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A pipe dream full of problems?

Not a week goes by, it seems, that doesn’t see Premier Christy Clark talk, yet again, about the vast riches that lay in B.C.’s path if only a liquefied natural gas industry gets off the ground in this province.

Not a week goes by, it seems, that doesn’t see Premier Christy Clark talk, yet again, about the vast riches that lay in B.C.’s path if only a liquefied natural gas industry gets off the ground in this province.
It’s a theme that began before the last election, and one that helped carry her to a surprising victory with the voters. People seem to at least want to believe the fairy tale-like talk about billions of dollars coming our way, to help eliminate the provincial debt and even the sales tax.
But for all the time the premier spends talking about this subject, more evidence (or at least information) turns up that reminds us all about just what a shaky roll of the dice the whole LNG gambit may prove to be.
Clark is arguing that the glut of natural gas on North American markets has kept the price low, and therefore B.C. must look to other markets to make money. China, Korea and Japan all loom as potential customers of B.C.’s LNG.
To be fair, she has a point here. The steady decline in the price of natural gas in North America has meant dwindling revenues to the provincial treasury arising from royalties on gas sales, and this has been going on for several years now.
Annual natural gas royalty revenues for the B.C. government peaked in 2005-06, at almost a whopping $2 billion. Back then, the price was a lofty $7.27 per gigajoule, but things have gone downhill ever since, as the shale gas revolution in the United States exploded.
The revenues bottomed out at a measly $169 million in 2012-13 and are expected to hit nearly a half billion dollars or so this year, but the days of royalties generating more than a billion dollars a year appear over.
 And even the current estimate for this year’s revenues may be in jeopardy of being too high. Prices are lagging behind predictions of a few months ago, and even a 50 cent change in the price from what was predicted equals about $140 million in lost revenue.
All of this volatility underscores the premier’s argument to find new markets. But while the price for LNG remains high in Asia, who is to say those prices will remain high when and if a B.C.-based LNG plant is up and running a few years from now?
China recently signed a mammoth long-range deal with Russia for natural gas, and there are reports the price included in it is much lower than current prices.
SFU professor and energy expert Mark Jaccard has pointed out that the Asia market can become just as volatile – and cheaper – over time as the North American one. If the Asian market price for LNG drops significantly, that alone could threaten the economic models of private companies contemplating building those proposed LNG plants in north west B.C.
Another potential problem:  several recent media reports have said a major New York hedge fund has bought a $1 billion stake in Apache, one of the companies involved in a proposed LNG project in Kitimat, and is urging the company to get out of the project.
According to Bloom­berg and the Wall Street  Journal, the hedge fund managers apparently think the Kitimat project is a drain on Apache’s capital, and any potential payoff is still many years down the road.
Then there is the Kitimat air shed problem. Proposed LNG plants would be clustered in a tight valley with the existing Rio Tinto smelter and perhaps even an oil refinery, which all adds up to a lot of emissions into the air over a relatively small area. The government insists the report it recently commissioned to look into the problem concluded up to four LNG plants could operate without damaging the health of residents, if “proper measures” were taken.
But Green Party MLA Andrew Weaver was quick to point out one of those recommended measures is to operate the LNG plants with electricity and not natural gas, which is something the premier has ruled out.
Finally, the recent landmark Supreme Court of Canada decision on aboriginal title may throw yet another wrench into plans to lay more pipelines to carry LNG to those envisioned plants.
Put it all together, and it would appear the premier’s lofty dreams of LNG riches may still be stuck in the proverbial pipe for a while yet.

– Keith Baldrey is the chief political reporter for Global B.C.