The British Columbia legislature has just ratified a long-term agreement to lower royalties and taxes for a $38-billion liquefied natural gas project proposed by Malaysia's state-owned oil company, Petronas.
Pacific Northwest LNG, a consortium that includes Petronas and Chinese refining giant Sinopec, intends to build an export terminal on Lelu Island near Prince Rupert. The Lax Kw'alaams have opposed the project as a threat to salmon and the Skeena River.
The unprecedented agreement, which critics have characterized as a crass economic giveaway, guarantees Malaysia's state-owned company low royalties and low taxes for LNG over a historic 25 years.
Martyn Brown, former chief of staff to B.C. premier Gordon Campbell and a top strategic advisor to three provincial party leaders, has described the agreement as "environmentally reckless, fiscally foolhardy and socially irresponsible."
The deal effectively makes it difficult for future governments to set LNG-specific carbon taxes or to impose new environmental rules aimed at curbing greenhouse gas emissions. It locks in tax credits for 25 years. And it offers no job guarantees for British Columbians.
In addition to the terms of the agreement, politicians and citizens should now be asking nine critical questions about any LNG development in the province.
1. Have LNG projects become uneconomic?
Many LNG analysts now think the world is oversupplied with the product and that price volatility warrants project deferrals, especially for high-cost proposals in North America. Others reckon that capital for major projects is rapidly drying up. Carbon Tracker, a non-profit group of financial analysts concerned about climate change, just reported that investors will likely mothball tens of billions of dollars in LNG investment because "there is a finite amount of fossil fuels that can be burnt over the next few decades if we are to prevent dangerous levels of climate change."
The group explains that there is limited need to develop unconventional shale gas fields outside of the U.S. for several reasons. "Firstly this is due to these projects being in the marginal range of the cost curves. This means they need higher prices to be justified, and also that there is Russian gas that is cheaper to supply. Secondly environmental questions remain, including the significance of fugitive emissions which needs resolving for all gas." Bad economics, say critics, explain the rush to ratify the tax giveaways and subsidies in the Petronas agreement.
2. Are Petronas and its LNG partners transparent companies?
The Malaysian government has treated the state-owned oil company like a cash cow ever since it was formed in 1974. To this day, its management structure is uniquely un-Canadian. It does not report to Parliament but only to the prime minister.
A 2013 report by the Malaysian-based Research for Social Advancement reported "The fact that Petronas reports directly to the prime minister and Parliament has absolutely no oversight of Petronas, not even to review its operations and financial accounts, was identified by several as a critical weakness in the system that is a huge challenge to transparency and accountability in the Malaysian [oil and gas] industry."
Sinopec, one of China's largest state-owned firms, has a 15 per cent interest in the Pacific Northwest LNG project. Over the years, it has been the subject of numerous corruption investigations.
3. Does LNG mean more land fragmentation?
Shale gas roads, pipelines and wells have cut up farm and treaty land across North America into fragments. Well pads alone can require anywhere from three to nine acres of cleared forest land, but the biggest culprit of fragmentation now appears to be gathering lines that take natural gas to major pipelines. These lines can cause 19 acres of lost land per well pad.
The United States Geological Survey has concluded that the shale gas industry can substantially change agricultural and forest land over time and convert it to "natural gas extraction disturbance." The government of British Columbia has yet to conduct cumulative impact studies on shale gas or how LNG proposals will fragment the northern interior of B.C. with drilling pads and pipelines.
4. Will LNG spell the extinction of woodland caribou?
To fill LNG terminals, the shale gas industry will shred caribou habitat with roads, wells, pipelines and seismic lines. Because shale gas disturbance gives wolves more and better opportunities to hunt caribou, the government has begun a wolf-killing project instead of a habitat protection program to slow down the extinction of caribou. Yet a 2015 study titled "Witnessing Extinction" offered this blunt conclusion: "At current rates of habitat loss and population decline, these caribou, a significant component of Canada's biodiversity, are unlikely to persist."
5. Does LNG mean the diminishment of treaty rights?
The Fort Nelson First Nation, Prophet River First Nation and West Moberly First Nations contend that the Project Development Agreement that the B.C. government signed with Petronas (and that guarantees low royalty rates for the state owned company for 25 years) threatens their constitutionally protected rights. That's because the project will require more Treaty 8 land to be drilled and fracked to support the LNG project.
"If that facility is built, it will cause significant and irreparable harm to the ability of Treaty 8 First Nations to practice their treaty rights," says a recent news release from Treaty 8 First Nations. "The trillions of cubic feet of natural gas used to supply Pacific Northwest LNG will be extracted by Progress Energy Canada Ltd. from the Montney gas play in northeast B.C. and Treaty 8 territory. That area is already suffering extreme and unsustainable cumulative impacts from existing oil-and-gas and other industrial development."
In addition, the Lax Kw'alaams claim title to the coastal land where Petronas wants to build the LNG terminal, and view the current project as a salmon killer.
6. Will LNG accelerate ocean acidification and climate instability?
Natural gas is only cleaner than coal if the industry's pipelines, wells and fields leak less than 3.2 per cent. But several studies now suggest that methane leakage from shale gas fields typically exceeds 3.2 per cent and can range as high as nine per cent. (Methane is a much more potent global warmer than carbon dioxide.) A 2015 study on methane emissions from the largest shale gas field in the U.S., the Barnett, found methane leakage 50 per cent higher than government estimates. A similar study found that methane leaks from shale gas on U.S. and tribal land were extensive enough to make the drilling almost as carbon-intensive as coal.
7. Does LNG mean more jobs for British Columbians?
Like oil and gas activities, LNG is a capital-intensive industry that creates mainly short-term jobs during its construction phase. As a consequence, LNG's direct contribution to job creation is limited and often amounts to less than 0.5 per cent of formal sector jobs, according to the Oxford Institute for Energy Studies. The LNG industry builds components for its complex plants with cheap Asian labour and then reassembles those modules on foreign soil. It also depends heavily on foreign temporary workers.
The Oxford Institute for Energy Studies concluded in 2014 that a massive LNG project in Mozambique would deliver little more than "inclusive growth, in which a dramatic surge in investment provides limited job creation and economic opportunities, leaving residents to feel little but the price impact and Dutch disease pressures associated with the boom, especially at the local level."
8. Will LNG consume vast amounts of fresh water in northeastern BC?
Hydraulic fracturing is a water intensive technology that heavily draws upon surface and groundwater resources. But B.C. currently beats all global records in terms of water consumption. An average horizontal well in northeast B.C.'s Horn River basin requires 25.6 million gallons a well (the highest in the U.S. requires nine million gallons). An average well in the Montney Formation, which stretches from northeast B.C. to northwest Alberta, gobbles up to 3.5 million gallons or the equivalent of five Olympic-sized swimming pools. In addition, the industry injects more than five million cubic metres (40 million barrels) of wastewater a year into 104 disposal wells throughout B.C.
Water demands appear to steadily increase overtime. From 2000 to 2014, median annual water volume estimates for hydraulic fracturing in horizontal wells in the U.S. increased from about 177,000 gallons per oil and gas well to more than 5.1 million gallons per gas well. LNG projects could increase the number of wells, as well as water demands.
9. Does LNG mean more earthquakes in northeastern BC?
Since 2006 the shale gas industry has triggered more than a thousand earthquakes in northeastern B.C., ranging in magnitude from 1.0 to 4.3. Fluid injection in the form of hydraulic fracturing and wastewater disposal has activated faults and caused more than 20 "felt" quakes on the surface. To date, scientists do not know how these industry-made quakes will affect groundwater or release migrating gases such as methane and radon from the earth. An LNG industry would likely trigger more earthquakes by accelerating the drilling and fracking of thousands of wells, as well as hundreds of wastewater disposal wells in the region.