Good riddance to B.C. LNG

There were lots of things wrong with former Premier Christy Clark’s plan to produce liquefied natural gas but let me start with the good.

image: the Tyee

At least it was a plan that labour and business could agree to. It was a provincial strategy that had workers and industry pulling together in the same direction.

It was an ambitious plan but unrealistic from the start. Markets for were weak and no one wanted to develop the plants. Now one of the last players, Petronas, has pulled the plug.

I can only speculate why they bailed out only one week after the BC Liberals were defeated. Was there some deal with the Clark government to provide concessions such that the LNG plant would be built regardless of whether it was viable? It’s not inconceivable considering how much political capital Clark had invested in the project.

Or was it because of Canada’s so-called anti-business climate, including high taxes, environmental reviews, and Indigenous land claims? Instead of recriminations, let’s celebrate the passage of Petronas says economist Jim Stanford.

Stanford has a unique perspective of LNG projects in B.C. and Australia. He’s a professor at McMaster University in Hamilton, Ontario, and lives in Sydney, Australia.

“In fact,” says Stanford, “far from blaming government red tape for the collapse of this misguided project, we should be collectively grateful. Those rules likely saved us from wasting tens of billions of dollars on the biggest white elephant in Canadian history.”

Stanford’s analysis shoots down an impression I had. I wrote that Australia was a LNG success story and that Australia’s early entry into the market was why B.C.’s plants were doomed. I now realize that Australia’s experience was not as rosy as I thought.

When Asian gas prices started to surge in 2009, Australia decided to chase after those markets. Unlike Canada, Australian developers faced few environmental hurdles and Australia’s Indigenous people had little negotiating power.

What followed was a spectacular construction boom in which $200 billion Australian was spent on LNG plants.

The boom had a dramatic effect on Australia’s economy. Their dollar, now at par with Canada, spiked up to $1.30, resulting in what economists call the “Dutch disease.” When Australia’s currency rose dramatically, the price other countries paid for Australia’s products rose. As well, imports were cheaper. Exports fell, imports rose and Australian factories could no longer compete. Australia became deindustrialized including the shutdown of their auto industry.

With the drop in gas prices, Australia’s LNG online plants are marginal. Boom towns that sprung up during the construction years are becoming ghost towns. Housing prices have collapsed.

Gas plants are selling into markets at discounted prices. Unlike Canada, Australian plants don’t have to supply the country first and so, ironically, there is a shortage of gas in Australia and a glut of gas on world markets. Domestic prices have doubled because of diversion to export markets.

B.C. has no economic strategy. Only one per cent of our GDP comes from mining, oil and gas and most from finance and real estate.

Our new NDP government faces a challenge. In our polarized political climate, unifying strategies are rare. Just ask former Premier Clark.

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Stop treating B.C.’s interior like a colony

Premier Clark’s plan for job growth in B.C.’s interior is a failure. Her plan to extract Liquefied Natural Gas from the interior evaporated. She is sending more raw logs out of the interior than any other government according to the Canadian Centre for Policy Alternatives.

Clark treats B.C.’s interior like a colony of Victoria: drill for natural gas and sell it overseas with no regard to the contamination of water or earthquakes that fracking causes; send raw logs, and the jobs that go with them, elsewhere instead of restoring those jobs in the interior.

The interior-as-colony mentality didn’t always exist. Before 2003, the government made sure that jobs stayed in the communities where trees were logged. That meant that sawmill workers could earn good wages where they lived. Once logging companies were free of that obligation, they shut down mills. Since 1997, 100 mills have closed and 22,400 jobs were lost.

That loss of jobs means a transfer of wealth out of the interior. By my calculation, the loss of the above jobs amounts to $1.5 billion.

Since 2013, when Premier Clark was elected, nearly 26 million cubic metres of raw logs worth more than $3 billion were shipped out of BC. No previous BC government has sanctioned such a high level of raw log exports. Last year, about 6.3 million cubic metres of raw logs left the province. Had those logs been turned into forest products in the interior, 3,600 workers could have been employed.

We can do better. B.C. does a poor job of extracting value from our publicly-owned forests compared to other provinces. Ontario’s value-added wood industry was almost three times that of B.C.

B.C. should be a leader in extracting value from our forests, not a laggard. Waste wood can be used for more than paper mills and as fuel to generate electricity. That’s a good start says The Forest Products Association of Canada. They suggest other uses for waste wood -make wood pellets to heat homes, manufacture alcohol for vehicles, and make solvents for industry.

In addition to these bio-products, engineered wood products add more value. Such building systems include wall panels and roof trusses that are made from lumber in factory settings. The completed pieces are then moved to construction sites where they are secured into place, forming the walls, floors and roofs of finished houses or multiple-dwelling buildings.

In one demonstration, two identical triplexes were constructed in Edmonton.  The pre-fabricated building went up faster, with less on-site waste than the building next door.

Victoria can afford to be blasé. Vancouver Island gained 9,000 jobs last year; two-thirds of them went to Victoria. The Lower Mainland did OK as well, gaining 94 per cent of all B.C. jobs.

All other regions outside of Victoria and the Lower Mainland lost jobs last year compared to 2008 before the Great Recession (CCPA Monitor, March 2017).

Rather than treating the interior as a colony the government should create jobs and wealth where people live. The forestry sector is an obvious place to start since forestry has been a proven record as a job creator.

 

Canada’s new economic reality

 

As Canada emerges from the Dark Decade, we need to get back on track with a modern economy.

The Harper government’s plan to make Canada an “energy superpower” was a disaster for a number of reasons. The plan reversed our progress as an industrial nation; it insured that Canadians would become the highest per capita emitters of CO2; it failed to anticipate the vagaries commodity markets.

As long as we are hewers of wood and drawers of oil, we are just a colony of economic powerhouses. Mel Watkins identified this failed strategy as the “staples trap” in 1963.

“The tendency for the country to tilt its economic resources and policies in support of one particularly in-demand staple or another that, inevitably, leaves the economy struggling when the staple falls out of favour (David Parkinson, Globe and Mail, July 2, 2016).”

Watkins, now 84, looks back on the Dark Decade: “We bet the farm on oil prices staying high and rising, but that hasn’t happened and, it would seem, is unlikely to in any near future. We need to go back to the 1970s when there was genuine debate in Canada about industrial policy transcending staples.”

Back then, after World War II, Canada had shifted its workforce from agriculture to factories. By 1999, the high-value sectors of automotive, aerospace, transportation, electronics and consumer goods employed 60 per cent of the workforce. At the same time, the resource-sectors of agriculture, energy mining and forestry together only employed one-quarter.

What seduced Canada back into the staples trap? In a word: globalization. We gleefully sent manufacturing jobs to low wage countries with low environmental standards. Exports of metal ores doubled since 2000. Energy exports increased by 55 per cent at the same time as auto exports fell by 11 per cent. Economist Jim Stanford sums it up:

“The global commodities boom shifted Capital and policy attention towards extractive industries. Canada’s economy has been moving down, rather than up, the economic value chain.”

We’ve these cycles before where expansion in one part of the world triggers a global commodities boom. This time it was the modernization of China that triggered the boom. In the past it was the reconstruction of Europe and Japan after the war, and before that it was the rise of the U.S. as an industrial power.

Parkinson looks to future: “For the oil and gas business, the long term prospects look even more grim. The growing global momentum for green energy looks poised to steadily erode demand for fossil fuels over the coming decades. We may one day look back on the oil-price collapse of 21014-15 as the beginning of the end for the industry.”

During the Dark Decade, Canada invested heavily, not only in political resolve to exploit the dirty tar sands, but in the human and financial capital needed to dig the stuff up. It will take time to shift gears but Canada must shed its colonial mentality. It’s happening. Enbridge has invested $1 billion in wind-energy. Alberta has budgeted $3.4 billion for renewable energy.

B.C.’s government still has grandiose dreams of a fossil-fuel economy with liquefied natural gas. While Premier Clark hasn’t yet admitted it, that plan is history.