BC’s LNG industry – flogging a dead horse

— by Eoin Finn —

In British Columbia, LNG (Liquefied Natural Gas) is an industry on life support. The problem: the public is paying for the treatment.

At the height of ex-Premier Clark’s LNG-mania in 2013-14, high prices in Asia for the super-cooled fuel provoked a gold rush frenzy in BC. The business idea – to liquefy and ship cheap, fracked BC gas to Asia for high profit – spawned two dozen projects. An obliging National Energy Board granted each of them a permit to export a non-renewable resource. The high prices of 2013, nearly $20 per million British Thermal Units (mmBTU) subsequently tanked in 2015, scuttling the economic case for BC LNG. The current Asian price for LNG ($9/mmBTU) is lower than the $11-$12 costs of mining, piping, liquefying and shipping it to Asia.

BC wasn’t alone in pursuing this opportunity. The U.S., Qatar, Russia, Australia, Papua New Guinea and several African countries with gas-rich shale deposits also commenced LNG projects, many with labour and shipping costs much lower than BC can hope to match. Faced with such competition for a resource product widely available worldwide, BC’s fledgling gas industry turned to Governments for concessions to help “make them competitive”. So we now have publicly-funded concessions that Federal and Provincial Governments – past and present – have placed in the industry’s begging bowl, including:

  • no Provincial Sales Tax on gas purchased;
  • subsidized (6 cents/ kilowatt-hour) electricity rates (residential customers pay 12 cents/KWh). The 6-cent industrial rate was originally conceived for labour-intensive industries, which LNG definitely is not;
  • zero percent LNG royalty tax; 9 percent corporate tax rate on future profits declared in BC. Royalty taxes are payments to the resource owners – in this case the BC public. Much of the LNG industry is financially structured to offshore any profits to lower-tax jurisdictions, as Australia has already learned to its chagrin;
  • $35/tonne carbon tax cap and $0/tonne on “fugitive” (vented and leaked) gases. The public will pay much higher carbon taxes, as this is ramped up in future years to limit global climate disruption. Fugitive emissions, when fully and accurately accounted for, make LNG a worse climate-warmer than coal;
  • $120 Million a year for infrastructure costs (roads and pipelines to fracking holes). When this is factored into the skimpy returns to the public purse, the fracked gas industry remits less to BC’s coffers than do parking fees and fines in the City of Vancouver;
  • reduced property assessments and property taxes. BC has legislated discounted property tax rates for all port facilities;
  • relaxed Temporary Foreign Worker restrictions for imported workers. Unlike Australia, Canada has not negotiated local employment guarantees for the construction and operation of LNG facilities and pipelines;
  • exemption from 25% import duty on machinery and equipment. The industry is also appealing a ruling by Canadian International Trade Tribunal imposing a hefty anti-dumping tariff on LNG modules constructed in Korea and floated here for final assembly. Constructing these units abroad denies jobs to Canadian steelworkers and revenue to Canada;
  • accelerated capital cost write-downs. The Harper Government hiked the speed at which the LNG industry could write off its huge capital costs (to 30 percent per annum, previously 8 percent), effectively delaying income taxes and reducing borrowing costs for the industry.

All in all, this is extremely generous treatment for a foreign-owned industry which would employ, at most, a tiny fraction of BC’s 2.5 million-strong workforce – far fewer than each of BC’s high-tech, film and tourism industries. A 2014 study by the Centre for Policy Alternatives showed that, at a $12 LNG price in Asia, it would be 14 years before the capital costs of these projects were written off and LNG royalties begin to trickle into BC’s public coffers. The fracked gas industry has built up tax credits of a whopping $3 billion, meaning that, should it ever actually record a profit locally, the first $3 billion will be tax-free. As the LNG price has fallen to under $10/mmBTU, that 14-year break-even timing is likely to be further delayed. This mirrors the Australian LNG experience, which has shown break-even periods of 15 years or more for its LNG projects, and a tripling of local gas prices in the face of export competition for local supplies. Australians are paying more for their own gas than are foreign buyers.

Natural gas is composed primarily of methane, as a greenhouse gas 34 times more potent than carbon dioxide. Fracking for natural gas causes severe damage to local environments, permanently pollutes local groundwater, and has been identified as the cause of a series of earthquakes in north-eastern BC. Launching such an industry when we are repeatedly warned by climate scientists to decarbonize our economy is arguably the opposite of sound economic and environmental planning. This isn’t the first time BC politicians have peddled the dream of riches from north-eastern BC – readers may remember the failed experiment with British Columbia Resources Investment Corporation (BCRIC) shares in the late 1970s.

The lesson unlearned: If at first, you don’t succeed in a volatile commodity business, learn nothing and try again. Rinse and repeat, this time with more public expense, even skimpier returns and elevated climate risks. When the epitaph of BC’s LNG experiment comes to be written, political decisions to grant it such generous public subsidies will be questioned. The BC public must speak up to stop this reckless giveaway of taxpayers’ money to a 19th-century foreign-owned fossil-fuel industry that is destroying our children’s future.

Eoin Finn B.Sc., Ph.D., MBA is a 40-year resident of BC and a retired partner of a major accounting/management consulting firm. He is, along with 18,000 signatories to the Howe Sound Declaration (www.myseatosky.org/declaration), actively opposing the Woodfibre LNG plant planned for Howe Sound near Squamish.

LNG cartoon by Adrian Raeside.

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