While B.C.’s government encourages the extraction of more methane by granting tens of millions of dollars annually in royalty and tax breaks and credits, the owners of the resource, the people of B.C., have been earning less and less. Even though production has doubled since 2005, total royalty revenue is down by 84 per cent.Here’s some more dismal math. “In 2005, the B.C. government received $2.05 in royalties for each thousand cubic feet of gas sold. In 2018, the government received just 16 cents.”
With virtually no public return B.C. is now liquidating the last best sweet spots remaining in the Montney basin in northeastern B.C.
These calculations, says Hughes, don’t support the rhetoric that LNG exports “will provide a windfall to fund vital government services.”
The future market: We’re investing now for big demand later, right? It’s a mirage, say hard figures
At this point a discerning taxpayer might ask whether the bet is worth it because the world will eventually pay a good price for the LNG B.C. is readying itself to export.
The math here is ruinous.
Both the Canadian Energy Research Institute and the Oxford Institute for Energy Studies calculate that the breakeven cost of getting Canadian LNG to Asian markets is between $8 and $10 per million BTU. But the Asian market before the pandemic was buying LNG between $3 and $5 per million BTU. Spot prices have dropped as low as $2 per million BTU.
In addition, the industry suffers from a global LNG glut, at a time when more projects are slated to come on stream a couple of years from now. So, too, is a Russian natural gas pipeline that will deliver cheap methane to China.
“Landed LNG prices in Asia would have to increase dramatically for Canadian LNG exports to be profitable,” calculates Hughes.
These sober figures likely explain why Woodside and Chevron, owners of the moribund Kitimat LNG project, have written off billions in losses and want to sell their respective stakes in that doomed project.
They and a host of other troubled LNG developers might have some problems doing that according to a new report by the Global Energy Monitor.
It calculates that as the competition from renewables intensifies and more governments raise concerns about LNG emissions and fracking, many LNG terminals will become “underutilized or stranded assets long before their useful life of 30 to 40 years.” At least 11 major LNG projects around the world are experiencing “significant new difficulties,” including low prices.
The Oxford Institute for Energy warned last year that the LNG industry now faces two challenges to its very 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.
Jobs: At least LNG creates good employment? False. Again, do the math
Lastly, what about jobs? LNG lobbyists, such as Resource Works, contend that LNG projects will create thousands of jobs paying more than $100,000 a year.
The math doesn’t support such claims. LNG projects are capital intensive, not labour intensive. Most of the work on construction is done overseas. Yes, a few thousand workers will be required to assemble the modules and the pipes. But after this brief boom, LNG Canada won’t employ more than 500 people.
That begs one more question for every taxpayer in B.C. and their NDP government. Does the employment of 500 people on a climate-destroying project that earns the province scant revenue justify a nearly $60 million per year subsidy in electricity prices for LNG and fracking developers; a $60 per year million break in carbon taxes; a three per cent cut in corporate income tax; a $21-million per year deferral on provincial sales tax; a loss of $375 million on waivers of tariffs on imported steel from China; and the construction of an uneconomic $10-billion dam to provide subsidized water and electricity for fracking and LNG developers?
How does all that add up?
The basic point that Hughes wants to make is this: “We have to rethink the oil and gas business if we are serious about meeting emission targets.”
It also means that the Canada can no longer rely on exports of more bitumen or methane. Or call such products “ethical.”
Politicians instead should encourage a planned, substantial reduction in fossil fuel consumption at home combined with the creation of a hybrid energy culture that uses both renewables and fossil fuels much more intelligently and efficiently than ever deployed in the past.
In addition, Hughes offers this blunt advice for B.C. Premier John Horgan and his clique of LNG-advocates who still claim, just like Alberta Premier Jason Kenney, that they can export unconventional fossil fuels, get rich and fight climate change at the same time.
“You should cease, desist and back up and do the math.”
* Story updated on July 9 at 12:30 p.m. to include information about David Hughes report on LNG exports.