Taxpayers on hook for more than $100M to connect LNG Canada to BC Hydro

LNG Canada is slated to pay less than a third of the millions of dollars it will cost to connect to BC Hydro’s clean electricity grid instead of burning gas to fuel its operations. 

The first phase of the massive export facility in Kitimat started up in June, launching BC’s bid to access global markets for the fossil fuel, particularly Asia.

BC Hydro has already invested $82 million to meet the project’s initial power demands — with LNG Canada chipping in $24 million, or 29 per cent of the total cost, for needed upgrades to the nearby Minette substation and construction of a 287-kilovolt transmission line to the plant.

The publicly owned utility has budgeted a further $72 million (with $4 million already spent at the end of last year) — with the project owners, LNG Canada, slated to contribute $20 million — for another transmission line and substation boost to meet electrical demand for LNG Canada Phase 2, according to BC Hydro’s three-year service plan. The new electrical connections are expected to be in service by 2027, the plan notes. 

LNG Canada, like other proposed coastal export projects in the works, wants to hook up to the province’s electrical grid to reduce the volume of their carbon pollution instead of powering the bulk of their operations with gas turbines. 

However, subsidies to connect LNG projects to the grid are small potatoes in the context of overall provincial and federal support for the electrification for the fossil fuel sector, said Marc Lee, senior economist at the Canadian Centre for Policy Alternatives (CCPA). 

The province and federal government continue to offer the sector massive electrical subsidies that go beyond “just stringing up LNG Canada to the grid’s backbone,” Lee said. 

BC Hydro is undertaking a massive infrastructure expansion, including spending $4.7 billion in public funds in Northern BC over the next 10 years — for the build-out of new transmission infrastructure and power generation to meet the scale of demand needed to clean up carbon pollution from the natural gas industry, LNG plants and mining, and to provide ports with clean energy. The largest investment is the North Coast Transmission Line from Prince George to Terrace, expected to be complete by 2032. 

“The whole purpose of that line is to electrify LNG,” Lee said, noting the transmission line will also feed the Indigenous-led Cedar LNG project, also in Kitimat, and the massive Ksi Lisims facility to be located further north if it obtains final investment approval.

Premier David Eby said as many as 11 mines in northwestern BC would also be powered by the new line while speaking recently at NYC Climate Week.

The capital costs for new power generation and transmission needs will be recouped through higher rates charged to other industrial customers, smaller businesses and residential consumers, Lee said. 

BC Hydro rates went up in April by 3.75 per cent and will rise by the same amount again after a year. It won’t end there, Lee cautioned, as neither the full cost of the new Site C dam project nor the upcoming capital projects are covered by the current rate increases.

The former BC Liberal government required LNG projects to fully fund hook ups to the grid and pay higher electrical rates to cover new generation or transmission costs, but the NDP changed the policy. 

 “[Liberal] policy was basically that development had to pay for itself,” Lee said. 

As some warn is the case with the NDP now, the Liberals’ early expectation of riches from the LNG sector were overblown, and in the decades since investors have largely failed to materialize and numerous projects were abandoned. 

“LNG was going to create a trillion dollars of economic growth and $100 billion of government revenue, and the streets would be paved with gold,” Lee said. 

“Flash forward 10 to 15 years later and now it’s, ‘how many subsidies can we throw at this?’” 

A recent $200 million subsidy for Cedar LNG to electrify and hook up to the grid from the BC government was criticized by climate groups as a handout and a dubious investment. The province and federal government are betting heavily on the industry despite numerous forecasts predicting ongoing poor prices, a gas glut and declining global demand, critics suggest.

Subsidies from both levels of government aren’t limited to “enabling infrastructure” like electrical grids and pipelines for the LNG sector. They include direct funding, project financing, favourable tax measures, reduced electrical rates and carbon tax exemptions. There’s no public account tallying all the benefits, but conservative estimates in a recent study suggest BC and Ottawa are on track to provide close to $4 billion in support to the LNG sector by 2030. 

Neither BC Hydro nor the Ministry of Energy and Climate Solutions, led by Adrian Dix, responded to questions on the electrical subsidies to the industry, or how much LNG projects were expected to contribute to their electrification costs and infrastructure. 

But the energy ministry disputed the characterization of the hookup fees as a subsidy. LNG projects pay the same electrical rates and amount for transmission upgrades as other industrial customers, the ministry said in an email.

LNG Canada’s Phase 2 connection project will move forward if LNG Canada makes a positive final investment decision, BC Hydro said in an email.  

Yet LNG Canada’s owners, Shell, Mitsubishi, the Korea Gas Corporation, Petronas and PetroChina, have had the necessary environmental permit — which doesn't oblige the project to electrify — for a decade. Five newer LNG projects at various stages of development are expected to electrify in an effort to be “net-zero” if or when the BC Hydro infrastructure is available. 

The BC and federal government are trying to incentivize LNG Canada to proceed with Phase 2 through the various subsidies, as they did for the first phase of the project. 

A decade ago, LNG Canada estimated the project would generate four megatonnes, or four million metric tonnes, of planet-heating greenhouse gas emissions annually for 25 years once fully built. The yearly output of the project’s anticipated carbon pollution is about six per cent of the province’s emissions in 2022. The project estimates don’t include the much greater emissions generated upstream during the production of natural gas, nor downstream when burned after arriving in other countries. 

Public money would be better spent decarbonizing other areas of the economy rather than assisting the profitable oil and gas sector responsible for accelerating the climate crisis, Lee said. 

BC has been “having it both ways for too long” — touting climate policy and emissions reductions while also expanding the export of fossil fuels, he added. 

“This is where the contradictions bump into each other. It ends up costing us one way or the other,” Lee said. 

“We either blow our [climate] targets, or we pay more out of pocket to keep emissions from the industry in line.”

[Top photo: BC Energy Minister Adrian Dix and Premier David Eby during a visit to celebrate LNG Canada, which is having its electrification costs to reduce carbon pollution subsidized by the province and BC Hydro. BC Government photo / Flickr]