Dreams for B.C.’s LNG projects dim

Even when times were relatively good, Premier Clark’s dreams of making B.C. a global energy exporter were slim. Before the collapse of oil prices, when the Asian market for liquefied natural gas was strong, B.C. was a latecomer. Others, such as Australia, were years ahead in securing markets.

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Now the promise of nineteen LNG projects is fading faster than last New Year’s resolutions. Of the nineteen projects, ten have been approved by the National Energy Board for export licenses. Of the ten approved, the B.C. government is hopeful that three will be operating by 2020.

Of the three, some could be in jeopardy. The Globe and Mail recently reported the takeover of BG Group by Shell. ‘That move added to the uncertainty over B.C.’s fledgling LNG industry (April 8, 2015).”

Even before the takeover, BG’s Prince Rupert project was slowing. BG said an investment decision not in the cards until 2017 at the earliest.

And Shell’s attention is straying elsewhere. “Shell said on Wednesday the BG deal would give it enhanced prospects for new projects, particularly in Australia and Brazil,” warned the Globe and Mail.

Hopes were high that another LNG project, Pacific NorthWest LNG, would proceed but Moody’s Investors Service Inc. is throwing cold water on that too. “Moody’s said Pacific NorthWest LNG is the best bet to forge ahead, but cautioned that ‘Petronas appears to be leaning toward deferring this project, as lower oil prices have reduced its cash flow and it directs more investments domestically to Malaysia.’”

Moody’s issued a stark outlook for all of the fledgling North American LNG industry, not just B.C., arguing it doesn’t make economic sense to invest billions when Asian buyers are slowing down their LNG orders.

The B.C. government tried to woo it’s LNG dance partners even as they were getting cold feet. At first the government was going to tax the projects at 7 per cent, but as partners shied away the government cut it to 3 1/2 per cent. Even at seven per cent, Clark’s promise of lower taxes, better public services, and a $100 billion Prosperity Fund was in doubt says the Canadian Centre for Policy Alternatives.

“These claims were unrealistic at the proposed 7 per cent rate from February’s budget. At the lower rate they will be a pittance. First off, companies are able to deduct the full capital costs of their LNG plant investment before they pay the full (now 3.5 per cent) tax.”

That means they would be tax-free for six to twelve years depending on the market price of LNG. Even after paying off capital costs, the returns would be miniscule says CCPA economist Marc Lee. Sure, taxes and royalties together would amount to something. “But compare that combined $300–900 million to BC’s 2014 budget of $44 billion. Drop, meet bucket.”

And that calculation was made on the assumption of five LNG plants. Yes, B.C. has a balanced budget this year but at the cost of reduced services such as the cuts of 8,500 hours to bus service in Kamloops and $29 million dollars collectively to school districts who have already cut to the bone.

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2 Comments

  1. This is a very well reasoned economic argument against LNG and why BC should not get involved. But let’s talk about the environmental side of this.
    Everyone would agree that China has the worst air pollution in the world. Why… Because they burn coal primarily for all of their energy needs. The enviros would would say they need to convert to solar and tidal energy. Okay I wonder if you can efficiently smelt steel with tidal energy.
    Maybe but only during the full moon.
    The reality is that China’s manufacturing has made it possible for the rest of the world able to buy manufactured goods at a fraction of the cost of what they would have payed even a few years ago. This include solar panels by the way.
    So is China going to stop manufacturing? Are we going to stop buying their quality inexpensive products.
    Probably not.
    Natural gas is produced from organic material of course.
    You can produce it in a barnyard manure pile or a city dump.
    Even coal is just natural gas that needs more aging.
    It is incredibly common, that’s why they call it NATURAL GAS.
    It also is the cleanest burning fossil fuel.
    So what if we were to convert China from coal to natural gas.
    For starters Chinese citizens could stop wearing masks
    Then of course the clear headed workers would realize that they are not making enough money and the end result would be that we would that we would have to pay more money for solar panels but the world would have cleaner air.
    Come on BC get behind this.

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