The new leader of the B.C. NDP, John Horgan, has accused the B.C. Liberal government of making extravagant claims in its pursuit of a liquefied-natural-gas industry but isn’t warning the public of the potential downsides. In an interview at the Georgia Straight office, Horgan said that while he supports the industry “in principle”, there are many questions that must be answered before the government can claim success.
“What are the greenhouse-gas consequences of expanding the industry?” he said. “Will that blow our legislated targets out of the water? Quite possibly.”
Premier Christy Clark has maintained that a “B.C. Prosperity Fund” financed by LNG revenues will generate more than $100 billion, which will be sufficient to wipe out the provincial debt. Horgan, however, said that he couldn’t learn any details about this “prosperity regime” from Clark during a recent budget-estimates debate in the legislature.
“What’s the structure to create this unlimited resource that you talk about? No answer,” the NDP leader stated. “So we have lots of hype and not a lot of substance.”
Horgan said that the B.C. Liberals’ “singular focus on one sector” means that other important industries—including tourism, film, and agriculture—aren’t receiving sufficient attention.
“The only thing they’ve done with respect to agriculture is denigrate it through changes to the Agricultural Land Commission,” he declared.
Horgan also stated that recent international developments raise doubts about whether liquefied-natural-gas prices will remain high in Asia. According to a recent report by the consulting firm Ernst & Young—which cited Deutsche Bank figures—LNG projects require an Asian price of US$12 to US$13 per million British thermal units (BTU) to be viable.
Meanwhile, Russia recently signed a US$400-billion deal to supply China with this fuel for 30 years. According to the financial news service Bloomberg, the negotiated price was US$10.50 to US$11 per million BTU. That’s significantly lower than the Deutsche Bank threshold. Horgan predicted that the Russia-China deal will drive down the LNG price in Asia.
As the Straight went to press, LNG was selling at US$15.23 in the world’s largest LNG market, Japan. That’s down from a peak of US$17.20 in June 2012.
Japan consumed 37 percent of the world’s LNG in 2012, according to the U.S. Energy Information Administration. Japanese demand rose sharply after all 54 nuclear reactors in the country were shut down following the 2011 earthquake and tsunami that crippled a nuclear-power plant in Fukushima.
Horgan acknowledged that Japan’s prime minister, Shinzo Abe, wants to restart some nuclear reactors, which could reduce demand for LNG in that country.
“All of these variables are in play and a prudent [B.C.] government would be conscious of that and advising the public that there are challenges, but we’re going to proceed, we’re going to go cautiously, and hopefully realize agreements with customers for our products that will give a great return to the province,” Horgan said. “But I haven’t seen that yet.”
On June 9, the Oil & Gas Journal reported that Mikkal E. Herberg, research director in the National Bureau of Asian Research’s energy-security program, had told a congressional subcommittee that the “prevailing view in the industry” is that Asian LNG prices will fall to around US$13 per million BTU. That’s right on the edge of what’s viable for B.C. projects, according to the Deutsche Bank analysis.
Horgan also mentioned a former Social Credit government’s hype about developing a northeastern B.C. metallurgical-coal industry in the late 1970s. At the time, the province sank $400 million into a 300-kilometre rail line, the federal government financed a coal terminal in Prince Rupert, and electricity and roads were provided to the new town of Tumbler Ridge. In 2000, the Canadian Press reported that the total bill to taxpayers was $1.6 billion.
After the government made these investments, coal prices fell sharply and the Japanese economy eventually went into a long recession, resulting in sharply lower revenues than expected.
“I think British Columbians with an understanding of history will remember northeast coal and the amount of investment that the government, on behalf of the people of B.C., put into creating infrastructure to get coal from the northeast to the coast at a certain price,” Horgan said. “And then, after a number of years, that price started to drop. That is, I think, a cautionary tale for liquefied natural gas.”