The Stakes Are High: Oil and Gas Industry Keeping A Watchful Eye On B.C. Election

Published: Daily Oil Bulletin
By: Paul Wells

The May 9 British Columbia election is fast approaching and the western Canadian oil and gas sector is casting a watchful eye on the proceedings as the two frontrunners -- Christy Clark's B.C. Liberal party and the John Horgan - led NDP - battle to the finish.

And the stakes could be high for the western Canadian oilpatch, as the parties and the two leaders have vastly different views on many oil and gas - related issues such as the future of the province's neophyte liquefied natural gas (LNG) industry, development of the vast northeastern B.C. natural gas resource, the future of pipeline infrastructure development and climate change strategies.

In an April 28 note, TD Securities Inc. noted that recent polls suggest that the NDP has an eight percent lead over the Liberal party. According to CBC polling analytics, as of late April there was an 83 percent likelihood that the NDP would form a majority government.

Gary Leach, president of the Explorers and Producers Association of Canada (EPAC), said the Liberals and NDP offer two distinct realities for the oil and gas sector with the Grits being the party of choice.

"Overall the B.C. Liberals offer continuity and certainty and a record of five years of balanced budgets. The NDP, particularly if propped up by a few Green Party MLAs, would unquestionably to the worse choice for the oil and gas sector," he said.

In general, Clark and the Liberals are widely viewed as being more oil and gas industry-friendly than Horgan and the NDP. This is the first of two pre-election stories that will be published in the DOB. The stories will provide a snapshot of the oil and gas and climate/environment-related platforms of the two parties.

Divergent views on Trans Mountain

Horgan and the NDP mince few words when it comes to Kinder Morgan Inc.'s proposed Trans Mountain pipeline expansion project.

"The Kinder Morgan pipeline is not in B.C.'s interest. It means a seven-fold increase in tanker traffic. It doesn't, and won't, meet the necessary conditions of providing benefits to British Columbia without putting our environment and our economy at unreasonable risk," the NDP said in its platform.

“We will use every tool in our toolbox to stop the project from going ahead.”

In January, Clark announced that the Trans Mountain pipeline expansion had met the five conditions set by the province to secure coastal protection and economic benefits for its residents.

“The province’s clear, consistent and principled position on its five conditions has resulted in tangible and significant investments that will protect British Columbia’s environmental and economic interests,” she said in a statement.

“The project has met the five conditions. We always said the five conditions were a path to ‘yes’ and that if the project met the five conditions we would say ‘yes’, and that’s where we are today.”

Clark said she is convinced that the $7.4-billion project will protect B.C. from potential environmental damage with world-leading spill prevention and response measures.

The project also promises $20 billion in economic growth over the next 20 years, she added.

The federal government gave its approval for the pipeline expansion late last year after the National Energy Board (NEB) recommended it go ahead if 157 conditions are met.

"The project has met the five conditions," Clark said at a news conference at the B.C. legislature. "We fought for these conditions for 4 1/2 years."

The expansion would triple the capacity of the existing oil pipeline, which runs from near Edmonton to Burnaby, B.C.

Among B.C.'s five conditions are world-leading marine and land oil spill response, protection and recovery measures for B.C.'s coast and land areas. The conditions also include environmental reviews, First Nations consultations and participation and economic agreements that reflect the level and nature of the risk the province bears with a heavy oil project.

"It is a federal decision, and they made it," said Clark. "But what is our job is, is to stand up for British Columbia. It's to fight to make sure our coasts, our land base, our communities are protected and benefiting from any change in the movement of heavy oil across our province."

Should Horgan’s NDP form government after the May 9 provincial election, the pipeline expansion would suddenly face a hostile provincial government.

Horgan has vowed to use every tool at his disposal to halt the expansion, which the project’s supporters say would generate $1.15 billion in construction spending, $25 million to $50 million annually in B.C. government revenue sharing (on top of the $5.7 billion in provincial taxes over the life of the project) and — according to the BC Building Trades —  10,000 to 11,000 construction jobs over the two-year peak construction period.

However, while Horgan’s promise to halt the expansion might give Kinder Morgan’s shareholders pause when the company makes a final investment decision later this year, Horgan has few legal tools to make good on that commitment, according to Robin Junger, partner and national co-chairman on environmental and Aboriginal law groups and oil and gas with McMillan LLP.

“The province has limited constitutional authority over these matters,” Junger said.

“They’re federally regulated undertakings, and they’re protected by our Constitution and division of powers.The law is that the province cannot lock or stop a federally regulated undertaking like an interprovincial pipeline. It can impose conditions, but those conditions cannot be unduly onerous,” he said.

“It’s also important to note that the provincial decision has already been made. I don’t think it’s open to anyone to revisit that. The conditions have already been set under the environmental assessment approval process and I don’t think it’s open under the existing statute for government to unilaterally amend those conditions.”

Leach said the prospect of an NDP victory is not welcomed news for proponents of the project.

“For the oil and gas sector on this side of the Rockies the defining issue in this election is continuity of provincial government support for completion of the Trans Mountain pipeline expansion project. The B.C. Liberals have made support for this project a key part of their platform, with their five conditions being sufficiently satisfied,” he said.

“On the other hand, the NDP leader said he would ‘use every tool in their tool kit’ to kill the project, which would have extremely negative implications not only for our industry and Alberta’s and Canada’s economy but also for investor confidence in Canada as a predictable, secure place to invest for the long term,” Leach added.

“Given the current very low levels of business investment in the Canadian economy, which is dragging down economic growth, as well as the federal government’s continued tinkering with the mandate of the NEB and scope of federal environmental assessments, an NDP push to delay or kill the Trans Mountain project would be unquestionably a bad news event that would reverberate well beyond the borders of British Columbia and Canada.”

LNG development

Right now the election is a cloud of uncertainty for LNG proponents, according to analysts with GMP FirstEnergy, because although the two parties have clear approaches to development, there isn’t a clear line of sight to who will win.

“It is unclear whether the Liberal or NDP parties will form the next government. If the Liberals are returned to power, we expect that there would be little change to existing policies and tax structure surrounding LNG, creating additional investment certainty for project proponents,” GMP FirstEnergy wrote in a research note issued on March. 29.

“If the governing party changes hands to the NDP, we think there is a very real possibility that the new government would look at re-evaluating the Liberal party’s policies surrounding environmental and tax issues for LNG, creating a new layer of uncertainty for such projects.

“If this outcome does take place, then we feel this will only push some, or all, of the pending projects in B.C. to cancellation or indefinite deferral well into the next decade.”

EPAC’s Leach noted that the NDP have announced their own “four conditions” before projects could go ahead, including a “fair return for our resources” and “full partnerships” with local indigenous groups.

“These campaign pledges offer little clarity for West Coast LNG projects that may be hanging in the balance, particularly at a time of global LNG over supply and the U.S. planning big export capacity expansions,” he said.

“An NDP victory would bring more uncertainty about whether governments in Canada really understand the competitive nature of global markets and whether our producers in the WCSB would find themselves missing the next window of opportunity to claim a share of the international LNG market.”

Since 2012, an estimated $20 billion has been invested in B.C.’s natural gas sector in new gas wells, pipelines and gas processing plants. While some of that investment has been driven by the Montney formation’s natural gas liquids — which have value irrespective of an LNG market — much of the investment has been to lay the foundation for LNG.

During the 2013 campaign the Liberals set a goal for three operational LNG facilities by 2020 and almost 100,000 jobs. Clark also campaigned on the LNG industry revenue being used to create a $100 billion so-called “Prosperity Fund” andthe industry accounting for $1 billion in economic growth within the next 30 years.

Clark, who has served as premier since March 2011, has been a strong advocate for advancing B.C.’s LNG industry, although progress has been slow despite it being one of her main election promises in the last provincial election held in 2013.

To date, only one small LNG project has moved forward with a final investment decision. In early November 2016, Woodfibre LNG said it will start building B.C.'s first liquefied natural gas processing and export terminal in 2017, a project that would grant Canada a long-awaited opportunity to enter the global market.

The facility near Squamish, north of Vancouver, will export 2.1 million tonnes a year once it is operational in 2020, according to a company statement.

However, Woodfibre is relatively small compared to other proposed LNG projects in the province.

Aside from Woodfibre, more than a dozen LNG projects have been proposed for B.C., but the global slump in energy prices has undermined their feasibility and delayed investment.

For example, in September 2016, the federal government approved a proposed C$36 billion, 12-million-tonne-a-year LNG project by PETRONAS. But the Malaysian state-owned oil company has yet to give the final go-ahead, and Canadian Aboriginal and environmental groups have filed lawsuits to stop it.

In its 2017 election platform, the Liberals said they will work with project proponents and upstream gas producers to “ensure that additional LNG developments are globally competitive for the next wave of LNG investment.”

Although the economic realities in the global LNG industry have worsened dramatically since 2013, Clark and the Liberals remain committed to ensuring the sector takes hold in the province. The party has a goal of three LNG plants moving to construction by 2020.

“Our proximity to Asian markets makes LNG a major opportunity that is already paying off. Our province has a supply that can sustain local and international markets for over 150 years,” the Liberal platform document said.

“Our LNG strategy is designed to provide the cleanest LNG possible for use around the world. And it’s working. To date, B.C. has one LNG plant in operation, one ready for construction, and 18 projects with LNG export permits ready to go when market conditions allow for these multi-billion dollar investments to be made.”

During a recent campaign stop in Kitimat, Clark reiterated her support on the LNG industry.

“By creating thousands of jobs in communities like Kitimat, and helping the world transition away from fuel sources like coal, B.C.’s growing LNG industry has a big role to play in our province, our country and the world,” she said. “Only today’s B.C. Liberals have a plan to get to yes on LNG projects, create jobs and secure a bright future for us all.”

Clark added that her government is “not giving up” up on growing the province’s LNG industry: “Quitters can’t be leaders. Yeah, market conditions have been tough for LNG, but we are going to get there.”

“If the Liberals are returned to power, we expect that there would be little change to existing policies and tax structure surrounding LNG, creating additional investment certainty for project proponents,” GMP FirstEnergy wrote in its research note.

The NDP has been generally supportive of LNG development, including the Woodfibre LNG plant. However, it has opposed PETRONAS’s Pacific NorthWest LNG project near Prince Rupert, due to the project’s impact on salmon habitat and impact on B.C.’s GHG emissions.

In its election platform, the NDP said Clark and the Liberals made their entire 2013 election campaign about LNG.

“Four years later, Christy Clark and the B.C. Liberals haven’t delivered a single major LNG project, and they allowed B.C. to be steamrolled in negotiations with big LNG companies,” the NDP said.

“No LNG plants, no LNG jobs, no revenue to pay down debt, and bad deals that last decades into the future: that’s the Christy Clark legacy on LNG. This despite Christy Clark’s insistence that several LNG plants would be up and running by now.

“The ground hasn’t been broken on one project. Even if a plant were to open, the desperate B.C. Liberals signed sweetheart deals with LNG proponents that leave British Columbians without any real benefits.”

To ensure B.C. benefits from LNG development, the NDP said it will require projects meet four conditions:
  • Projects must offer jobs and training for British Columbians, especially jobs for local people;
  • The people of B.C. must get a fair return for its resources;
  • Projects must secure full partnerships with local First Nations;
  • Projects must complete a made-in-B.C. environmental assessment, and achieve the highest environmental; standards while respecting commitments to combating climate change.
Horgan said a NDP government would eliminate Clark’s “bogus $500 million LNG fantasy fund,” saying the Liberal government “has not collected a single penny” from LNG.
“Instead, in 2016 she raised your fees and put that money into her LNG fantasy fund. We will give that money back,” he said.

“We will take the $500 million from the LNG fantasy fund and apply it directly to eliminating the tolls on the Port Mann bridge and Golden Ears bridge, as we work with mayors to find a fair and equitable solution for all regions over the long term.”

GMP FirstEnergy believes that if the governing party changes hands to the NDP, “we think there is a very real possibility that the new government would look at re-evaluating the Liberal party’s policies surrounding environmental and tax issues for LNG, creating a new layer of uncertainty for such projects.”

Stewart Muir, executive director for Resource Works, said the NDP’s climate policies, which include new greenhouse gas (GHG) reduction targets and carbon tax increases, could prevent a nascent LNG industry from developing.

“The LNG question is moot since the NDP also promises a 40 per cent GHG reduction target by 2030,” Muir said. “In other words, the carbon tax will have to rise by $10 each year starting in 2018 until it hits $160 in 2030. LNG is basically dead under that scenario.”


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