Matthew Pedley: When natural gas dollars don’t make sense in B.C.
When the B.C. Liberals presented their election budget on February 19, there was a big number that was so small no one seemed to notice. The number was $144 million, and this is the latest estimate for natural gas royalties for the 2012-13 fiscal year. Despite continuing declines in natural gas royalties, the B.C. Liberals also estimate that liquefied natural gas (LNG) will create $130 billion in new government revenue over the next 30 years and solve all our financial woes. This is a great plan, but with a continuing record of resource mismanagement, natural gas resources will only continue to wreak havoc on the provincial budget.
B.C.’s primary royalty strategy is to compete with Alberta. The 2011 B.C. royalties performance report shows that by reducing royalties, we have managed to remain competitive with Alberta and the industry is flourishing. B.C. currently produces enough natural gas to meet domestic supply more than six times over.
The crucial part missing from the royalties program is the benefit to British Columbians. The 2011 royalties performance report shows that, in 2004-05, British Columbians received $1 for every $4’s worth of gas that companies extracted from the ground and royalty payments totalled over $1.2 billion.
In 2010-11, we received $1 for every $16’s worth of gas extracted and royalty payments totalled approximately $365 million. This year, the provincial government predicts we will receive only $144 million in royalties to put toward education, healthcare, social services, et cetera.
Despite the poor value we are receiving for our gas, production is actually on the rise. Continuing to increase production while prices are down and royalties are at a record low is like selling your house at the bottom of a real estate market cycle. It doesn’t make financial sense.
If we continue to compete with Alberta in this race to the bottom with ever-lower royalty rates, we will wake up in 50 years with no economically recoverable natural gas, we will still be broke, and it will be too late to find a solution. What will the B.C. budget look like when these resources have been exhausted?
By relying on volatile commodity prices to create general revenue for the province, even the “fiscally responsible” B.C. Liberals have trouble balancing a budget.
Here is my proposal: update the natural gas royalty program to a flat rate of 15 percent, a floor rate of $0.50 per gigajoule, and eliminate all royalty credits. This system will reduce administrative overhead by being much simpler, will concentrate natural gas development into smaller geographical areas that are more economical to produce, and will clearly define the value of the gas to both the province and the industry. This move will slow the fracking industry and will give us time to ensure the industry is environmentally sustainable and safe before continuing widespread deployment.
Furthermore, I propose committing the additional revenues generated by this royalty program to R&D of new and emerging renewable energy technologies, deployment of market-ready renewable energy technologies, energy efficiency programs, and university scholarship funds.
This will remove our reliance on high gas prices to balance general revenue, and will take us one step closer to a green economy in B.C. This is a long-term plan to ensure British Columbia has the knowledge, resources, and energy to transition off of fossil fuels without hurting the economy.
My name is Matthew Pedley, and I am the Green Party candidate for Vancouver-Fairview.
Mar 30, 2013 at 11:21pm
Do you recal what happened to stelmach in Alberta with his "fair share" royalty taxation? Study and learn.
Apr 7, 2013 at 2:12pm
Well said Matthew! Voting Green is the only path to where we are ultimately going...a low carbon, sustainable economy.