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    LNG too risky, despite generous subsidies


    Russ Francis

    While political leaders exude enthusiasm, some large firms involved seem to be looking for the exits.

     

    TO HEAR OUR POLITICAL LEADERS TELL IT, liquefied natural gas (LNG) is the solution to all that ails us. For instance, in December 2019 federal Finance Minister Bill Morneau called Canadian LNG a “very positive opportunity.” Premier John Horgan promises $23 billion in new government revenue from the LNG Canada project, where construction is underway on the shores of Douglas Channel, south of Kitimat.

    Several other LNG projects are in the wings. By far the largest of these is Kitimat LNG, projected for Bish Cove, also on the Douglas Channel, not far from the LNG Canada site. Continuing the tradition of zero Canadian content, Kitimat LNG is a partnership between wholly-owned subsidiaries of California-based Chevron and Australia’s Woodside Energy. The plant would be supplied with fracked fossil gas via the proposed 471-kilometre Pacific Trail Pipeline. While there has yet to be a final go-ahead, things have been churning along.

     

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    Artist's rendering of proposed Kitimat Lng facility that would be located at Bish Cove. (Image by Chevron)

     

    The BC Oil and Gas Commission has issued Kitimat LNG 26 permits for roads, water and site use. The plant site is on Haisla Nation Reserve Land, and Kitimat LNG has signed a benefits agreement with the Haisla Nation. It also has an agreement with 16 First Nations along the route of the pipeline, via the First Nations Limited Partnership (though the Unist’ot’en are still protesting it running through their territory). Construction is due to start in 2022/23.

    Kitimat LNG’s ambitions are growing. On April 1, 2019, it asked the National Energy Board to approve boosting production from the originally planned 10 million tonnes per annum (MTPA) of LNG to 18 MTPA, and to double the term of its export licence from 20 years to 40, starting when the plant expects to begin operations in 2029. In a December 4, 2019 letter, the National Energy Regulator (which has superseded the National Energy Board) granted the increases. This would make Kitimat LNG nearly as big a player as LNG Canada, which plans on exporting 14 MTPA to start, expected to double to 28 MTPA.

    Despite the project’s apparent progress, both partners now appear to have cold feet. Woodside Chief Executive Officer Peter Coleman announced he wanted to reduce the company’s 50 percent stake in Kitimat LNG “from a capital management and risk management point of view,” according to a September 11, 2019 report in LNG World News. That’s corporate-speak for: “This costs too much and is too risky.”

    The other partner is Chevron, one of the world’s largest fossil fuel companies, with 2018 sales of $159 billion US. Less than a week after the National Energy Regulator approval, Chevron announced that it, too, wants out of Kitimat LNG. And—unlike Woodside—it is hoping to unload its entire 50 percent holding. Why? Said Chevron Chief Executive Officer Michael Wirth in a December 10, 2019 statement: “We are positioning Chevron to win in any environment by ratably investing in the highest return, lowest risk projects in our portfolio.”

    So now both owners of Kitimat LNG believe it is too expensive and too risky compared with other projects. Not helping prospects is the fact that Chevron had previously committed to not only build, but also operate the Bish Cove facility.

     

    THE PENDING DEPARTURES of these corporate players are in spite of the BC government’s giveaways to the liquefied fossil fuel companies, including tax cuts and reduced hydro rates. And let’s not forget the royalty credits, which provide huge discounts to the payments that companies make for taking Crown-owned oil and gas.

    For reasons unknown, until now there has been no way to discover which companies get how much in credits. Even a recent report from the International Institute for Sustainable Development (IISD) could only provide totals—$830 million for all fossil fuel production in 2017-18, with “at least CAD 2.6 billion to 3.1 billion in outstanding royalty credits from fossil fuel producers…[E]ach year, fossil fuel producers claim millions of dollars in credits to reduce the amounts of royalties they pay…These billions in outstanding credits is money that fossil fuel producers will not have to pay in future years and that BC’s citizens will not see put toward social services.”

    The IISD report, Locked In and Losing Out, says such subsidies are undermining BC’s efforts on climate change. Besides phasing out fossil fuels, it recommends “BC should publicly release all data related to government spending on fossil fuel subsidies each year since currently very little data is available.”

    Thanks to a two-year battle by Ben Parfitt, resource policy analyst with the Canadian Centre for Policy Alternatives, we now have at least some of that information. After the government rejected his Freedom of Information requests for the data, he filed a number of requests for review with the Office of the Information and Privacy Commissioner, ultimately succeeding. Commenting on the government’s initial refusals, Parfitt said: “To refuse to release information on oil and gas royalty credits is troubling.”

    Having finally received the deep-well credit royalty data, Parfitt shared it with Focus. These credits earned Woodside Energy and Chevron $3.2 million in the 2016 to 2018 period. The amount handed to all companies in that period totalled $2.1 billion. And while Parfitt was successful in obtaining the data on royalty credits, in December, 2019 he was still trying to learn the amounts that fracked-gas producers actually did pay after the credits were deducted. The government’s usual practice is to publish details of all financial spending and revenue. Royalty credits, like other tax credits, are a type of public spending, known as “tax expenditures.”

    The data Parfitt obtained shows that when it comes to royalty credits, LNG Canada has handily outdone its would-be competitor down the channel. From 2016 to 2018, the consortium’s five partners and their wholly-owned subsidiaries collected $266.5 million from taxpayers in deep-well royalty credits. A further $167.3 million was shared by Encana, Cutbank Dawson Gas Resources Ltd—wholly owned by LNG Canada partner Mitsubishi—and other unspecified companies. Then there are two infrastructure royalty credit programs, which earned LNG Canada partners Petronas and Shell (and their subsidiaries) more credits worth $23.9 million in 2016- 2018. Plus a further $27.5 million to Mitsubishi’s partly-owned Cutbank.

    A further handout to entice liquefied, fracked gas comes in the form of carbon tax rebates.

    A November 7, 2019 cabinet order brings LNG under the government’s CleanBC industrial incentive program. It ensures that producers of LNG will likely never pay more than $30 per tonne in carbon tax, which, for the rest of us, is now at $40 and due to stop increasing at $50 in 2021.

    Sonia Furstenau, the BC Green house leader, said in an interview that this is an abuse of the industrial incentive program, which was meant to help large, established GHG polluters reduce their emissions. “It was never intended to provide incentives to new fossil fuel industries,” she said. “It’s Orwellian to apply it in this way.”

     

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    BC Green Party House Leader Sonia Furstenau

     

    During the last Question Period before the legislature rose on November 28, a determined Furstenau wanted details of the refunds. In response, Minister of Environment and Climate Change George Heyman confirmed that all present and future qualifying LNG players are eligible for the program, in perpetuity.

    What is the cost of this additional subsidy? To use government figures, once LNG Canada is up and running with all four trains (production units), the facility alone will emit 4.2 megatonnes (Mt) of GHGs each year. By that time, with the carbon tax at $50 per tonne, LNG Canada’s rebates will cost taxpayers 4.2 million x ($50 minus $30) = $84 million annually. Even $50 is far too low, according to a November 27, 2019 report from Canada’s Ecofiscal Commission. Rather, it needs to be at least $210 if we are to meet the 2030 Paris targets. At $210, BC’s carbon tax refunds to LNG Canada would amount to $180 per tonne, for a total of $756 million annually. Even that is peanuts to the company, but it’s on top of the growing list of other subsidies.

    The carbon tax refund program is subject to several conditions, including the facilities in question meeting emissions “benchmarks,” according to a detailed response to questions asked of the Environment and Climate Change Strategy Ministry. If it’s any comfort to taxpayers, the rebate program ends if the world carbon tax ever reaches the BC price.

    As of Focus’s deadline, there were no takers to buy Chevron and Woodside out of Kitimat LNG. What about the Province? That’s not likely, as BC’s finances are no longer in such great shape. On September 27, 2019 Finance Minister Carole James called on the public service to cut $300 million, and the Insurance Corporation of BC may stick us with an additional $400 million charge in the 2019/20 fiscal year.

    Why not ask the feds? After all, in 2018 they coughed up $4.4 billion for Kinder Morgan, netting Kinder Morgan Canada—which is approximately 70 percent owned by Texas-based Kinder Morgan—a $2.7 billion profit. A Canadian government purchase of Kitimat LNG might even soothe some of Alberta’s hostility towards the rest of us. What’s to lose—besides the end of life as we know it?

    Russ Francis taught sessions for more than a decade at UVic’s Environmental Law Centre.

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