LNG in BC: petro-state politics Part 3 – LNG Money

This is part 3 of a 3-part series based on a presentation by investigative journalist Andrew Nikiforuk to Squamish residents last year on LNG in BC.

Natural Gas is expensive in Asia and cheap here in BC.  So the plan is we are going to make a bunch of LNG money.

The problem is Asia owns the terminals and the fracking companies. What does BC have left?

Japanese and Korean firms are partners in several projects and the pricing for those projects will have to satisfy the Natural Gas buyers. Where is the revenue?  Here is the value chain:

  • Upstream: drilling/fracking for the gas
  • Midstream: liquefying the gas and shipping
  • Downstream: re-gasifying

Most of the money normally comes from royalties from the ‘upstream’ activity of drilling and fracking.

So far, Natural Gas revenue has dropped from approximately $1 billion in 2007 to less than $300 million in 2013 even though we are producing more gas than we did in 2007.

Why are we making less money now when we are producing more gas?

In the United States they collect the money up front for their fracking projects. But in BC we are NOT collecting the money up front. According to Cambridge Energy Investments this is the most risky way to go about it.

With non-renewable resources you want to collect the revenue up front because of price volatility and you never know what is going to happen next in the markets and in the world.

Prosperity Fund

BC made a promise to get $100 billion dollars in a ‘prosperity fund’ by 2034.

How is this possible? The plan is to tax Natural Gas after the companies have recovered their capital investment. The government proposes to tax it 1.5%.  Ultimately, BC will have a royalty tax rate lower than Australia for LNG.

LNG Tax breaks

Pressing Ottawa for tax breaks are the four major LNG firms.  What are the subsidies and incentives provided by BC?  How is the BC government actively facilitating investment for shale gas? BC has assured the following for LNG investors:

  • lower royalties
  • reduced regulations
  • road access
  • geoscience information
  • access to well sites

BC government assures cooperation from:

  • federal agencies
  • provincial agencies
  • prescriptive regulations
  • interest groups

Since 2004, the BC government has provided:

  • $840 million in royalty credits for roads and pipelines
  • 2,434 miles of roads
  • 1,304 miles of pipe

Which works out to approximately a $1 billion subsidy to shale gas sector.

Site C and LNG

LNG projects need a lot of energy to operate all of their natural gas wells, pipelines and LNG terminals which is the reason why the Site C Dam is being pressed forward at this time. The Site C dam will cost taxpayers a minimum of $8 billion. Premier Christy Clark’s advisor is Glen Morgan the CEO of Encana, who once was the chairman of SNC Lavalin, but left when it was discovered that there were accusations of graft and corruption.

How much LNG to export?

The NEB has approved LNG projects that would allow for 14 billion cubic feet a year. Is this too much to give away?

The NEB admits that Canada will become a net gas importer by 2017 and remain so thereafter. In its reference case, the NEB suggests Canada will have no more than 4.5 bcf/d (billion cubic feet a day) of export capacity by 2035.

LNG in Australia

Australia currently has three LNG terminals in operation. Another six LNG terminals are under construction and nine are proposed for a total of 18 LNG terminals.

The Agorgan project in Australia had cost overruns. The project was to cost $9 billion and ended up costing $50 billion.

The Natural Gas that they produced had a 14% CO2 content.

In Australia they never did any proper environmental studies, as industry pushed hard against it. People are now finding methane bubbling up in fields and in rivers, and with so much gas in well water that people can light their water on fire from the faucet.

Australia now exports 90% of its gas. It has caused the collapse of the manufacturing sector and the retail sector is paying through the nose for electricity. Australia is paying very high domestic prices for energy yet it is ‘gas rich’.

LNG in BC

The end result for BC is that your average homeowner will see energy prices skyrocket.  The BC government’s approach is invite all the foreign LNG experts to:

  • build LNG terminals in modules in Asia
  • use foreign labour to assemble the LNG terminals here in BC

In return, the BC government will provide:

  • infrastructure
  • water
  • very low tax and royalty rates

BC taxpayers are not active participants in this type of plan. BC residents have to think and act like owners of a resource.

“Slow Down: behave like an owner”  Peter Lougheed

“…every region in the U.S. which has had shale development provides a cautionary tale. Economic stabilty has proved elusive. Environmental degradation and peripheral costs, however have proved very real indeed.”  Deborah Rogers, Investment Banker