LNG has long been touted as the next great thing in BC’s natural resources sector. A “generational opportunity,” said our last premier; a “great opportunity” for BC, says our current one. This article examines the likelihood of those gushy statements coming anywhere close to fruition. In the wake of the BC and federal governments’ questionable decisions to approve and subsidize BC’s fledgling LNG industry, it is worth examining the truthfulness of the arguments made to justify those costly actions.
The arguments, parroted endlessly by politicians, industry lobbyists and mainstream media, include the following:
LNG is BC’s ticket to a debt-free province
Alas, this is patently untrue. BC’s provincial debt – currently over $67 billion (that’s about $14,000 for every British Columbian, not counting multi-billion debts at BC Hydro, ICBC, and several public-private partnerships) – is well beyond any redemption by yet another resource industry struggling with more nimble, lower-cost competitors. The dismal economics of the LNG industry has slowed the heady rush of two dozen LNG export wannabes. Remaining now are two – maybe three – of the hardier hopefuls. These are currently engaged in begging for ever-larger government subsidies and demanding exemptions from environmental controls to match those of less-regulated competitors.
To put the importance – or lack of it – of BC’s natgas industry into perspective, know that 2018-19 Government revenues from the entire BC gas industry amounted to less than $164 million – less than 0.3% of total BC government revenues in 2018-19. Compare that to the forest industry’s 1.8% ($992 million) or the Liquor Branch’s $1.1 billion (2%).
To date, LNG’s direct contribution to BC’s coffers is a whopping zero! This is a far cry from the heady days of a decade ago, when the sale of fracking rights and royalty payments garnered over $2 billion for the province’s budget – none of it from LNG. Lest BC taxpayers think any royalties are better than none at all, readers should be aware that the outstanding balance of tax credits issued to natgas frackers is over $2.6 billion – meaning that, should the industry ever become profitable, the first $2.6 billion of that won’t garner a dime in taxes to the Province.
Recent studies have estimated the minimum break-even price of BC LNG at around $9 per million British Thermal Units (mmBTU). The current spot price of the product in Asia is below $6/mmBTU and is predicted to stay there for the next decade at least. When all the hullabaloo started in BC – immediately after the 2011 Fukushima disaster – Asian LNG prices ballooned past $18/mmBTU. That proved to be temporary as countries expanded fracking their shale gas reserves to increase gas supplies.
LNG as BC’s debt saviour – not very likely.
Asia’s LNG demand is infinite
Gas demand in Asia is indeed growing, but the future for LNG there is not rosy. Over 80% of Asian LNG demand derives from four countries – Japan, China, South Korea and Taiwan, with China’s demand the only one not currently decreasing – a consequence of mild winters but also LNG import prices, a general regional economic slowdown and some other factors.
For starters, LNG is expensive relative to the staple heating fuel – coal. Japan is restarting many of the 50 nuclear power plants it shuttered after Fukushima. South Korea’s demand is also suffering from a similar nuclear exercise there. Russia is currently filling a 60” diameter gas pipeline – “Power of Siberia” – that is contracted to deliver 27 million tonnes of gas into northeast China for each of the next 30 years. A second, more westerly, trans-Siberian pipeline is planned, as are heavy investments in renewables. As well, China plans to greatly increase domestic gas production to reduce its dependency on imports from Western nations with whom China has iffy relationships.
The reduction in Arctic sea ice has allowed icebreaking Russian LNG tankers to load up at Siberian LNG plants and exploit the way-shorter route over the Bering Sea to both Asian and European markets.
Asian gas analyst Platts recently rolled all of these factors into a forecast for LNG import growth into China – shown as the solid blue line in the graph below. Demand falls off a cliff just about now and into the foreseeable future.
LNG demand growth in China is likely. But so is the cheaper pipelined gas supply, and the 40+ line-up of lower-cost LNG mega-plants in Australia, Qatar, Russia, Africa, Papua New Guinea and, particularly, the US – all competing for what LNG demand growth there is to be had. The odds of success? – miniscule.
Jobs, jobs, jobs
In 2013, you couldn’t miss it – the campaign bus emblazoned with the promise of 100,000 jobs in BC’s nascent LNG industry, and a debt-free BC. It sounded good – good enough to propel the promiser to electoral success. Only afterwards did the fine print reveal that the figures were essentially supplied by government for an auditor to bless, and those were exaggerated wildly beyond actual experience in Australia and elsewhere. A subsequent study by accounting firm KPMG showed that, optimistically, direct operational employment at five large LNG plants would be at most 2,400 workers, coupled with maybe 20,000 more operating drill rigs and gas treatment plants in the northeast’s fracking fields. And that a program of training BC workers with the skills necessary to build and operate LNG plants would be an expensive proposition.
Few parents see their children’s future employment being operators of drill-rigs in the fracking fields of northeast BC. Honest and well-paying though that work may be, the lifestyle of transient work-camp living in a gig economy subject to boom-and-bust economic cycles is not the stuff of their dream lifestyles. Most are far more worried about the climate crisis which an expansion of LNG exports will do nothing to alleviate.
It will help clean China’s polluted air
If cleaner-burning LNG were used to replace sooty coal, it would indeed help do that – but at the expense of making BC air quite a bit dirtier, and obliterating any chance of achieving Canada’s Paris Accord GHG emission reduction targets. However, there are some big “ifs” in this proposal, including: (i) if China does allocate the LNG to replacing dirtier coal, and does not instead divert it to competing with its production of renewable energies and; (ii) if, wellhead to burner tip, methane leakages in the whole supply chain are kept below 3% of produced-gas volumes. Otherwise, replacing coal with LNG achieves no net GHG reduction benefit. Both of these assumptions are by no means guaranteed, and BC’s grade-your-own-homework approach to industry self-reporting and regulating methane leakages is cold comfort when it comes to determining the actual level of BC’s methane leakages.
Climate activists view this claim as industry’s effort to greenwash LNG, all while buying time to profit from expanded gas use and sparing fossil-fuel assets from being stranded in our inevitable transition to a carbon-free world economy.
Expanding oil and gas pipelines is consistent with meeting climate targets
Of all the assertions, this is by far the most questionable. Many people find it deeply insulting to their intelligence – a grade 12 chemistry student could tell you that every tonne of LNG generates about 3.3 tonnes of GHGs.1 This federal government, elected in 2015 on a promise to curb carbon emissions, has approved three oil pipelines, a dozen LNG plants and a plethora of coal shipments, all of which runs counter to any discernible plan, other than an anemic carbon tax proposal, to curb emissions. Failure to take any action against the fossil fuel industry – the source of at least half of our emissions – is more reminiscent of the Harper-Clark era than the “real change” and reduced oil subsidies we were promised.
Rip it and ship it is what BC does
Not any more. Oil and gas and mining collectively account for less than 2% of BC’s 2.5 million total workforce. These sectors are declining rapidly as we lose our competitiveness to developing countries with similar resources and lower labour costs. A more modern economic strategy would emphasize higher value-added endeavours – not try to resurrect an outdated paradigm.
We will get climate credits from China for our LNG
Article 6 of the Paris Accord does contemplate international transfers of GHG credits. However, this provision has not yet been implemented, let alone agreed between countries each striving to achieve their own Paris targets.
We can frack the North and still uphold UNDRIP
Over 80% of BC’s natural gas derives from fracking – a controversial mining technique now under either a moratorium or a partial or complete ban in many parts of the world. We have no more important relationship than with First Nations. Mouthing frothy apologies for 151 years of cruel mistreatment and promising to ratify UNDRIP (the United Nations Declaration on the Rights of Indigenous Peoples) doesn’t cut the mustard with First Nations. They know that old colonial attitudes remain deeply embedded in the oil and gas companies’ approach to “free, prior and informed consent.” Offering them a way out of grinding poverty if only they will agree to environmentally-destructive fracking serving a sunset industry – shameful!
Face facts – BC LNG is an economic basket-case. And a climate disaster in the making.
Eoin Finn B.Sc., Ph.D., MBA, is a resident of Vancouver and a retired partner of accounting/consulting firm KPMG. After 35 years in the business world, he describes himself as an “accidental activist.”
This article appears in our December 2019-January 2020 issue.
- LNG is liquefied methane (CH4) (molecular weight 16). When combusted, it converts to C02 (molecular weight 44) and water. The ratio 44/16 = 2.75 means that every tonne of LNG/methane burned generates at least 2.75 tonnes of GHGs as CO2. The difference 2.75 -> 3.3 has do do with a phenomenon called “methane slip” where a small portion of methane is not burned in the combustion, and must be counted according to its full harmful effect of 25 times worse, weight for weight, than CO2 in a 100-year timeframe. This calculation does not include any of the methane that escapes from fracking wells, pipelines and treatment plants that vent and flare the non-methane components of the fracked gas. Neither does it count the methane burned in liquefying, shipping, and regasifying the LNG enroute to its combustion point. So 3.3 tonnes GHGs per tonne of LNG is a significant underestimate.