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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B.C.’s resource development will not generate jobs

Resource development develops new jobs but not more jobs says Professor Marvin Shaffer. New pipelines and LNG processing will not reduce unemployment despite the claims of politicians. “The economic impact analysis is the one that politicians and media latch onto –the ones with the big, though fundamentally misleading numbers.”

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Those misleading numbers are impressive: labour income of $69.9 billion for Northern Gateway alone. But that assumes that the new jobs are filled by the unemployed. In reality, most of the jobs would be filled from people already employed in B.C., Canada, and globally. Considering that, the net labour income rise is only 0.06 per cent of the amount trumpeted.

These are not Professor Shaffer’s opinions. Rather, the figures come from a report commissioned by the builders of the proposed Northern Gateway pipeline, Enbridge, as presented to the National Energy Board for review.

The authors of the report, Wright Mansell, throw cold water on other so-called benefits. Politicians loudly proclaim increases of government revenues of $98 billion and GDP $311.5 billion. “Those are gross impacts,” warns Shaffer in a Canadian Centre for Policy Alternatives newsletter.

To get true picture, the benefits have to be weighed against the costs, including losses to businesses as a consequence of the pipeline or resource development; businesses such as railways which now carry a lot of oil.

The Wright Mansell report calculates the true net gains, namely gross benefits minus costs. The net benefits of Northern Gateway end up going to oil producers. The biggest winners are the producers themselves with $17.8 billion; and the governments of Alberta and the feds with $9.4 billion.

And even those net benefits depend on the vagaries of world markets for fossil fuels, exchange rates on the Canadian dollar, and interest rates on money borrowed to build the projects.

Other factors are not included in the report, says Professor Shaffer. “One suspects that the federal government would have to redirect a large share of its gain to Green House Gas offsets, marine safety and other measures for that case.”

Then, there is the matter of alternatives to the oil bottleneck out of Alberta; other ways to potentially increase the value of the resource such as refining the bitumen in Canada, and competing projects and strategies such as the existing Kinder Morgan pipeline and the Canada East project.

The massive windfall from LNG claimed by the B.C. government – a $100 billion Prosperity Fund – looks more like wind than windfall. No such fund can develop when Premier Clark promises tax cuts and increases to public services. None of this consistent with a Norway-styled “prosperity fund.”

To add insult to injury, not only does resource development fail to create jobs for the unemployed, fail to increase B.C.’s tax revenue, fail to produce a rainy-day fund, it is an environmental disaster waiting to happen.

I have to agree with Premier Clark’s ambitious plans to train unskilled workers but instead of training them for the black hole of resource extraction, prepare them for technologies of green renewable energy — not a dying fossil fuel industry.