LNG (Liquified Natural Gas) is one of biggest energy stories to hit Western Canada. It is promoted as a clean bridge fuel that will create thousands of jobs and turn British Columbia into a trillion-dollar global energy leader. The idea is to cool natural gas into liquid, so it can be shipped to higher-price markets in Asia. But is it really all it’s cracked up to be? And what are the trade-offs and impacts associated with LNG and the fracked gas that would feed it?
The Common Sense Canadian is your go-to source for in-depth analysis of the potential benefits and risks of this “game-changing” industry.
VANCOUVER – British Columbia Environment Ministry staff have warned their minister that the province’s dreamed-of liquefied natural gas industry poses some big challenges with greenhouse gas emissions.
Internal briefing notes prepared for Environment Minister Mary Polak since she took office last year and obtained by The Canadian Press, single out methane emissions for concern.
On top of emissions from combustion and flaring of natural gas, methane and carbon dioxide escape during hydraulic fracturing process, or fracking, the documents said. One July briefing note warned:
[quote]Methane emissions are a particular concern since they have a global warming impact 21 times higher than carbon dioxide. A small increase in the percentage of natural gas that escapes can have a significant impact on overall emissions.[/quote]
At a meeting last November, staff warned Polak that the federal government has updated its formula for calculating greenhouse gas emissions and that alone will increase methane values by 20 per cent. The province will need to follow suit, members of the Climate Action Secretariat told Polak.
Premier Christy Clark says B.C. is poised to develop a trillion-dollar LNG industry.
But emissions remain a hurdle for the provinces, which has legislated targets for reductions. Legislation dictates that emissions are to be reduced by at least a third below 2007 levels by 2020.
Polak has also been told that while B.C. estimates that between 0.3 and three per cent of natural gas extracted is lost as fugitive methane emissions, other North American jurisdictions and scientific literature estimate that rate is between seven and eight per cent.
The U.S. National Oceanic and Atmospheric Administration estimates between four and nine per cent is lost.
However, in B.C. regulations are significantly different, the briefing notes pointed out. Because B.C. gas contains toxic hydrogen sulfide, leaks are more tightly regulated.
The province’s Climate Action Secretariat and Natural Gas Development Ministry are working with the Canadian Association of Petroleum Producers to test technology to curb emissions, said the internal documents.
“Though significant, this work does not address concerns about potential fracking-related emissions from geological formations, poor cement casing or produced water storage tanks,” said the briefing prepared last July.
Polak declined a request for an interview. In an emailed statement to The Canadian Press, the ministry said:
[quote]Based on academic research and work in the United States, there is concern that fugitive or unplanned emissions from oil and gas facilities are higher than currently reported in B.C.[/quote]
The federal government has updated its greenhouse gas emissions formula and the province “is examining” when to update its own regulations, it said.
The Climate Action Secretariat is working with the association and industry to find ways to reduce emissions and “ensure emissions levels are properly understood,” it said.
They’ve initiated a joint study of emissions levels and, as a result of updated information, the province has removed an outdated metering requirement, the statement said.
“International greenhouse gas (GHG) accounting and measurement practices are changing as research and the understanding of science evolves,” the ministry said.
B.C. has been underestimating the impact of methane, said Tom Pedersen, executive director of the Pacific Institute for Climate Solutions, a collaboration between the University of Victoria, Simon Fraser University, the University of British Columbia and the University of Northern British Columbia.
But provincial officials are very aware of the challenges, he said.
[quote]This is not something that they are trying to sweep under the rug. They are concerned about it and they are trying to put in place appropriate regulations to deal with it.[/quote]
That will require intensive monitoring and enforcement of regulations, he said.
“At the same time, one does have to be realistic about this, there is pushback from industry. They would prefer not to have regulations of course.”
The Unist’ot’en camp’s Toghestiy (left) and Mel Bazil stand in the path of 3 pipelines (Two Island Films)
UPDATE: Fort Nelson First Nation drums government, industry reps out of LNG conference, outraged over lack of consultation on surprise gutting of environmental reviews for gas plants. Government issues swift apology and cancels changes (more below).
One of the biggest myths pervading BC’s energy dialogue goes something like this: While First Nations stand united against the proposed Enbridge pipeline, they overwhelmingly embrace Liquefied Natural Gas (LNG).
Sure, Premier Christy Clark can tick off a list of aboriginal allies in her effort to build at least five among a dozen terminals proposed for Kitimat and Prince Rupert. Just last week, she announced with great fanfare LNG revenue sharing agreements with two coastal nations – Metlakatla and Lax Kw’alaams.
But a growing group of hereditary leaders, grassroots members and their allies, even some elected governments, are rising up in opposition – from the fracking fields of northeast BC that would supply the industry, to the various proposed pipeline routes across the province, to the coastal communities that would house the hulking terminals.
LNG is designed to achieve higher prices for BC’s gas in Asia, by cooling it to -160 degrees celsius, thus liquefying it so it can be loaded onto tankers bound for China, Japan, Korea, Malaysia, and India. But it may be investors who are getting cold feet amid the myriad challenges facing the industry.
Gitxsan Nation hereditary chiefs deliver a cease-and-desist order to TransCanada (Photo: Graeme Pole)
In a little-reported but highly significant development a few weeks ago, a group of Gitxsan hereditary chiefs in the Kispiox Valley, near Hazelton, ordered TransCanada to cease and desist test drilling relating to the pipeline it plans to construct to Prince Rupert on behalf of Malaysian, Japanese and Indian LNG partners.
The issue adds more uncertainty to the province’s nascent LNG industry, on top of the unified opposition of all five clans of the Wet’suwet’en Nation to the south; mounting concerns from Treaty 8 and Fort Nelson First Nation in the heart of northeast BC’s fracking country; and increasing scrutiny of the proposed Woodfibre LNG Plant in Squamish territory, near Vancouver.
A brief survey of the geography and indigenous territorial boundaries of BC, juxtaposed with these respective challenges, reveals a far more perilous landscape for this industry to traverse than the rosy picture being painted in Victoria and on press junkets to Asia.
Whether you’re a BC taxpayer about to commit massive public subsidies to this industry, or a board member or shareholder of a company contemplating investing the tens of billions of dollars required to build LNG infrastructure, it may be useful to know the real odds before laying a bet on BC LNG.
A tale of two nations: Hereditary vs. Elected
Understanding the discrepancy between the official story on First Nations’ support for LNG and the emerging, contrary reality requires some sense of the different – often competing – systems of governance amongst BC’s aboriginal communities.
Broadly speaking, there are two main forms of aboriginal government: elected and hereditary. The former is a product of the Indian Act – elected band councils which govern reserves created by the Crown. The latter is an ancestral system of leadership made up of houses and clans – the specific makeup varying from nation to nation. Hereditary governments may also incorporate democratic elements – i.e. not strictly “hereditary” per our western concept of the term – whereby chiefs’ names are passed on through decisions reached in the feast hall or by presiding chiefs or house groups.
Where these systems still exist, hereditary chiefs may hold jurisdiction over their nations’ often vast, resource-rich traditional territories. The Canadian case law on this subject is relatively new and not well defined, but individual nations often have their own laws or internal protocol agreements on the subject of jurisdiction. Elected band councils, meanwhile, are responsible for the much smaller reserves which many First Nations inhabit today. Jurisdiction remains a contentious legal issue, specific to individual nations. That said, a number of deals involving pipelines and energy terminals have been signed by elected councils, which is sewing conflict in some communities.
Gitxsan: Home of Delgamuukw
In Gitxsan territory – which covers some 53,000 square kilometers surrounding the mighty Skeena River in northwest BC – a rogue chief and head of the nation’s treaty society (another entity which can hold considerable sway in aboriginal communities), Elmer Derrick, stoked a firestorm when he signed an unauthorized deal with Enbridge in 2011. Derrick and his cohorts were promptly evicted from the treaty office and the deal was torn up – by the very hereditary chiefs whose support he had erroneously claimed.
The hereditary system is deeply rooted in Gitxsan culture, as it is with their neighbours to the south, the Wet’suwet’en. These two nations together won the landmark Delgamuukw v. British Columbia case at the Supreme Court of Canada. Some of the same 48 hereditary chiefs who initiated the case in 1984 are still alive today, standing in the path of myriad proposed pipelines.
As this federal government summary of the case explains, Delgamuukw legally entrenched the existence of aboriginal title and rights contained in the country’s constitution:
“Delgamuukw confirmed that common law Aboriginal title, recognized as a common law Aboriginal right prior to 1982, was “constitutionalized … in its full form” by section 35 of the Constitution Act, 1982 (par. 133)”
The ruling itself noted: “[A]boriginal title confers more than the right to engage in site-specific activities which are aspects of the practices, customs and traditions of distinctive aboriginal cultures…What aboriginal title confers is the right to the land itself.” However, the court stopped short of confirming Gitxsan and Wet’suwet’en title, requiring a new case be brought to address that matter specifically.
The ripple effects of this decision continue to be felt today and weigh heavily upon the LNG issue.
Gixtsan chiefs evict TransCanada
BC map of First Nations, highlighting Gitxsan and Wet’suwet’en lands
Take a look at the BC Government’s map of First Nations territories. Now, draw a line around the neighbouring Gitxsan and Wet’suwet’en nations (pictured to the right). Note how they form a 500 km-long vertical wall, smack in the middle of every major pipeline route proposed across northern BC. Now you have a glimpse of the trouble awaiting these projects, were both nations to block their path.
And that is precisely what’s taking root on the ground right now, though you wouldn’t know it from Christy Clark’s endless stream of LNG photo-ops touting First Nations’ embrace of the industry.
In late March, Gitxsan Hereditary Chief Wa’a (Samson Muldoe) delivered a letter to TransCanada workers conducting test drilling in the Kispiox Valley, related to one of the two major pipelines being eyed to take fracked natural gas from northeast BC to Prince Rupert (see video below).
The letter, signed by a number of high-ranking hereditary chiefs, stated, “As rightful guardians of the territory on which this work is being carried out, this is to instruct TransCanada Pipelines and its contractors and representatives to cease and desist from this work immediately and to remove all their equipment, vehicles and personnel by the end of Tuesday, March 25th, 2014, and to not return thereafter.”
To the point of governance and jurisdiction, the letter continued:
“We assert that the persons representing the Gitxsan Nation, with whom TransCanada Pipelines has been dealing to this point, do not have legitimate right to make decisions with regards to [the territory] where the work mentioned is now taking place – and that TransCanada Pipelines has thus failed to properly consult, as required pursuant to the Delgamuukw Supreme Court of Canada 1997 ruling.”
The chiefs identified impacts on Skeena River salmon from pipelines, LNG terminals and potential fracking in the region as the prime motives for their action.
Petronas’ magic trick
The issue is of particular sensitivity given pipeline owner Petronas/Progress Energy’s attempt to erase the Skeena River and estuary from its project description maps (a story broken by The Common Sense Canadian last year). The uproar over the issue, combined with concern about the impacts of the proposed LNG plant on vital estuary habitat during the worst year on record for Skeena sockeye, forced a significant extension to the initial public comment period on the project.
The eviction order is a wake-up call for TransCanada and it should come as no surprise if Spectra Energy, the proponent of the other major pipeline to Prince Rupert, met with a similar notice from the chiefs.
Wet’suwet’en chiefs ban all pipelines
Meanhwhile, several hundred kilometers to the south, Wet’suwet’en hereditary chiefs banned all pipelines – including the proposed Enbridge pipeline and two major gas conduits – through their territory last summer.
Hereditary Chief Na’moks, leader of the Tsayu Clan, explained to me on camera last October that the heads of all five Wet’suwet’en clans had voted to ban all pipelines through their 22,000 square kilometer territory – with unmistakable resolve.
Like the Gitxsan chiefs, Na’moks raised fracking – the ultimate source of this gas – as a key concern in reaching their decision:
“When you’re talking about fracking and the dangers that come with it – the waste of water, the poisoning of water, the waste of land…when we allow pipelines, we have to take that responsibility that we’re supporting this industry to continue that. As Wet’suwet’en, we can’t do that.”
LNG means 50,000 new holes in the ground: geoscientist
A fracking drill in BC’s Horn River Basin (Two Island Films)
So these chiefs are right to be concerned about the implications of LNG plans in terms of increased fracking and environmental impacts.
Unist’ot’en Clan holds the line
At the end of a series of forest service roads west of the sawmill town of Houston, BC, lies a solar-powered cabin on the banks of the Morice River. It may soon become ground zero in the battle over BC’s proposed pipelines.
There, members of one of the five Wet’suwet’en clans, the Unist’ot’en, have been strategically occupying their land – directly in the path of two gas pipelines and the Enbridge pipeline – for several years now. Their position is simple: No pipelines will cross their territory, period. They’ve already evicted contractors doing survey work for one of the proposed pipelines, Chevron and Apache’s Pacific Trails project.
I’ve visited the camp on two occasions – this past winter and in its early days in the summer of 2012 – for my forthcoming film Fractured Land. It’s a beehive of activity, with supporters regularly joining the camp for weeks to assist with various chores, the construction of new facilities, and gathering and preparing food.
The Unist’ot’en camp has raised close to $20,000 for bunk house renos
They work to feed themselves in a traditional manner from hunting, trapping and fishing, though one of the camp’s leaders, who goes by the traditional name of Toghestiy, acknowledged to me on a tour of their trapline this winter that with diminished wildlife following years of logging in the region, they are forced to supplement their traditional diet with other food sources.
Though the group runs the risk of being characterized as militant radicals, that would appear, on closer inspection, to be a gross misunderstanding of their motives and philosophy. “We’re not about a fight,” camp regular Mel Bazil explained on our last trip. “I don’t wake up thinking, ‘Is the fight coming on today?’…We’re prepared to protect ourselves, but we’re more prepared to build with people a shared responsibility that we can really believe in – that will not occur from a board room or a government level.”
Many of the camp’s members are are schooled in both western universities and the traditional ways of their people, having left high-ranking jobs in aboriginal governance, social work and other fields to embrace a different way of life, in reaction to serious challenges facing their land and people.
“This planet is in trouble. If we can all agree upon that and not worry about how media and governments are spinning it, we really must all, as a people, take control of ourselves.”
Injunction being sought?
Born into another Wet’suwet’en clan, Toghestiy is married to Freda Huson of the Unist’ot’en, the camp’s frequent spokesperson. The pair were in Vancouver last week for an emergency press conference, after they caught wind of an alleged plan by government and industry officials to obtain an injunction against their camp.
When pressed by the Globe and Mail’s Mark Hume, Chevron representative Gillian Robinson-Riddell denied seeking an injunction. She did, however, seem to acknowledge that the company has yet to secure the social licence it requires from First Nations to commit fully to the project financially:
“We’re working toward a final investment decision but there are a few factors [that have to be confirmed] yet…We are looking for further First Nation support.
Video by Eric Doherty
Camp building broad support
The Unist’ot’en are currently running a crowd funding campaign to further build up their camp. With several weeks to go, they’ve nearly met their goal of $20,000 – evidence of the broad support their cause is attracting. From the looks of it, the group isn’t going anywhere – certainly not without a Herculean effort on behalf of government, industry and law enforcement that could well backfire under public scrutiny.
Canada: The world is watching you
When I asked Ms. Huson what would happen if authorities tried to serve an injunction, she replied:
“Supporters would walk off their jobs and come join us. People from all over have said busloads would come to our camp.” Others as far away as Ontario “would close highways” in sympathy.
“My message is: “Canada, the world is watching you.”
I asked Ms. Huson what she would say to the elected chiefs who have signed LNG deals. “I would ask them, ‘Have you done your homework?'” she replied. “Have you investigated how LNG plants affect the air and water; how you will affect not just your communities, but people upstream and downstream?…And what would your ancestors do?
More First Nations opposition brewing
In northeast BC, First Nations leaders have long worked to balance the natural gas industry’s job benefits to their members with its environmental impacts. But with the shift from conventional gas to riskier fracking, change is in the wind.
Now, as they peer over the horizon at a massive build-up of fracking to feed these proposed LNG terminals, they are increasingly expressing concern for the future. The Fort Nelson First Nation came out swinging in 2012 against 20 proposed long-term water licences for fracking in their territory, forcing the government to pull them off the table – with the exception of one, which is currently being litigated by the band.
In 2013, Chief Sharleen Gale and Lands Manager Lana Lowe co-penned an op-ed in The Globe and Mail, which stopped short of opposing the industry, but raised alarm bells over the implications of LNG for their territory – calling for increased environmental standards and royalty sharing to compensate their community. If anything, their estimate of future impacts was highly conservative, in light geoscientist David Hughes’ figures and the Clark government’s bullish outlook for building LNG plants:
“Should a modest number of LNG plants be built we anticipate at least 3,000 new wells will be drilled and fracked over the next decade. This will remove millions of tonnes of frack sand from our land, and trillions of litres of water from our rivers, unleashing a race for large-scale industrial frack sand mining and freshwater withdrawals…Industry has already proven unable or unwilling to stay within the generous water allocations provided to them for fracking.”
Finally, in a surprise turn of events this week, Fort Nelson First Nation members, led by the strong words of Chief Gale, literally drummed out government and industry representatives from a conference the band was hosting on liquefied natural gas (LNG).
The 3-day conference, titled “Striking the Balance”, was designed to discuss both the economic opportunities and potential environmental impacts of increased fracking in the nation’s territory. But things got off on the wrong foot when the BC Liberal government made a surprise announcement on Tuesday that new sweet gas processing plants would be exempted from environmental assessment.
Chief Gale alluded to the betrayal in her comments from the podium at the event today:
“The word from my elders is you treat people kind. You treat them with respect even when they’re stabbing you in the back…so I respectfully ask government to remove themselves from the room.”
Several dozen government officials promptly arose and left, to the beating of Dene drummers. LNG and shale gas industry representatives were asked to stay behind for a few minutes to hear about the nation’s concerns in greater detail, after which they too were dismissed. (see video here).
The message was received loud and clear by the Liberal government, as Energy Minister Mary Polak issued a swift, statement repealing the planned change to the province’s environmental assessment laws.
“I would like to acknowledge First Nations concerns about amendments to the Reviewable Projects Regulation under the Environmental Assessment Act,” stated Polak. “Our government apologizes for failing to discuss the amendment with First Nations prior to its approval.”
Non-BC First Nations take hard line against fracking
As Common Sense Canadian contributor Kevin Logan asked last year, is Elsipogtog the spark that will light the fire of fracking protest amongst other First Nations in places like BC and Alberta? Fort Nelson Chief Gale and Lands Manager Lowe suggested as much in their Globe editorial at the time:
[quote]Sadly it has taken the images from New Brunswick over the past two weeks to raise the debate around “shale gas” to the national stage. It has taken Elsipogtog people being arrested, and images of burning vehicles to illuminate how raw the tension is between the indigenous peoples, and the federal and provincial governments around unchecked resource extraction…We feel particularly close to our relatives in New Brunswick. We share a connection through our treaties and our concern for the land, water and air and the future generations in the face of shale gas.[/quote]
BC LNG a risky bet
The BC Liberal government is banking on support for LNG from First Nations based on the jobs it is dangling before them – as bloated and unrealistic as these claims clearly are. Now-Minister of Natural Gas Development Rich Coleman told political pundit Vaughn Palmer in 2012, “One of the greatest outcomes for this would be that every First Nation young person coming through in the next ten years can get a trade or a job…in the LNG business.”
BC Premier Christy Clark (Photo: Tina Lovegreen)
But in order for BC LNG’s ship to set sail, it will require hundreds of billions of dollars in private capital – not to mention huge taxpayer subsidies. And there are already myriad signs that this boat won’t float – from the government’s difficulty in developing a long-delayed export tax regime, to the lack of a single major investment commitment from any proponent in the 8 or so years the industry has been brewing.
At some point, investors will be confronted with the fact that, on top of all the other risks associated with this incredibly costly and volatile industry, they face growing opposition from First Nations.
Even in the best of circumstances, LNG is a gamble. Given the odds facing BC’s attempts to build an industry, I’d think long and hard before laying my chips on the table.
EDITOR’S NOTE: The passage on hereditary vs. elected governments has been updated since original publication to better reflect the nuances of this subject.
VICTORIA – The British Columbia government has moved to bring First Nations on board its much-anticipated multibillion-dollar liquefied natural gas boom.
Two north coast First Nations signed revenue-sharing agreements Wednesday with the government related to the development of a proposed liquefied natural gas export terminal on their traditional territories near Prince Rupert.
It’s a deal that could be worth up to $15 million for the Metlakatla and Lax Kw’alaams nations.
Related Stories
Premier Christy Clark and leaders from the First Nations who participated in formal signing ceremonies at the legislature called the agreements — the first such connected to LNG — historic.
Clark said the revenue-sharing agreements signal her government’s aims to include First Nations in the province’s LNG development plans, which she says represent a generational opportunity that will rival Alberta’s oilsands.
The First Nations’ leaders said the achievement indicates willingness among some aboriginal groups to embrace some forms of resource development.
A majority of First Nations have opposed the proposed Northern Gateway pipeline project that would move Alberta oil products to B.C.’s coast for export to Asia.
The LNG revenue-sharing agreements were negotiated with the First Nations because their communities, located north of Prince Rupert, are close to a proposed Aurora LNG development at Grassy Point.
Aurora LNG is a proposed joint venture by Nexen Energy ULC (TSX:NXY), a wholly owned subsidiary of CNOOC Limited, INPEX Corporation and JGC Corporation.
“Agreements like this plant the seed for prosperity that lasts for generations,” Clark said at the signing ceremony. “This kind of an opportunity, this kind of co-operation, the stability that this agreement represents today, between First Nations, between government and industry, is going to play a crucial role in creating the confidence that investors need to make sure that their final investments come to fruition.”
By signing the agreements, the First Nations give their support and co-operation for prospective LNG development on their territory, she said.
Metlakatla Chief Harold Leighton said the status quo is no longer acceptable for First Nations who want to be part of development efforts in northwest B.C.
“Revenue sharing agreements related to Grassy Point are a good example of how things can happen when we approach LNG and other types of development in the spirit of partnership and co-operation,” said Leighton. “We have an opportunity to build an economy and improve the social well-being of the Metlakatla and northwest.”
The agreements with Metlakatla and Lax Kw’alaams involve sharing portions of B.C. government revenues related to the Grassy Point lands.
Clark has said government revenues from prospective LNG developments in the northwest could erase the province’s debt, currently at more than $60 billion.
The rate will rise once the plants recover the capital costs of building what are expected to be multibillion-dollar terminals that will super-cool natural gas into LNG for shipment to Asia. The first such plant could be in operation within four years.
There are about a dozen proposed LNG developments in B.C., but none has moved to the final investment-decision stage.
HALIFAX – Nova Scotia granted conditional approval Friday to a proposed liquefied natural gas plant in Goldboro, clearing another hurdle for the terminal that’s slated to be operational in six years if Pieridae Energy Canada decides to proceed with the project.
Environment Minister Randy Delorey said the Calgary-based company must abide by 40 conditions if it goes ahead, which includes working with his department to find ways of reducing greenhouse gas emissions at each phase of the project. Other conditions are intended to protect wetlands and wildlife, he said.
“I am confident any potential environmental issues can be addressed and the economic benefits of this project can be realized,” he said in a statement.
Earlier this month, an environmental panel gave conditional approval for the project, which the company said Friday is estimated to cost US$8.3 billion in capital spending.
The province’s Utility and Review Board will have the final say on whether the project can go ahead.
Company predicts 200 long-term jobs
Pieridae said it anticipates the terminal will create up to 3,500 jobs during its construction and 200 full-time workers will be needed to operate the plant.
The company said it will make a final will decision on the project in 2015 and, if it proceeds, the terminal will be operational in 2020.
“We are very pleased to receive environmental assessment approval, which is an important milestone toward development of Goldboro LNG, ” said Alfred Sorensen, the company’s president and CEO.
Power plant for LNG terminal could affect harbour habitat
In addition to the LNG facility, the project also includes a 180 megawatt gas-fired power plant, a water supply intake and pipeline for a potable water supply from a nearby lake, and a marine wharf and jetty. The jetty would extend into Isaac’s Harbour, which includes habitat for lobster, fish and sea urchins.
The company said it will work with local residents, First Nations and the Environment Department as it works to meet the conditions placed on the project, which include management plans on air emissions, greenhouse gas and wetlands. It must also establish a fisheries advisory committee.
Project would raise province’s carbon emissions by 18%
The three-member environmental panel that reviewed the project said it would result in a number of “residual effects” on the environment, such as an increase in the province’s greenhouse gas emissions by about 18 per cent above 2010 levels by 2020. It says a number of fisheries in the general area would be compromised as well.
The environmental panel said it believes the economic benefits tipped the scale in favour of the project’s development.
Its report said the Goldboro project is projected to contribute 0.5 per cent of the annual national greenhouse gas emissions for Canada and that provincial emissions and targets must be carefully considered. The panel said Pieridae argued the increase will be offset largely by foreign customer’s replacement of coal by the company’s natural gas.
In its submission to the panel, the Halifax-based Ecology Action Centre asked for the project to be “dismissed outright” by the Environment Department because its 2020 emissions would make it nearly impossible for Nova Scotia to reduce its overall emissions 10 per cent below 1990 levels by that same year.
The projections supporting the BC Liberals’ prosperity fund rest on the assumption that there will be indefinite demand to buy into BC’s fledgling LNG market. However, as the Common Sense Canadianhas reported, the numbers guaranteeing prosperity to Canadians, while assuring maximum profit for investors, aren’t adding up. The indicators below demonstrate examples of a rapidly shifting LNG market and early signs of hesitation from international proponents.
The BC Liberals are likely considering these factors as they race against the clock to get construction rolling before the alluring, yet ambiguous, projections behind the ‘100 billion dollar’ prosperity fund are a faded memory.
LNG proponents were probably never too concerned that provincial and federal regulatory bodies would be giving them much trouble as they applied to start operation and export. The uncertainty, however, lies in the stability and viability of international consumer markets to justify the significant costs associated with construction and export. From the proponent’s perspective, even after gaining regulatory permits, the risk-benefit analysis continues until the construction of LNG terminals actually starts.
Increasing Competition
As the Canada West Foundation discusses in Managing Expectations: Assessing BC’s LNG Industry, there may soon be more natural gas available to Asia than it needs, and other competitors are based in better geographic positions to access Asian markets.
[quote]Australian projects, although higher cost than originally projected, are much closer to completion than the BC projects. There will also be competition from Africa, the US, and potentially South American and Middle Eastern projects. China also has plans to develop its own shale gas industry, contributing 150 billion cubic metres of new supply by 2030.[/quote]
Energy editor for the Financial Times, Yadallah Hussain states that Canada comprised a smaller percent of total global upstream transaction value in 2013 (7% of total global, versus around 15% in 2012) as merger and acquisition activity shifted to emerging regions where there has recently been prolific deep water oil and gas discoveries, such as Africa (15% of global total in 2013).
Canada will face pressure to design an export tax and royalty regime that can compensate proponents for the added costs required to compete with facilities in closer proximity to Asian markets.
We learned recently that the BC Liberal government’s LNG export tax, unveiled after many delays in last week’s budget, will enable proponents to deduct capital costs for plant construction.
Early Stages of an ‘Asian Buyers Club’: Getting More for Less
There is no arguing that demand for LNG in Asian-Pacific markets has resulted in high LNG prices – the question now is how long will they last.
On December 5th-9th, 2013, countries importing 69.3% of the world’s LNG met in New Delhi to discuss how to get a better deal on LNG. India called on large consumers in the region like China, Japan and Korea to forge an Asian buyers’ block to extract price discounts. The Financial Postreferred to this conference as “the early stages of an Asian buyers club”:
[quote]Most LNG is bought on long-term contract and it is the cost of these supplies that Asian buyers are trying to reduce. They also want to delink contracts from oil prices and eliminate the clauses that restrict the destination of shipments and prevent them from selling excess cargo.[/quote]
The article cites the historical precedent of the formation of the International Energy Agency, which was set up by western economies to counter OPEC after the first oil shock in the 1970s.
Anyone Feel Like Sharing?
The majority of proposed LNG projects in BC are located in the Prince Rupert and Kitimat areas on the province’s north coast, an area which intersects with the traditional territories of several First Nations in the region. While the duty to consult rests with the Crown, the procedural aspects of this legal obligation are often delegated to the project proponent. This means that the proponent must be proactive in engaging with potentially affected First Nations.
[quote]If it is determined that the project will have impacts on local First Nations, the Crown and project proponent may be required to accommodate Aboriginal rights or interests. At law, accommodation can include mitigating, minimizing or avoiding adverse effects of project activities on Aboriginal interests. A common business practice that has evolved in various industries across Canada is the negotiation of so-called impact and benefit agreements (IBAs) between project proponents and First Nation groups. IBAs aim to provide benefits to the local Aboriginal community and may include training and business opportunities, profit sharing, equity participation and other economic incentives.[/quote]
While this is a fundamental and important aspect of Canadian law, it may not be all that appealing to international project proponents scouting their options to develop LNG facilities in a location that will allow them to transport the resource to Asian-Pacific markets with maximum gain and minimum effort.
‘Drastic Drop in Volume’ of Merger & Acquisitions Activity
After allowing China’s CNOOC Ltd. to buy Canadian energy firm Nexen Inc., Harper brought in new rules outlining that state-owned companies will only be able to buy majority stakes in Canadian oil sands in exceptional circumstances. Uncertainty regarding the precise nature of these rules is causing hesitation in foreign investors looking to invest in Canadian oil and gas, including LNG.
Alison Redford cites this legislative uncertainty as the impetus for a ‘drastic drop in volume’ of merger and acquisition activity from foreign investors. Yadallah Hussain writes that Canadian mergers and acquisitions plunged 80% last year to US$10.2-billion compared to US$50-billion in 2012, a five-year low, according to IHS Herold Mergers and Acquisitions data. Hussain writes that lower commodity prices and competition from U.S. basins resulted in a reluctance of oil majors to open their chequebooks to acquire Canadian assets in 2013.
So, When Do We Start Construction?
One might think that after Christy Clark was re-elected in a haze of prosperity fund glory that construction of approved LNG facilities would be underway. As Brent Jang writes for the Globe and Mail, the NEB has already granted export licenses for seven BC LNG projects and is reviewing applications from another five. Kitimat LNG, for example, has all the necessary approvals to start construction but has not done so yet. Jang explains proponents have stated that approved projects are not yet in construction stage because they are still doing “internal assessments on the economics of proceeding”.
In a rapidly shifting economic climate, these internal assessments may result in cost-benefit analyses that see the BC Liberals’ prosperity fund projections go down in economic history as a nothing but a pipedream.
Anna C. Novacek earned an Honours LL.B from Durham Law School in England and has interned with West Coast Environmental Law in BC. Today, she works at Stevens and Company on Vancouver Island and co-publishes the Energy Law BC blog.
Very little mention has been made of the non-disclosure agreements Coleman has with 12 or so companies lined up to exploit BC’s massive natural gas reserves – but that apparently does not stop him from admonishing his critics for being “totally uninformed.”
After missing his third self-imposed deadline to finally let the rest of us in on his non-disclosed, high-level negotiations, Coleman continues to hold his cards close to his chest.
While this week’s Liberal budget finally included some details on the long-promissed tax regime for LNG, it has yet to become legislated or locked in. This should be viewed as trial balloon – a proposed “framework” enabling the Liberals to say they’ve “delivered” on something. And the terms themselves show what raw deal taxpayers can expect under the Liberals’ LNG scheme (more on that in a bit).
In this, the second part of “Exploding BC LNG Myths” (See part one here), we examine the few details we have to work with to try to understand what Coleman is doing and how BC intends to launch itself to the forefront of a trillion dollar worldwide LNG industry.
[quote]While Clark campaigns for a Debt Free BC, she alone will have booked over half of the debt accumulated since we started calling the place British Columbia.[/quote]
Yet another budget of promised “Prosperity”
Claim: BC Liberals are keeping their election campaign promises of a “Debt Free BC”, balanced budgets, job creation and a prosperous future due to LNG.
In other words, while Clark campaigns for a Debt Free BC, she alone will have booked over half of the debt accumulated since we started calling the place British Columbia! And she will do it all before the next election. And that’s not counting the $100 Billion in additional contractual obligations they’ve racked up for taxpayers, hidden from public view.
That is a staggering, unprecedented growth in debt and there will not be one nickel of promised prosperity funds booked from LNG revenues before the next election.
Liberals fail in job creation too
The BC Liberal Government has also lost a staggering 21 000 full-time jobs since Clark was elected less than a year ago – despite the multi-million dollar “Job Creation Plan” that was the center of her campaign of a strong economy, secure tomorrow, smaller government and thriving private sector.
Most new job creation during the entirety of the now almost three-year-old “Jobs plan” has been in in the public sector.
BC Liberals Give away the Farm
Claim (Rich Coleman): “I think people will be surprised how smart we have been with the establishment of a taxation regime for the budding LNG industry.”
Partially True: It is true that Coleman and his repeatedly-promised, non-disclosed terms still have yet to be fully divulged and legislated but what little has been disclosed and floated by the finance minister is very clever indeed.
Effectively, BC will not realize any serious revenue from LNG until – wait for it – not this mandate, nor the next administration, but beyond the election after that!
The two tier tax regime floated by the finance minister does not start until ships are leaving our coast full of LNG, and for 3-5 years after that it is “tier one” rates of 1.5%. However, the kicker is that every nickle paid to BC under the pathetic 1.5% tier one rate is given back to the companies once tier two is reached.
And tier two is not much better. Tier two taxation is achieved once the LNG companies we let set up shop have recovered 100% of their costs. (Remember, Petronas alone claims investment of 36 billion dollars!) And once they have recovered costs, the tier two taxation rate of “up to” 7% kicks in – at the same time all the tax paid under tier one is given back to the companies through rebates.
At this rate, economists and experts have claimed that erasing BC’s fast-growing debt, lowering taxes and filling a 100 billion dollar prosperity fund while also underwriting the services we have come to rely on is a total impossibility, based on reasonably expected LNG revenues. And even if it was achievable, it would not begin to happen for three elections after it was promised.
“Very smart” indeed Mr Coleman – to run and get re-elected on prosperity for British Columbians, but instead deliver massive giveaways to the largest most profitable multi-national companies on earth.
Time to act: Demand an inquiry and full disclosure
Our governments have already committed to export more natural gas than we have ever produced throughout all of Canada, through as many as 11 export permits, totalling 105 mtpa for twenty five years – an oil equivalent that doubles current Tarsands production. Seven of the eleven await cabinet approval, so now is the time to be heard.
Now, as of this most recent budget, they are promising to pick up the tab for large portions of total investments, with clever tax incentives and rebates that leave the resource owners holding the bag.
It’s time British Columbians put the breaks on this debacle, demand full disclosure and an inquiry into the secret negotiations that have resulted in taxpayer giveaways of such unprecedented, gargantuan proportions.
Our public purse, energy security, environment and economy depend on it.
It used to be that resource companies handled their own communications, did their own advertising and managed the public affairs of their undertakings; today that job now involves governments and (E)NGOs (environmental non-governmental organization).
Our elected leaders in government and the self-appointed leaders in NGOs have abandoned positioning in the public interest and instead have become partners in the exploits of international capital, who provide perception and issue management on their behalf.
Therefor the following clarifications may help with understanding the BC LNG fundamentals from the citizen’s perspective, otherwise known as the owner of the resource and stewards of the land, air and water, versus those committed to providing perception and issue management -otherwise known as “social license.”
The BC Liberal government’s “LNG Quiz”
BC Liberal LNG myths and realities
CLAIM: LNG just evaporates if there is an accident transporting it, loading or shipping the product on the coast.
FALSE: Rapid Phase Transition can occur when LNG meets water, resulting in explosions. See video here. The effect is much more explosive with terrestrial transportation, as seen here.
CLAIM: There is a race to develop BC LNG facilities.
FALSE: Every major industry report points out how LNG is a growth industry, one of the biggest on earth and is reaching its apex after over 50 years in existence. Demand is expected to escalate for at least 30 years as we see the transition to natural gas as transportation fuel take hold.
CLAIM: To win the race we need to hurry in order to satisfy our customers and serve domestic markets before our competition beats us.
FALSE: There is no other place in the world with our proven deposits at our stage of development (speculative) that also has the level of interest being expressed. The BC Liberals have been boosting natural gas exports for over three years, however the development model we are undertaking means we have no “customers”, only new potential owners. If this is a race, “BC” jumped out of the saddle before it started and handed over the reigns to foreign companies and SOEs, The LNG destination markets will only grow as will domestic consumption.
FALSE: The BC Liberals have accumulated more debt than any government in history. Christy Clark incurred more debt in just two years before the last election than the entire NDP “decade of decline.” And that is only debt they acknowledge. Unacknowledged debt that exists as of today, in both deferred and hidden public accounts, exceeds the expected revenues from LNG exports, given the terms and conditions her government has so far defined.
CLAIM: The BC Liberals continue to claim “we” will be the most competitive in the world by slashing royalty and tax regimes, while maintaining high subsidies, and becoming the lowest operating district on earth.
PARTIALLY TRUE: It is true that the BC Natural Gas Royalty Regime has often been cited as the lowest in North America and subsidies for the industry are often unparalleled, however it is unclear if this is true the world over. Qatar, the current world leader in the industry, is very difficult to compete with in this respect. This means that BC will have to continue to “give the gas away” in order to be competitive on the world stage – especially when considering our major deposits’ distance from tide water and the costs involved as a result. (On average a compressor station is required every 100 miles along a gas pipeline).
CLAIM: The BC Liberals have long claimed they intend to “lock down” all terms associated with the budding LNG industry by passing “sophisticated provincial legislation” they have repeatedly announced would be made available to the public, yet continue to be delay. (Indeed they claimed they cancelled the last sitting of the legislature to craft this sophisticated legislation, but to no avail.)
REALITY: No provincial government can legislate in perpetuity. It’s a fundamental tenet of democracy that subsequent elected governments not be limited in this capacity. The only existing experience we have with such draconian lawmaking exists within the parameters of trade agreements, which are treaties negotiated and ratified at the level of the Federal government. Expect BC’s LNG industry to be bound by upcoming trade agreements such as FIPPA and TPP, as these are the only means of “locking down” bargain basement taxation and regulatory regimes.
CLAIM: Natural Gas is a “clean” transition fuel.
MISLEADING: When processed natural gas liquids are burned, they are cleaner than some fossil fuel alternatives, however there is a lot of processing that occurs between the time it is removed from the earth and ultimately burned. Those processes release more climate changing emissions and poisons than the alternatives. There is also the issue of “fugitive”, or escaped methane emissions, which studies are now revealing to be far more widespread and climate-damaging than previously thought.
CLAIM: Natural Gas is a “clean energy” alternative to coal.
CLAIM: “We are doing the world a favour,” because our natural gas will displace coal burning plants in China improving the environment and air quality.
FALSE: There is no actual evidence of this claim or any commitment of this sort. Coal exports to Asia are at record highs in both Canada and the US and China is already making deals to export LNG after having increased domestic production 5 fold just in the last year.
Part two will continue debunking major claims around the development model of BC LNG. Jobs, social impacts, fracking and the government’s soon-to-be-introduced “framework” for LNG development, which they have chose to provide in lieu of the promised terms and conditions required for the much-vaunted “Prosperity Fund”, will all be included.
The Clark Govt has once again delayed the announcing its LNG royalty regime (Tina Lovgreen / BCIT)
British Columbians have been patiently waiting since before the Liberals were re-elected for an explanation of the financial terms that will deliver the much-vaunted 100 Billion-dollar LNG “Prosperity Fund” that will allegedly eliminate the provincial debt, lower taxes and underwrite the services we have come to rely on.
BC’s Minister for Natural Gas Development Rich Coleman has repeatedly committed to divulging the terms and conditions he intends to legislate into perpetuity since being re-elected based on these promises. We’ve been told that by slashing royalties and taxes, BC will win the global competition for attracting foreign investment in LNG pipelines and terminals.
Earlier this week, however, it was quietly announced – not by the Premier or Natural Gas Czar Coleman, but by the Finance Minister – that the taxation regime required to deliver the prosperity the BC liberals were re-elected on has once again been delayed, making this at least the third time they have promised to deliver but failed.
Indeed. at the time of this writing, nowhere on the BC Government website is there any mention of this, despite the fact the delay is reaching into years and not mere weeks as promised over and over again.
Virtually all the major players looking at investing in BC LNG have claimed that Final Investment Decisions (of which we have none despite over a dozen potential projects) hinge upon understanding what the BC Liberals intend to roll out as the means of delivering on their election promises. They have stated these claims publicly a year ago, with the expectation of them being finalized way before now.
So despite the Premier’s perpetual boosting of LNG as the boon to a prosperous future and all the talk of a “race” to get the projects up and running, her own government is still unable to deliver a simple taxation regime on resources – something governments have pretty much mastered over the years.
One of the first orders of business upon the Liberals’ re-election was not to deliver on the promises of prosperity but rather to hand over 100’s of millions more in subsidies to the industry. A never-ending stream of clever sliding royalty rates and investments incentives have been deployed for near half a century, often leaving Britsh Columbians holding the bag – not full of cash and prosperity, but of crippling debt.
Since when do we subsidize and hand over 25 year export permits for breathtaking amounts of a non-renewable resource before we have any investment commitments or even know what we are going to charge for our stuff?
At this rate, it is all pain and no gain for British Columbians, we have not even “locked in” job guarantees but rather are promising that we will open the flood gates to a foreign workforce. And the industry has recently announced that under the auspices of “Operational Excellence” they will be putting the squeeze to wages and costs.
What’s in it for British Columbians?
So we have already handed over the export rights to the majority of our natural gas putting our energy security at risk at the same time guaranteeing a run on the environment like we have never seen. And we are continuing to subsidize the largest most profitable companies on earth to do this at an alarming rate.
We are seeing no talk of job guarantees, only training in anticipation of jobs, because we do not have a properly skilled workforce, which, when translated, means we will be flooded with foreign skilled workers.
We have no terms in place to ensure that we see appropriate returns for the massive liquidation of our non-renewable resources; instead, all we have are empty promises from politicians who cannot even keep their own, self-imposed timelines on the single most-promised aspect of their economic agenda.
It’s high time British Columbians give these oily, gassed-up wind bags a good shake and start demanding answers on why they are handing over everything, “locking it down” for generations and not delivering one single aspect of the promised prosperity they were elected for.
I listened intermittently to the Public Proceedings of the Yukon Legislature’s “Select Committee Regarding the Risks and Benefits of Hydraulic Fracturing” held in Whitehorse on January 31 and February 1. The presentations focussed mainly on the minutia of drilling, hydraulic fracturing, water consumption, environmental impacts, regulations, water contamination and so forth. These are certainly valid concerns, but the big picture as to why the BC and Federal governments are pulling out the stops to liquidate the natural gas resources of BC and the southern Yukon and NWT at an unprecedented rate, and the implications of doing so, were not discussed.
David Hughes
I particularly focussed my attention on the final presentation by the National Energy Board (NEB) and the questions following it. As Canada’s energy regulator with responsibility for future Canadian energy security I hoped I would hear a rational explanation for its BC LNG export approvals totalling more than Canada’s current production, which, if they were to come from BC, would require more than quadrupling current production. I was sorely disappointed. Instead NEB presented a rendition of the process of hydraulic fracturing and assurances of the NEB’s good work on the regulatory front.
The Elephant: Scale, environmental impact and energy security
During the NEB Q&A, when the public’s questions finally came up, 20 minutes before the end of the two-day session, several questions were posed about the implications of the scale of LNG exports proposed by the BC Government and approved by the NEB.
Given that most of the proponents for LNG export terminals approved by the NEB utilized a single Calgary-based consultant for their supply forecasts, one of the questions asked “how reliable is this consultant for future supply forecasts?”. The NEB’s Patrick Sprague declined to comment on the reliability of the consultant and responded that the NEB had its own forecasts published on the web (Canada’s Energy Future, published November, 2013). It’s worth comparing the two.
The consultant, in the employ of Aurora Liquefied Natural Gas Ltd. – wholly owned by China National Offshore Oil Corp. and Japanese companies – came up with a remarkably rosy supply picture to justify Aurora’s LNG export aspirations. The consultant suggested that a miraculous turnaround of Canada’s long-standing production decline will nearly double Canada’s gas production by 2035, thanks to shale gas and tight gas (Figure 1). The consultant does not provide justification for its forecasts beyond stating:
[quote][We maintain] proprietary gas production spreadsheet models for each major gas basin and key gas types in North America which use key input parameters to forecast the annual average gas production for each supply source to 2050.[/quote]
In short the consultant says “trust us”. Others might say “follow the money” – who is paying this consultant and what conclusions are in the best interests of its clients? The consultant’s conclusions are certainly in the best interests of its clients and are opposed to other analyses of the “shale revolution”.
Fig. 1: Consultant forecast of Canadian gas production through 2050 – included in the Aurora Liquefied Natural Gas Ltd. application filed with the NEB in November, 2013
This supply forecast is much more optimistic than even the NEB’s reference case projection, which is 20% lower in 2035, despite an assumed four-fold increase in BC gas production (Figure 2).
Projections ignore reality of peaking shale gas production
How credible are the supply forecasts prepared by this consultant and included in most of the export applications the NEB has approved? They belie what is actually happening with shale gas production in the US and what is likely to happen in the future with production and price.
With the exception of the Marcellus play in Pennsylvania and West Virginia (and associated gas from tight oil plays like the Bakken and Eagle Ford), major shale gas plays have peaked and are declining. The Haynesville play in Louisiana and east Texas is down nearly 35% from its peak just two years ago when it was the biggest shale gas play in the US. Other plays like the Barnett, Fayetteville and Woodford are also declining. As a result overall US gas production is flat, and Canada’s production is declining. Forecasting a radical increase in production, at low prices, to accommodate its client’s LNG export aspirations, as this consultant does, is not credible.
LNG exports mean 72% more than total current Canadian gas production
The NEB has approved seven export terminals with a total capacity of 14.6 billion cubic feet per day (bcf/d). If the Aurora proposal is approved that will add a further 3.1 bcf/d for a total of 17.7 bcf/d of exports. Coupled with BC’s current raw gas production of 4.2 bcf/d that would require BC to produce nearly 22 bcf/d, which is 72% more than all of Canada’s current production.
My analysis estimated a conservative 50,000 new gas wells to meet just 14 bcf/d of exports, which would amount to tripling the 25,000 wells that have been drilled since the 1940s and quintupling the amount of gas produced since then. Questions posed at the hearing on what the environmental implications of fracking a well are one thing – drilling 50,000 of them are another. And what about the long term energy needs of the rest of Canada?
Fig. 2: Reference case projection of gas production by province through 2035
LNG exports could mean higher gas prices at home
Another important question posed during the Q&A to the NEB was what the price impacts might be on North American gas of LNG exports. Current NYMEX prices are nearly triple what they were in mid-2012, yet production is flat overall and falling in several major shale gas fields. Production can only resume rising with considerably higher gas prices. The Clark government’s plan, however, is to capitalize on the differential between the currently cheap North American gas price and the price of LNG in Asian markets. Given that the cost to liquefy, transport, and regasify a thousand cubic feet (mcf) of gas is about $6.00, the cost of the gas itself is about $4.50, and the price in Asia is $14.00 or more, there is a potential profit of $3.50 per mcf. If the domestic price of gas rises, as it must to avoid production decline, the profit margin disappears along with all the revenues for the “Prosperity Fund” and debt-paydown touted by the Clark Government.
The increased demand for natural gas in the US for power generation (given shutdowns of coal plants and nuclear stations), and for industrial uses, mean that US and Canadian LNG exports can only further strain supply and increase upward pressure on prices.
Regulators, governments missing the big picture
The attendees at the “Select Committee Regarding the Risks and Benefits of Hydraulic Fracturing” hearings were well served on the details of hydraulic fracturing but the bigger picture of the wisdom of this unprecedented scale-up in extraction and what it means for the long term energy security of Canadians – The Elephant – was largely ignored. This is to our peril given the non-renewable nature of the resources being exploited, the scale and rate of extraction envisioned, and the need for these resources for the foreseeable future as inputs to Canadian energy requirements.
Fracking operations in BC’s Horn River Basin (Two Island Films)
A new report from geoscientist and shale gas expert David Hughes offers a big reality check for BC’s proposed liquefied natural gas (LNG) industry. As a former 32-year veteran of the Geological Survey of Canada, Hughes led a national review of the country’s unconventional gas potential. Now, after drilling down on the BC Liberal government’s LNG vision, he has some sobering things to say about its promise of a $100 Billion windfall “prosperity fund”, built on accessing new markets in Asia.
David Hughes
In a new report titled BC LNG: A Reality Check – released by the Watershed Sentinelon January 18, where you can read it in full – Hughes analyzes the implications of 7 large LNG export licences recently issued by the National Energy Board. Together, they constitute a staggering 14.6 billion cubic feet/day (bcf/d) of gas – more than the total amount of gas coming out of the entire country today, at 12.7 bcf/d.
Drawing on the best available production and geological data from Canada’s gas sector, Hughes assails both the NEB’s reckless approval of this much gas for export and the BC Liberal policy for economic development that is driving the LNG boom.
Regulator violates mandate
“The NEB appears to have violated its mandate to ensure Canadian energy security by approving seven LNG export applications, which add up to more than the current gas production of all of Canada, and far exceed even its most optimistic projections of BC gas production, says Hughes.”
[quote]To put this in perspective, the US, which produces five times as much gas as Canada, has approved only four export projects with a total capacity of less than half that of the NEB approvals.[/quote]
Hughes found that, on average, production from a given unconventional gas well in BC plummets by 69% in its first three years – a far sharper decline than the historical rate for conventional gas, meaning that a drilling treadmill is required just to keep production flat, let alone grow it.
To that latter point, Hughes paints a startling picture of what fulfilling these export demands would look like on the ground: i.e. a dramatic increase in controversial fracking and consequent water use.
LNG export licences = gas equivalent of Tar Sands x 2
The NEB has approved 7 LNG export licences so far
The most recent approval by the NEB of 4 export licences, just before Christmas, came in the same week the regulator received Kinder Morgan’s application for a major oil pipeline expansion to Vancouver and announced its conditional recommendation of the proposed Enbridge pipeline. The LNG story was thus lost in the shuffle – this despite the fact, as The Common Sense Canadian noted at the time, those four gas licenses alone were the equivalent of almost 2 million barrels of oil per day for 25 years. In other words, roughly four times bigger than the proposed Enbridge pipeline and the same size of the entire Alberta Tar Sands oil output today.
Add in the three licences it had already approved before that, plus the the 4 more it still has under review – totalling an additional 3.4 bcf/d – and you have double the energy equivalent of today’s Tar Sands.
Another 50,000 holes in the ground
Hughes’ report gives a shocking glimpse of the environmental and economic implications of powering BC’s LNG vision:
[quote]…meeting the NEB export approvals would require drilling nearly 50,000 new wells in the next 27 years (double the approximately 25,000 wells drilled in BC since the 1950s).[/quote]
A fracking drill in BC’s Horn River Basin (Two Island Films)
After extensively researching wellhead data across the US shale gas boom – which is a few years ahead of Canada since it was the birthplace of modern high-volume slick water hydraulic fracturing – Hughes came to the conclusion that shale gas wells don’t produce for nearly as long as conventional gas wells did. In fact, the average 3-year decline rate (the speed at which production falls toward zero) of the 5 major US shale gas plays – accounting for 80% of the nation’s production – was a staggering 84%. That means that most wells are pretty much tapped out in a few years. It also means continual high rates of drilling are required to offset declines – just to maintain, let alone grow, production.
Fracking would use more water than City of Calgary
Turning his attention to Canada over the past year, Hughes is seeing similar trends. “Given the steep production declines associated with shale and tight-gas, drilling rates of more than 3,000 new wells per year would be required to ramp up production to required export levels, followed by nearly 2000 wells per year to maintain production,” he warns. (emphasis added)
[quote]Notwithstanding the other well publicized environmental issues with hydraulic fracturing (fracking), which would be the principal completion technology used to produce this gas, water consumption alone during the ramp up phase would exceed that of the City of Calgary, which has more than a million people.[/quote]
Regulator, Government’s numbers don’t add up
To Hughes though, it’s much more than a matter of underestimating the environmental costs. The NEB and provincial government are misrepresenting the geology too. The regulator’s numbers simply don’t add up, says Hughes, when it comes to supplying the gas for the export licences they’ve issued. “The NEB’s forecasts of gas production in BC through 2035 do not come close to the levels needed for its LNG export approvals,” he notes. “Its reference case forecast for BC is the production of 57 trillion cubic feet (tcf) by 2035, yet 120 tcf are required to meet its approvals (more than three times BC gas reserves).”
Hughes has also tackled the erroneous boasts being made by BC’s Minister for Natural Gas Development, Rich “The Optimist” Coleman. Although more exploration will certainly find additional recoverable reserves, Coleman recently declared that there are over 950 trillion cubic feet (tcf) of recoverable resources in BC alone – this compares to the recent NEB estimate of 861 tcf in Manitoba, Saskatchewan, Alberta and BC combined. The most recent estimates of marketable gas reserves in BC by Coleman’s own Oil and Gas Commision is only 33.4 tcf.
To put this in perspective, just 25 tcf of marketable gas has been recovered in BC since the 1950s from more than 25,000 wells. Nearly five times this amount would need to be recovered in just 27 years to meet the NEB’s export approvals.
Could Canadians run out of gas due to export commitments?
At issue is Canadians’ own future energy security. A central piece of the NEB’s mandate is to ensure that exports run surplus to domestic needs. And they’ve given their stamp of approval to these LNG export licences:
[quote]We have determined that the quantity of gas proposed to be exported by Prince Rupert LNG is surplus to Canadian need. The Board is satisfied that the gas resource base in Canada, as well as North America, is large and can accommodate reasonably foreseeable Canadian demand, the LNG exports proposed in this Application, and a plausible potential increase in demand.[/quote]
But is this true? Hughes thinks not. “Canadian production peaked in 2002 and is now down 30 per cent from its peak. The only province with substantial growth is BC, which constitutes 28 per cent of Canadian production (although it is now on a plateau),” he writes. “Coupled with current BC production, which is mostly committed to existing customers, meeting the NEB export approvals to date would require increasing BC’s gas production to nearly 50 per cent more than all of Canada currently produces – within less than a decade.” (emphasis added)
And that’s easier said than done, says Hughes.
BC’s steep production declines
The decline rates for BC’s shale gas wells may not be quite as severe as Hughes has observed south of the border, but they are steeper than the conventional gas wells that made up BC production in the past.
In the Horn River Basin, near Fort Nelson – the second biggest shale gas play in the province – the 3-year drop-off averages 80%. The province’s biggest play, the Montney Shale near Fort St. John and Hudson’s Hope, the decline rate is 61% for the same period, compared with 69% for the whole province.
As the rate of decline is steepest in the first year, the overall field decline is less, averaging about 26% per year – meaning that on average 26% of BC gas production must be replaced each year by more drilling to keep production flat.
That’s how you get to 50,000 new wells by 2040 to supply BC’s much-vaunted LNG industry.
A warning worth heeding
Though both the NEB and BC Government are likely to pretend this report never came into existence – preferring instead to forge ahead with an industry built on exuberant talk – they are foolish to do so. Mr. Hughes is a man who knows of what he speaks. He headed unconventional gas research during his 32 years with the Geological Survey of Canada (GSC), and, since leaving there, has continued his research, publishing a seminal report earlier this year on shale gas and tight oil production in the US.
Mr. Hughes’ opinion is being sought by people around the world deciding the future of shale gas. In recent months, he has spoken to the European Parliament, academics, energy financiers, and global financial media. The work he’s done in the US is changing the game there and abroad.
But if Christy Clark and our regulator decide to ignore this warning, they do so at the public’s peril – not their own. For none of them will be in their current positions long enough to answer for the catastrophic choices they’re making today.
LNG (Liquified Natural Gas) is one of biggest energy stories to hit Western Canada. It is promoted as a clean bridge fuel that will create thousands of jobs and turn British Columbia into a trillion-dollar global energy leader. The idea is to cool natural gas into liquid, so it can be shipped to higher-price markets in Asia. But is it really all it’s cracked up to be? And what are the trade-offs and impacts associated with LNG and the fracked gas that would feed it?
