Why Petronas’ LNG cancellation is a blessing for B.C.

British Columbians should not be lamenting Petronas’ decision to pull its Pacific Northwest Liquified Natural Gas proposal. Instead, they should be celebrating the demise of a project built on bad economics, climate change denial and wishful thinking.

A few pundits have told the Petronas story as a tragedy. Some are blaming the new NDP government, others their B.C. Liberal predecessors for not moving faster to land a deal.

The real culprit is the abysmal economics of LNG — the need for expensive new pipelines and terminals and the high costs to liquefy gas and transport it across the Pacific. These investments would only make sense if prices were way higher than they currently are.

Optimistic predictions for LNG were made based on abnormally high prices from 2011 to 2014. It is very unlikely that gas prices will return to those highs as global LNG export capacity is poised to grow by a third by 2020.

So what if B.C. had managed to stake out some LNG turf? Let’s turn to Australia, where success turned into a political crisis earlier this year.

In April, Australian Prime Minister Malcolm Turnbull announced the government would begin imposing restrictions on LNG exporters.

Moreover, major new conflicts have emerged in Australia between the gas industry, now aiming to supply huge export volumes, and farmers whose land would have to be fracked to access the gas.

As the Australian government tilted its tax and royalty regime toward encouraging new LNG investment, the return to the Treasury — for the development of the publicly owned gas resource — has been meager. A recent report from Australia’s McKell Institute found “the industry will need to record at least $238 billion in profits before a cent in royalties is paid to the Australian people.”

The Australian government ordered a comprehensive review of the tax and royalty regime in late 2016, however, there are doubts for meaningful changes.

This is what “competitiveness” looks like. Ultimately, such deals shortchange the public and represent a transfer of risk from the private to the public sector.

What about jobs? The Australian experience shows the vast majority of jobs occur in the construction stage and completed facilities employ few permanent workers.

Gladstone, Queensland has seen boom and bust due to a temporary surge of workers to build three LNG plants in the area. In this city of 60,000 people, there were 14,500 construction jobs for a few years and now only 500 permanent jobs in the completed LNG terminals. During the boom, housing became unaffordable for locals, and seniors and professionals were forced to move away.

It is understandable that economically challenged regions of BC would want high-paying LNG jobs, but the reality is there are few to go around.

Finally, it’s worth recalling that the world is trying to get its climate change act together by transitioning away from fossil fuels. Thanks to new LNG capacity, Australian greenhouse gas emissions are on the rise and the country will miss its 2020 emissions target by a large margin.

The B.C. government spent millions in public funds and built up the hopes of workers and rural communities on an LNG dream. It wasted political capital, time and money on LNG instead of developing renewables and investing in energy efficiency and climate-friendly infrastructure.

Natural gas is a finite resource. British Columbians should be thankful that government efforts to quickly liquidate it for export have come to naught. Forget the laments: Petronas’ decision to pull out of B.C. is a blessing.

Marc Lee is a senior economist at the Canadian Centre for Policy Alternatives, B.C. office.

[Top photo: Flora Bank, off of Lelu Island, where the $12-billion Pacific Northwest LNG project was proposed to be built.]