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A Golden Goose or a Dead Duck

Just how golden is this LNG goose? Both the NDP and Liberals believe that development of this industry in BC, largely for export to South and South-East Asian markets, will generate revenues in the multiples of billions of dollars. The Green Party stands alone in opposition to building our future based on a hydrocarbon-funded economy.

The NDP, who are critical of the Liberals for counting these golden eggs before they have hatched, are guilty of doing precisely the same thing.  The NDP has admitted that they will accelerate deficit spending over the next four years to “meet social needs” but plan to balance the budget by the “end of the economic cycle” through expanded revenue from the energy sector.

Obviously, the NDP are referencing LNG, since they have promised to kill the proposed Northern Gateway Project (although it’s not clear how they intend do that), and by his remarks on Earth Day, an Adrian Dix government won’t support a Kinder Morgan pipeline project to expand the capacity of the existing pipeline from Alberta to Burnaby.

By turning his back on the Northern Gateway Project, Dix has closed the door on at minimum of $1.2 billion in tax revenue, an additional $400 million in local procurement and expenditure, and kissed goodbye roughly 1,200 well-paying union jobs. Standing in a park, addressing an appreciative audience of environmentally-concerned supporters in Kamloops, he said his government will oppose the Kinder Morgan expansion. With this, Dix has thumbed his nose at a $5.4 billion project that it is estimated would earn BC an additional $1.3 billion in revenues and secure another 800 union jobs during the construction phase. So in an hour of speech making, would-be premier Adrian Dix just shut the door on $2.5 billion in potential revenue to the province, and sent 2,000 well paying union jobs packing. So clearly if Dix is prepared to take this position, one that is very popular with many British Columbians including First Nations, while at the same time he plans to continue to spend well beyond his revenue potential, he must believe, just as the Clark Liberals believe, that expanded LNG production will produce sufficiently high revenues in the long term to make up any shortfalls.

But expanded LNG production also comes with a significant environmental cost, although it does not present the same hazard for shipment as Alberta bitumen. Still, the fracking process used to extract the gas has provided sufficient cause for concern that the very same environmental voices that hooted their approval for Dix’s position against the two pipeline projects have called for a moratorium on fracking until a detailed environmental review is completed.

Dix has rejected the notion of a moratorium, citing the fact that the process has been safely practiced for almost fifty years in British Columbia. But in the next breath he announced that while there would be no moratorium, his party will require that any new applications will be undergo an extensive environmental review. This has left many knowledgeable observers scratching their heads. If Dix doesn’t have a problem with the existing practice, then why subject new applicants to what is bound to be an expensive and time consuming process that will also inject a greater degree of uncertainty in the industry operating in BC. If Dix and the NDP really are committed to the growth of the industry, then why inject this obvious inconsistency to the process?

 

The expansion of LNG will also require a considerable supply of inexpensive and readily available electricity. Previously the NDP has spoken out against the construction of the proposed Site C dam, however one has to assume that Dix is now in favour of this project (although I cannot find a statement to that effect) as the electrical power that will be generated from its construction will be exactly what the LNG industry needs.

 The big problem, however, is that unlike the pipeline projects that are 100% funded from the private sector, the construction of the Site C dam will be a project funded by the government of BC, which is the taxpayers of BC. The government, as proponents, will no doubt underwrite the cost through BC Hydro. Having studied the NDP financial plan, there is no mention of this spending, or of the debt management costs that accrue to BC Hydro should it be forced to borrow to complete the project.  Once again this speaks to the belief of both Dix and Clark that LNG will be the golden goose. But will it?

Premier Christy Clark has been very clear with respect to the Liberal’s position on energy revenues. They are putting most if not all of their eggs in that basket. Unlike the NDP, the Liberals take the position that the Northern Gateway pipeline project is being driven by the Federal government with the full backing of the Government of Alberta. Given Prime Minister Harper’s recent comments about the critical need for this project, Clark has taken the position that if this pipeline is forced on the people of BC, then the proponents will be required to pay a much higher benefit to those communities, especially First Nations, who are directly affected. She takes a similar position with respect to Kinder Morgan. But all that said, at least publicly, it is the revenue from LNG export that she is holding out as the source for “golden eggs” for our future. So much so, that she openly admits her government will be the proponent in the construction of the Site C dam.

Only Green Party leader Jane Sterk is prepared to suggest that the eggs from this goose may not be so golden. Not only does she believe that that it is sheer folly to continue to try to balance our budgets and pay off provincial debt through an expanded hydrocarbon-based economy, Sterk, who advocates for renewable sources of energy, solar, wind, tidal and geothermal tells any who will listen that being tied to a hydrocarbon-based economy is neither environmentally sound policy, nor is it economically defensible, and she has a point on both counts.

The impact of an expanded hydrocarbon economy will certainly speed up global warming and cause us to build a dependency on a revenue stream that originates from processes that are poisoning our atmosphere. The most compelling reason to be concerned about relying on this golden goose, however, is the fact that the markets we are told will buy all we can supply may not materialize as we think, and even if they do, the price they are prepared to pay for our product may be well below what is anticipated.

There are three very sound reasons to believe that we may well be too late to the party. First, massive LNG storage facilities were constructed in Iran on the Persian Gulf in 2007 specifically to accept LNG from the Eastern Mediterranean Hydrocarbon reserve that, with the help of Russia, Turkmenistan and Kazakhstan, added to the Iranian energy route that was established from the Caspian Sea to the Persian Gulf, as an extension of the Turkmenbashi Agreement. Add Syria, Iraq and Pakistan to the mix, and there is a direct route to China. Despite current efforts to destabilize Syria by “interests” who would prefer to see those Easter Mediterranean reserves flow into the economy of central Europe, sections of this pipeline are in the ground and not likely to be stopped without serious conflict.

Second, Russia, which has the largest gas reserves in the world, is currently in the final planning stages of constructing a natural gas pipeline from Northern Siberia directly to China. The Russian gas giant Gazprom will likely build it despite the fact that it is currently planned to run directly through an area rich in archaeological artifacts, and the World Nature Heritage Site the “Golden Mountains of Altai.  

Third, the competition for the India, Japan and China markets is already intense. Just last month a major investor in Australia’s LNG resources pulled up stakes and walked away from a $45 million project, suggesting that the project was too little, too late.

Clark and Dix may be trying to flog a duck for a goose here. Our reserves, which are already difficult to access, will become more expensive and will take longer to extract, and thus require a higher price if Dix’s environmental review process is installed for fracking. Then there is the cost and time to construct the Site C dam.

I suspect that Clark and her team of “today’s BC Liberals” know that while there is great promise for this resource, they have to hedge their bets, cut spending, and promise very little in this campaign. That’s why they are still prepared to entertain revenue from the two oil pipelines, and have tabled the budget they did, which, balanced or not, is very frugal on the spending side. Dix, on the other hand, has promised billions of spending over the next few years, has openly stated he plans to run large deficits, and at the same time he is promising to kill the potential revenue flow from the two oil pipelines.

 If LNG revenues don’t materialize in the fashion that is expected, Clark will at least have the benefit of the other projects, despite the enormous environmental risk that some argue is unacceptable. Dix on the other hand will have plunged the province back into a deficit and debt situation that will, under the current world economy, be very hard to repay. Only Green Party Leader Jane Sterk will be able to smile and say, “I told you so.”
    

 

 

 

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One comment on “A Golden Goose or a Dead Duck

  1. Transporting/exporting raw bitumen is as irresponsible as exporting raw logs.

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