found the claim was not credible.

“BC’s LNG sector would be expected to support only 2000 to 3000 construction jobs per plant over three years and 200 to 300 permanent workers once operational,” says the report.

Nikiforuk believes even construction jobs will not materialize as companies are more likely to bring workers from countries with expertise, such as Malaysia or South Korea. It takes only 150 to 300 people to operate a plant once it is built, he said.

Premier Clark has left no doubt that she plans to pursue the LNG dream, but the decision on whether that dream becomes reality rests, for now, in the hands of international consortiums.

In the meantime, British Columbians would be wise to take a close look at the ramifications of BC hosting the first LNG export plant on the west coast of North America and decide whether the subsequent greenhouse gas emissions, fracking and massive ships carrying frozen gas to Asia fit with their vision.

Judith Lavoie is an award-winning journalist specializing in the environment, First Nations, and social issues. Twitter @LavoieJudith