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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Fracking is a threat to B.C. dams

There are environmental reasons to stop fracking in B.C. There are political reasons to continue.

In addition to the environmental reasons to stop fracking, there is a risk to B.C. dams. The list continues to grow: the contamination of groundwater, the disturbance of natural environments with roads and drilling rigs, the disposal of toxic water, and now the danger of earthquakes. Especially around dams, reservoirs, and tailings ponds.

earthquake

Freedom of information documents obtained by the Canadian Centre for Policy Alternatives reveals the concerns of BC Hydro officials.

BC Hydro became alarmed in 2009 when drilling started on lands near Peace Canyon Dam, downstream from the W.A.C. Bennett Dam; a dam which holds the world’s seventh-largest hydro reservoir by water volume.

Ray Stewart wrote, “BC Hydro believes there are immediate and future potential risks to BC Hydro’s reservoir, dam and power-generation infrastructure as a result of this coal-bed methane project.” He warned that earthquakes caused by fracking “may be greater than the original design criteria for the dam.”

His concerns are well-founded. Fracking is taking place in the Montney Basin which underlies much of the Peace River region, an area rich in shale gas. And fracking is proven to cause earthquakes.

Stewart also warned that fracking could “reactivate” ancient faults in the region, which could potentially set the stage for earthquakes. He also warned of “hydrogeologic impacts” on hydro reservoirs from fracking. He worried that the land might sink or that dried-out coal seams might ignite.

The land could sink and the coal dry out because the cavities that result from the extraction of gas. It occurs after water under pressure fractures the shale and is pumped out. The gas follows the pumped out water. The cavities are one thing, the toxic water is another.

To get rid of the toxic water, it’s pumped back into the earth below the area that’s been fracked. The pressure created triggers earthquakes.

Regulators have been slow to react. BC Hydro would like to stop the drilling within five kilometres of dam sites but regulators have not ruled it out, citing only “understandings” with drillers.

Even BC Hydro’s deputy CEO, Chris O’Riley, seems to be in denial. “Fracking by itself cannot generate large magnitude earthquakes.” That’s not what the U.S. Geological Survey found. While B.C.’s fracking is in its infancy, the USGS has been studying the alarming rise of fracking-induced earthquakes in Texas and Oklahoma for decades.

The USGS says that magnitude 6 fracking-induced earthquakes could occur which can damage even well-built structures. “But we can’t rule out quakes of magnitude 7 and above,” says Mark Petersen, chief of the National Seismic Hazard Mapping Project (Scientific American, July, 2016).

The political reason for fracking is that it’s the only plan we have. Premier Clark campaigned on her plan to liquefy natural gas plan and won — a plan to drill and export LNG and to power it with the Site C dam.

She’s likely to campaign on the same strategy again in the upcoming B.C. election. Even though LNG markets have dried up and the power from Site C won’t be needed for decades, it’s the only game in town.

It will be interesting to see what job-creation strategies other parties have as the campaign heats up.

Stop calling royalties a tax

In raising royalties, Rachel Notley’s NDP government is simply returning Alberta to its roots. Former premier Peter Lougheed urged a sensible development of the tar sands and fair royalties. After flying over the tar sands in 2006, he remarked:

Bust

“I was just up there on a trip, just helicoptering around, and it is just a moonscape. It is wrong in my judgment, a major wrong, and I keep trying to see who the beneficiaries are. It is not the people of the province, because they are not getting the royalty return that they should be getting.”

Corporations like to confuse royalties and taxes because they would rather not pay anything to government, regardless of merit or ownership. Royalties are “rents” says Gordon Laxter, economist and founder of the Parkland Institute of the University of Alberta.

“Many think of royalties as taxes. Any government fee must be a tax. Wrong. Private woodlot owners and musicians collect royalties. No one calls them taxes. When governments collect royalties they aren’t taxes either. Royalties are one way to capture economic rents. Leases, ecological charges and corporate taxes are other ways. Government ownership of resource companies is the only way to collect all the rents,” he says in the Monitor magazine.

By rents, Laxter means the profit from a piece of land or real estate. A tax is not that, it’s a levy on income. Royalties are rents, compensation for the use of public land.

When Lougheed flew over the tar sands moonscape, he was being rhetorical when wondering who the beneficiaries were. As former premier, he knew that the beneficiaries were Big Oil and not primarily those who owned the land.

Despite Lougheed’s pleading for Albertan’s to “think like an owner,” successive Alberta governments fell sway to the push from Big Oil who threatened to leave Alberta if royalties were increased. It was an idle threat, of course. Other governments, like Norway’s, impose higher royalties and Big Oil still continues to profit.

Western provinces tend to think small when it comes to their economies.  Like a young adult, no longer a teenager, provinces fail to think in grown-up ways. Western provinces have trouble seeing beyond living their parent’s basement and working at the equivalent of a fast-food restaurant – quick and easy natural resource extraction.

Mel Watkins, one of Canada’s foremost political economists, foresaw adult economies in his 1963 “staple theory of economic growth.” Simply put, his three pronged maturation involved the export of resources only after they had been processed; then on to the production of finished products instead of importing them; and finally, mature economies which become self-supporting and not dependent on resource extraction.

It hasn’t dawned on Western Canadians that we are there, at the third stage. We have cities with populations over a million; we are large enough to be self-supporting. Unfortunately, the quick-and-easy resource extraction mentality is hard to shake. B.C. Premier Clark imagines our future as the exportation of LNG and has lowered rents to please investors.

The reality is that B.C. and Alberta have the population, the talent and ingenuity to complete the last prong of Watkins’ vision. We need to think like grown-ups.

 

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.

lng

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.

What will we do with all the fracking water?

If the way we treat the dirty water we have is any indication, B.C. is in for a lot grief. The amount of contaminated water is about to increase dramatically because of the government’s dream to frack us into prosperity: export liquid natural gas by hydraulic fracturing.

Fracking_Graphic_t670

The shoddy way we treat existing toxic water stored in 110 disposal wells is a deplorable.

How bad? That’s what the Fort Nelson First Nation wanted to find out since a lot of drilling will take place in their back yard. They asked the University of Victoria to investigate. Their report highlights one disposal well in particular, #2240.

An unimaginably huge amount of toxic water has been stored in #2240; enough to fill 16,693 Olympic swimming pools, that is, 41 billion litres. Or put another way, 24 times the volume of the World Trade Centers in New York. So, how is disposal well #2240 holding up after 46 years, you might wonder. Who knows?

The water going into the well has not been tested for chemical content. Water in the surrounding area has not been tested for leakage –it’s a black hole.

Reporter for the Globe and Mail, Mark Hume, says of the report: “And it presents some troubling data – not the least of which concerns the amount of wastewater pumped into the ground at disposal well #2240.”

“Notably, there are no requirements for operators to conduct baseline testing of water systems surrounding the well, or conduct ongoing monitoring of these water systems. There are also no requirements to monitor or disclose the quality or characteristics of the fluid being disposed of in the well.”

What will become of all the new industrial waste water? It doesn’t look good.

The chemical-laced water is bad enough before it goes down the fracking hole and worse when it comes up. Drilling companies are secretive about the chemicals they put in the water but there are hundreds of possibilities according to the Chemical Disclosure registry in the U.S.

Some of those possible chemicals include Hydrochloric acid to help open fractures where the gas is hidden, antibacterials like Gutaraldehyde, gelling agents such as Guar gum to suspend added sand, yet more chemicals to break down the gelling agents.

A lot of this secret chemical cocktail stays down the hole but 20 to 50 per cent comes back up. This mess is euphemistically called “flowback water” which continues for 10 to 14 days until the gas starts to flow.

While the water going down is toxic for decades, it’s lethal for centuries when it comes back up. The UVic report adds that flowback contains “very old water also present in the target zone and in bedrock formations above or below it that may be highly saline and contain naturally occurring radioactive material (NORM).

It hardly inspires confidence, does it? Premier Christy Clark’s headlong rush to frack the heck out the province already faces logistical and market hurdles. The legacy of billions of litres of toxic water is yet another dark cloud about to rain on her parade.