LNG in BC Is a ‘Losing’ Bet, Report Finds

A respected U.S. energy group has criticized a rosy Conference Board of Canada report championing more liquefied natural gas development in British Columbia as “a lobbying effort for government subsidies, support and flexibility.”

The scathing critique by the Institute for Energy Economics and Financial Analysis characterized the Conference Board report as “misleading,” short on facts and unrealistic.

“The Conference Board, a non-profit economic research organization based in Ottawa, believes Asian, or more specifically, Chinese demand growth can sustain a further leap in British Columbian LNG capacity growth, despite corporate investors already folding their hands,” said the institute in its highly-critical paper.

The Ohio-based institute is funded by a variety of philanthropic organizations and examines issues related to energy markets, trends and policies. Its mission is “to accelerate the transition to a diverse, sustainable and profitable energy economy.”

“B.C. is becoming the focal point for a new Canadian industry — liquefied natural gas,” claimed the report, which failed to mention that 13 LNG projects have already been cancelled or suspended in B.C. and other parts of Canada due to bad economics, global oversupply and high extraction costs based on hydraulic fracturing.

At the moment, Shell’s LNG Canada is the only active project in B.C.

Yet the project is heavily subsidized by discounted electricity prices, a carbon tax break, a corporate income tax credit and other tax deferments that will total billions of dollars over the life of the facility.

With data that makes no reference to volatile global market prices, the Conference Board report calls upon the Canadian and B.C. governments — both LNG promoters — “to risk sustained subsidies that may only yield stranded assets, depleted finances and delayed retraining obligations,” charges the institute.

The Conference Board report was funded by the lobbyist group Canadian LNG Alliance, formerly known as the BC LNG Alliance.

It was largely written by Bryan Gormley, the former director of economics and information for another lobby group, the Canadian Gas Association. Gormley’s report cites eight sources total.

His report, which offers just one glowing scenario on potential jobs and revenue, makes no mention of the global LNG glut, depressed prices, rising price volatility or even global competition from other LNG projects in Australia, the United States and Qatar.

According to the institute, the main reason investors are backing away from B.C. LNG development has nothing to do with regulations, as industry suggests, but everything to do with profitability.

It is unlikely that Asian markets will be prepared to pay more than US$7 per million BTU for Canadian methane. But the best-case pricing for Canadian LNG delivered to a Chinese buyer is probably $8.23, found the institute’s analysis.

In addition, China can and will source cheaper gas over the next decade from Iran, Russia and other countries.

“The economics for British Columbia LNG exports to China are deteriorating in almost every key respect. They will be bad for the next decade and are unlikely to improve much after 2030,” added the institute report.

“For British Columbians, LNG is not going to deliver in the way that the Conference Board’s breezy narrative suggests,” it concluded.

Hughes suspects that the Conference Board commissioned its report in response to his critical analysis. Most of the references in the Conference Board report are dated July 8. That’s just one day after the Canadian Centre for Policy Alternatives announced that Hughes’ report would be released on July 9. The Conference Board did not respond to Tyee inquiries about the timing of its report or its funding.

“It dumbfounded me. Obviously, they were unhappy with my report,” Hughes said of the Conference Board.

“It completely dented any faith I had in the Conference Board of Canada,” added Hughes, who mapped and monitored coal and natural gas supplies for Natural Resources Canada for 32 years.

The B.C. government of Premier John Horgan has subsidized the LNG industry by granting tens of millions of dollars annually in royalty and tax breaks and credits.

Meanwhile, the owners of the resource, the people of B.C., have been earning less and less. Even though methane production, the source of LNG, has doubled since 2004, total royalty revenue fell by 84 per cent, Hughes documented in his report.

The U.S. Institute for Energy Economics and Financial Analysis isn’t alone in warning governments about subsidizing LNG developments.

The Oxford Institute for Energy warned last year that the LNG industry now faces two challenges to its existence.

Many global markets can’t support a product costing more than $6 per million BTU, and fewer and fewer countries will buy the product without transparent reporting on its climate footprint, including the fracking of shale formations.

This week, Moody’s Investors Service also issued a warning on LNG’s profitability in the long term due to oversupply and a global recession.

“The pandemic-related downturn has trimmed expectations of growth in fundamental long-term demand for LNG in the next five years and has increased investment risks on future capacity expansion projects designed to meet LNG demand beyond 2025,” said Moody’s.

As one of his campaign promises, the NDP’s Horgan has vowed “net-zero carbon emissions by 2050.”

Yet according to Hughes, the construction of just one LNG project, LNG Canada, makes that promise impossible to achieve.

Hughes calculates that emissions from oil and gas production in the province will exceed the province’s 2050 target by 160 per cent. And that is “even if emissions in the rest of the economy were reduced to net zero by 2035,” he found. 

Teaser photo credit: By Thinfourth – Own work, CC0, https://commons.wikimedia.org/w/index.php?curid=14463336