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BC Politicians' Gaseous Dreams

Both parties seem oblivious to the coming natural gas glut and its economic impact.

Rafe Mair 26 Nov

Rafe Mair writes a column for The Tyee every second Monday. Read his previous columns here. He is also a founding contributor to The Common Sense Canadian.

"Whom the gods wish to destroy, they first make mad" -- Unknown

"You make a very serious mistake believing that people in charge know what the hell they're doing" -- Mair's Axiom I

We in B.C. are on a ship of fools headed for a disabling recession, the likes of which we've never witnessed before.

Always in a helpful mood, I'm going to try and help Finance Minister Mike de Jong and Opposition Leader Adrian Dix understand elementary rules of economics from a man -- me -- who learned about such matters in university (Economics 200, 1951, failed).

The first thing you learn is that when you have a supply curve and a demand curve intersect, you have the price. Admittedly there are other factors that come into play, but that statement is the underlying rule about how prices are set -- although there are countless ways the law of supply and demand can be bent, not the least of which is government policy.

Let me outline for you the reality of our energy situation.

Let's us assume that one of B.C.'s economic mainstays is the manufacture, sale and export of widgets and that this is a major source of government income. Since other people can and do make widgets it would be very wise of the government to have a clear day-to-day picture of the worldwide widget market. Economists in the finance ministry would, or at least should, be able to give the government a pretty good briefing on this matter on short notice, for it provides a substantial income for provincial coffers. Indeed, the budget planning being an ongoing thing, not to have this information would be gross dereliction of duty. 

Let's look ahead to the budget of 2013 which we expect will come down next April, not long before the May election.

Mr. de Jong, I can only assume that you and your government are ashamed of the 2009 budget, brought in just before the election that May, which erred by more than $2 billion! And here's what worries me, minister: a budget is supposed to be a real and fair assessment of the province's income and outgo for the next fiscal year. This means -- forgive me for seeming to talk down to you, but in light of 2009 I feel I should bend over backwards to be fair -- that the income of the province and the expenses must be fairly forecast. This is not an easy thing to do and if there are any surprises beyond your ability to forecast, people will understand.

Now, before we get to the main matter here, your predecessor Colin Hansen not only grossly misstated the financial situation in 2009, he also stuck you, hence us, with the HST, which you have promised to fix in April 2013. By "fix" I take it to mean find the money to pay back Ottawa what they advanced on the strength of B.C. participating in the HST. Most sources think that the bill will be some $2 billion, unless Prime Minister Harper wants to gain some support in B.C. and thinks re-electing you will help him.

Now down to business.

The coming gas glut

One of the major sources of revenue over the past couple of decades has come from taxes and royalties on natural gas. Predicting those revenues has always been tricky because the market price varies (see discussion above).

Having said that, because sales were mostly domestic or to the U.S., governments have done fairly well in their predictions. 

Unfortunately, Minister de Jong, you and your government have not kept up to speed. It gives me no pleasure to inform you that the gas market has plummeted and is going to get much worse. 

Natural gas is a glut on the North American market, which is to say income from sales -- and taxes on that income -- are plummeting and will continue to do so. Indeed, as I will show, the glut will in due course spread to our other potential customers such as China.

How can we predict that prices will tumble and continue to do so?

Because of a new extraction process called hydraulic fracturing known as "fracking," where pipe is driven deep into the earth's crust, and with the help of enormous quantities of high pressure water laced with dangerous chemicals, the entrapped gas, always thought to be out of reach, becomes very reachable. But fracking doesn't just happen in B.C. -- it has caught on across North America and increasingly in other countries around the world. This means that there is, to use a scientific term, one hell of a lot more natural gas on the market so that B.C. no longer has the privilege of producing a rare commodity. 

Our traditional recipient of exported energy, the U.S., will soon be self sufficient in all oil and gas products. Soon there will be a large excess of gas in B.C. beyond our needs and those of our customers.

The ace in your hole is seen to be Asia generally and China especially. It may surprise you, minister, to learn that China is looking all over its vast area (territorially the third largest in the world) at fracking possibilities. Just recently, Shell announced that it will be investing at least $1 billion in a new Chinese fracking strategy. This will be in addition to China's own investment in shale gas development.

Only a damned fool (see Mair's Axiom I) would assume that they won't find loads of the stuff.

'Take or pay'?

Now what about contracts Canadian companies have or may have with Chinese companies? While they have so far failed to materialize, we're damned if they do and damned if they don't. If they don't, there goes a large trading possibility. If they do, will they have "take or pay" clauses? "Take or pay" clauses require the customer to either buy your product or pay you a penalty if they don't.

Minister, so far as I know, in our dealings with China there are no "take or pay" clauses of the kind you have given independent power producers in this province. Your idiotic government -- forgive the lapse in manners -- has forced BC Hydro enter into "take or pay" with private power companies. This eliminates "supply and demand" dynamics. Market forces no longer apply. Nor is there risk to the IPP companies, because BC Hydro must pay them a contract price no matter what the market price of electricity is.

And here is the really rotten part (Mair's Axiom I again). Even if "take or pay" clauses were in play, China with its own supply would walk away from those contracts in the twinkling of an eye if it no longer needed our gas.

LNG hallucinations

So what else do we have here?

B.C.'s government and opposition alike support liquefying natural gas and loading it aboard vessels bound for Asia, along with the pipelines and vast amounts of power needed to do so. The resulting LNG product, in the not too distant future, won't be able to be sold. Dare I repeat Mair's Axiom I?

Look for a moment at the environmental aspects of this plan. I would urge you to read Mark Hume's article in the Globe and Mail of Nov. 19 to acquaint oneself. We are to have oil (bitumen) and natural gas pipelines, which even if they never leak a litre will destroy our caribou herds for good. 

Listen as well to First Nations in the Fort Nelson area who raised alarm bells recently about applications for long-term water withdrawal licenses. If granted in order to facilitate fracking, they will allow the sucking of billions of litres of water a year out of their rivers, lakes and boreal muskeg, which, the First Nations fear, will in turn be permanently contaminated by fracking chemicals. Where does that water go? Deep underground never to be seen again? Permanently removed from the water cycle and ecosystem? Perhaps back into the water table thus poisoning man and beast? 

To put it plainly, minister, your government is sailing the boat over a Niagara type falls. Because I can't believe that you don't understand all this, I can only conclude that your object is to bluff your way, successfully, past the next election and hope that something turns up to help you once you're safely re-elected.

Now, Adrian Dix, over to you. You can't possibly want to help the B.C. Liberals win the next election, which must mean that you and your energy critic John Horgan -- and your entire caucus for that matter -- are damned fools.

Here you are supporting new LNG pipelines to service LNG plants literally without criticism and, this I can't believe, wanting to help the Liberals "manufacture" their next budget! 

If you actually do join the process, how are you going to be able to criticize it?

Perhaps this is all part of a warm fuzzy policy that will make the legislature look better to the folks at home. The fact is that the public wants change -- big time change, and good manners can wait.

Seriously, change

Lord Randolph Churchill (father of) once said, "It's the duty of the opposition to oppose." 

He wasn't calling for irresponsible haggling. He knew that the biggest problem for any lawmaker is the "unintended consequences" of legislation and that this can only be dealt with properly by an opposition that opposes and, by so doing, discovers the true consequences. 

I have publicly supported the NDP on the grounds that whatever else you might do, you would abruptly change this province's energy policies and save our environment.

Adrian Dix and John Horgan, for God's sake come to your senses. The future of our province is in your hands!

Your obvious problem is that you don't want to be seen as against everything. But if a policy is terrible, does that mean you don't oppose it? Or that you even support it, because you are opposed to other bad policy? 

The Liberals won't change, because their paymasters won't permit it.

If we can't depend upon you who hope to lead the next government, to save the province from physical and fiscal destruction, to whom can we turn?  [Tyee]

Read more: Energy, Politics, Environment

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