Martyn Brown: Parsing the NDP blame game on LNG
Perhaps the only thing less surprising than the decision by Petronas and its partners to abandon their Pacific Northwest LNG project is the NDP blame game that followed.
That, and the decision by Christy Clark to resign as B.C. leader, trusting the keys to her opposition caucus shop temporarily to Rich Coleman: the former gasman-in-chief, who should also quit before he does any more damage.
The Postmedia pundits have been out in full force, slagging British Columbia’s new NDP-Green alliance as the “true” culprits responsible for the project’s death blow.
The Financial Post’s Claudia Cattaneo, the Vancouver Sun’s Vaughn Palmer, and the Province’s Mike Smyth all led the pile-on, taking their cue from the B.C. Liberals’ own pathetic attempt to pin the “blame” on the NDP.
“ ‘A tragedy for Canada’: Petronas cancels $36B LNG project as B.C. jacks up demands”, the Financial Post headline screamed, thereby misrepresenting both the true price of the project and the reason it was shelved.
In fact, the cancelled export terminal was planned to cost about $11.4 billion, not $36 billion.
The latter figure also factors in TransCanada’s planned $6.5-billion pipeline, which remains up in the air. It includes the $5.5 billion that Petronas spent to buy Progress Energy, whose natural gas assets in Northeast B.C. will still be developed, as the company made clear.
Much of the additional estimated $2 billion a year that the PNW LNG consortium planned to spend on drilling for natural gas to supply the plant will unfortunately still be invested in extracting and processing that carbon-polluting resource. Much of it will still be exported, bound instead for U.S. markets, whether or not it is ultimately used to supply their new LNG plants and global export activities.
Not that any of that obviously matters to the Financial Post’s Cattaneo.
“British Columbia’s new NDP/Green coalition government was in damage control mode after the most ambitious of the province’s proposed liquefied natural gas (LNG) projects, the $36-billion Pacific NorthWest LNG, was cancelled Tuesday,” she wrote.
“Damage control”? Seriously?
Over a project that both parties rightly opposed as being environmentally unsound, poorly situated, and potentially the single largest carbon polluter in Canada?
Damage control? In what sense?
Because that project was killed by the proponent’s own hand? For unrelated reasons, no less, that were entirely attributable to global economics?
Because John Horgan and George Heyman wisely urged the Canadian Environmental Assessment Agency not to recommend its approval back in March 2016—consistent with their new government’s current concerns and conditions for supporting LNG projects? Sorry, “jacked up demands”.
Who is to “blame” for the project’s demise?
Certainly not the NDP government. If anything, it should be relieved that a project which never should have been approved in the first place was itself ultimately mostly the victim of its own unforced errors.
Had the consortium of mostly state-owned Asian oil companies not been so profoundly misguided in where it chose to situate the project, or how it tried to pursue it, PNW LNG would not have faced the delays and same degree of opposition it did.
Personally, I’m delighted that the delays its proponents invited upon themselves, by virtue of their own mistakes, led them to pull the plug on their plans.
But let’s face it, the main reason it was mothballed has everything to do with global economics and nothing whatsoever to do with the new government.
The project was sewered by the global glut of LNG, which caused the price of that commodity to plummet by about 70 percent since that project was first announced, some five years ago.
By that and also the fact that its 62 percent shareholder, Petronas, has been committed since 2016 to cutting its spending by $50 billion over a four-year period.
This story put its ever more dire predicament in black and white: “Dividends from the company, which accounted for about 12 percent of Malaysian government's revenue in 2015, have also shrunk. Petronas is expected to give a dividend of 13 billion ringgit this year, half of the 26 billion ringgit contributed just two years ago.”
Damage control? Exactly. That is what the cancellation of that project represents.
For Petronas and the Malaysian government especially. But also for the environment. For the First Nations it most directly stood to harmfully impact. And for B.C. taxpayers, who would have been screwed by the sweetheart deal that the Liberals had offered to land the project at any cost.
Let’s not forget, the Canadian Environmental Assessment Agency determined that that project’s liquefaction plant alone stood to increase B.C.’s greenhouse gas emissions by 8.5 percent.
Its associated upstream emissions would have represented 10 to 14 percent of provincial emissions, based on 2013 levels.
The Pembina Institute estimated that the project and its associated emissions would account for between 75 percent and 87 percent of B.C.’s 2050 total legislated greenhouse gas emissions target. We dodged a bullet, is more like it.
Talk about damage control.
It was the company—not the NDP or the Greens—that stupidly chose to situate its proposed facility in such an ecologically sensitive area as Lelu Island, adjacent to Flora Bank.
That planning decision might have threatened the entire Skeena River estuary, which is so vital for some 300 million juvenile salmon each year. Damage averted.
The project’s cancellation should also now spare us the multiple court challenges it was subject to, including from the Gitwilgyoots tribe of the Lax Kw’alaams First Nation, from Gitanyow hereditary chiefs, from two Gitxsan hereditary chiefs, and from SkeenaWild Conservation Trust. It was hardly a path to reconciliation.
As I have previously written in the Straight, even the professed employment impacts for the project and for the entire LNG pipe dream have been a con job. To say nothing of the industry’s brutal impacts on B.C.’s water resources, or its harmful effects from related fracking activities.
Far from pointing fingers at the NDP or Greens for rightly so strongly opposing the bad decisions made by PNW LNG, by the Clark government, and by the federal government, I applaud them.
They certainly have no reason to apologize.
They just can’t take “credit” for the decision to kill the project; a blow to the LNG industry that the mainstream media mostly regards as a catastrophe, being in formal cahoots as some of its largest corporate players are with Big Oil.
Apologize? Not on your life.
I’m tempted to thank Coleman, Mike de Jong and Clark for so badly bungling the file, which certainly added to the industry’s delays and undermined the economics of LNG in British Columbia.
To his credit, Vaughn Palmer has also noted that point, albeit as a way of chastising the politicians for missing the window of opportunity for LNG in British Columbia. He clearly regards that as a bad thing, champion of fossil fuel development that he seems to be.
Back to the NDP blame game.
Anuar Taib, the PNW LNG board chair, stressed that the decision to cancel the project had absolutely nothing to do with the new NDP government.
As the Star reported, “when asked whether the election of the NDP played any role in the decision, Taib gave an unequivocal no.”
“We don’t take that into consideration,” he said, also emphasizing that the company looks forward to working with the NDP in developing its other natural gas assets in B.C.
Rather, it was “the extremely challenging environment brought about by the prolonged depressed prices and shifts in the energy industry [that] have led us to this decision,” according to Taib.
Yet the Province’s Mike Smyth was having none of it.
“Go ahead and believe that if you want,” he wrote. “But I prefer not to be so gullible.”
He and others never quite went so far as to call Taib a liar, but they insinuated as much. They basically suggested that his firm denial of their suspected “NDP impact theory” was disingenuous and not entirely forthcoming.
“Gullible” is exactly what Smyth’s ilk are, I’d say.
At least to the extent they have bought into Coleman’s tweeted line, that “Imposed #GreeNDP market uncertainty strips BC of economic opportunity”.
I dare say, most of the pundits probably never read any of the countless reports that energy analysts read or wrote, including the International Energy Agency’s Gas Market Report 2017.
For a decidedly less cynical perspective on the Petronas announcement, read this Bloomberg Markets report. It essentially validated Taib’s explanation.
Most industry experts rightly expected the project would be tubed sometime shortly after the 2017 B.C. election.
Had the Clark government believed otherwise, it would not have been so silent on the project or on its broader LNG pipe dream in its last budget, or in either of its last two throne speeches.
Long before the election, Coleman of all people must have known the jig was up. He was likely just praying that Petronas wouldn’t officially pull the plug until after the election and after the question of who would hold power was resolved.
To absolutely no one’s surprise, the company simply waited until after the political dust settled to make its announcement.
It conveniently timed its decision to minimize the potential political damage to the hapless B.C. Liberals, and also to coincide with Premier Horgan’s first foray out-of-province.
Notably, the consortium made its announcement only after the new premier’s press conference with the prime minister, to further minimize his personal role in answering the decision. Shrewd move.
To Mike Smyth and others who share his take on the decision, I would say this.
“Gullible”—or perhaps “ill-informed”—is the word that best describes anyone who seriously still thought the project would proceed, at least in recent months.
It has long been obvious that the project would not be economically viable, due to the global LNG glut, deteriorating market conditions, and Pacific Northwest LNG’s ongoing legal challenges and uncompetitive cost structure.
Higher Canadian labour costs, Liberal-imposed tax costs, environmental costs posed by the Canadian Environmental Assessment review, and yes, costly considerations to earn community support and Aboriginal buy-in are all but a handful of contributing factors.
Here’s another consideration.
The total global regasification capacity is nowhere near sufficient to make use of the planet’s current and projected oversupply of LNG. Data from the International Gas Union compiled by Reuters suggests that total effective worldwide capacity utilization is only about 41 percent.
The basic problem is one of supply and demand, and of prohibitive costs that are unrelated to the NDP.
That’s also why, as this story explained, some 85 LNG projects around the world “died on the vine” in recent years, including the Fisherman’s Landing LNG project in Queensland, Australia, which was terminated only two months ago.
It’s why Woodside Petroleum Ltd. cancelled its planned $40-billion floating LNG terminal off Australia’s western coast and why the once-promising Oregon LNG project was cancelled.
Only a few days ago, Bloomberg Markets reported that “More than two-thirds of the LNG terminals proposed to come online in the mid-2020s probably won’t get built, Sanford C. Bernstein & Co. said in May.”
Fact is, the PNW LNG project was in deep doo-doo for a long time.
As Bob Mackin reported, even the Liberal’s new interim leader suggested as much, at a September 20, 2016 party fundraiser. In a recording leaked to theBreaker, Coleman said this:
“Everything in the market has changed, the price of steel and everything else, so they have to go back out and re-bid it and then decide if they go to a final investment decision. But I can tell you this, that the numbers have really got to be tightened down, because the price of gas in Asia right now is so cheap, because of the price of oil. Just about nobody is globally competitive unless they have a long-term contract that they signed before the market crashed.
“I know the number they have to get to in order to make it financially viable, I think they’re about 50 cents to a dollar away from that, but it’s a lot better than it was six months ago… We really need them them to be able to figure out the numbers.”
Thank heavens the Liberal government never had the temerity to renegotiate the project development agreement it legislated two years ago to lock-in the concessions it offered Petronas.
What the media should now be asking Horgan is this: will you now commit to repealing that ridiculous 25-year corporate tax concession and tax credit guarantee that both your party and Andrew Weaver smartly opposed back in 2015?
Now is the time to terminate that Petronas precedent, which was so bad for B.C. taxpayers and for our environment. It can now be done without any penalty or liability, far as I know. Killing that sweetheart deal should be a priority in the upcoming legislative session.
There is no mystery to what really killed Pacific Northwest LNG.
It is the same conditions that tubed other proposed LNG projects under Coleman’s watch and that will likely make any such large-scale LNG project economically unfeasible in British Columbia for the foreseeable future.
The NDP had zip to do with Royal Dutch Shell’s decision last year to indefinitely delay its proposed LNG Canada project in Kitimat.
As it explained, “Originally scheduled for late 2016, the global energy market and the affordability of the project in that context prevented our joint venture participants from taking a [final investment decision] at that time. However, they are committed to making an FID when these conditions improve and the project has demonstrated that it remains cost competitive against other investment opportunities.”
Similar factors were responsible for the decision in March by Royal Dutch Shell to cancel its proposed Prince Rupert LNG project, after it acquired the natural gas giant BG Group.
The Chevron-Woodside Kitimat LNG project is also basically on life support, waiting for markets to recover and also trying to beat its costs down.
Triton LNG nixed its proposed project over a year ago. AltaGas did likewise to its Douglas Channel LNG project, back in March 2016.
This table shows the true tale of the tape for those and other projects, as Nexen’s proposed Aurora LNG project at Digby Island, just west of Prince Rupert, has soldiered on with environmental assessment application. I sure wouldn’t bet on it ever proceeding.
I am with Weaver, who very much doubts that any of those still active projects will ultimately go forward in the near term.
Our production costs are simply too high to make LNG profitable in a world that has way too much of it already, with even more of it coming onstream, and with structurally depressed prices that reflect that fundamental imbalance between supply and demand.
Almost three years ago, Charlie Smith reported on the industry’s fundamental price problem, which he flagged again two years ago, as I did, along with so many others, including some of B.C.’s best political bloggers. Norm Farrell, for example, has also been sounding the warning bells for many years.
If anything, the industry’s problem is even worse today than even most energy experts predicted.
But that has not stopped the media apologists for Big Oil from trying to position the Petronas pronouncement as a dire consequence of the GreeNDP alliance.
There’s a method in their madness.
To use Smyth’s term, I choose not to be so gullible. I refuse to take most of their critiques at face value.
My conspiracy theory?
I suggest they are really hoping to bait Horgan’s government into backing away from its responsible positions on the conditions for approving LNG projects and from its ardent opposition to the Kinder Morgan project.
As political columnists and reporters, they would like nothing more than an ugly internal NDP fight between its most passionate environmentalists, including George Heyman, and its most aggressive resource development champions, which used to include Horgan.
We have seen this movie before. And usually it’s the green guy that becomes the fall guy for too effectively serving the cause he or she was assigned to lead.
I am very encouraged that Horgan appointed Heyman to his post, because I trust him to really fight for meaningful climate action and for the environment. He had better not become the cabinet’s first casualty when the going gets really hot, as it will, on Kinder Morgan.
Many political pundits would love to see the NDP and Greens come to blows as well. They are not-so-subtly poking Horgan to “stand up for rural B.C.”—as if he is not already doing so. They would like to see him drop his drawers for Big Oil, as B.C.’s new official opposition leader did, when he was the man in charge of the file.
I hope and pray that Horgan won’t take the bait.
The last thing he should be concerned about is how the deans of the legislative press gallery feel about his party’s principled opposition to projects like Kinder Morgan, or PNW LNG. They never deserved to see the light of day, for various reasons.
If the NDP government’s concern for the environment, First Nations, B.C. jobs and training, and a fair return for taxpayers is too much for the oil and gas industry to bear, so be it.
Good riddance, I say, if its megarich companies can’t make those conditions work for their bottom lines.
It is our bottom line that should matter most, not the balance sheets of Big Oil.
We are very lucky indeed to have a progressive government, supported by Weaver’s Greens, to put that priority first in protecting British Columbians’ true long-term interests.More