An artistic rendering of Pacific NorthWest LNG proposed liquefied natural gas export terminal on Lelu Island, near Prince Rupert, B.C.
Remember when liquefied natural gas (LNG) was about to pave the path to a new golden era of unprecedented prosperity for British Columbians and their government?
You should. It was only a few years ago.
In 2013, when the B.C. government under then-premier Christy Clark announced plans to establish a sovereign wealth fund to reap the benefits from taxes and royalties flowing from the LNG industry, the province was talking about up to $260-billion in LNG-related revenues flowing into government coffers over 30 years, based on having five LNG plants up and running by 2020.
It envisioned a nest egg of more than $100-billion in the British Columbia Prosperity Fund. There was talk of a debt-free province with oodles of funds available to share the LNG windfall among British Columbians for generations.
But four years later, there still isn't a single new LNG project under construction. As of Monday, the project that had looked like the best hope to launch B.C.'s LNG revolution – the proposed Pacific NorthWest LNG operation near Prince Rupert, led by Malaysian energy giant Petronas – is dead.
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The company is blaming weak LNG markets for its decision to kill the $11-billion project, insisting it had nothing to do with the new NDP government taking power in British Columbia. Nevertheless, there's no question that the change in government has altered the political climate for the emergence of a large-scale LNG export industry in the province.
Ms. Clark's Liberal government had made LNG the cornerstone of its long-term economic and fiscal strategy. Even after five years of struggles to get the industry off the ground, LNG was still a key plank in the Liberals' economic platform in last spring's election, with the party still targeting at least three LNG plants in operation by 2020.
But now, with the NDP in power and the Green Party lending its support to keep it there, LNG's status as an economic priority is deeply in doubt. The Greens are openly hostile toward LNG development; the NDP is, at best, lukewarm to the industry. It's hard to envision this government championing LNG development the way the Clark government did.
With Petronas pulling the plug on Pacific NorthWest, the economic viability of a large-scale LNG export industry is now in question, too. Prospective operators are facing project costs in the billions and global LNG prices that are less than half what they were in 2013. They face regulatory hurdles, environmental and First Nations opposition, and a suddenly indifferent political climate. While B.C.'s LNG industry has sat on the launch pad, the world's LNG capacity has grown about 30 per cent over the past five years. B.C.'s industry is still years away from arriving at what is already a very crowded party whose heyday may have long passed.
So much for the dream of an LNG financial bonanza for B.C., its own version of the Alberta oil sands. It may still happen, someday. But for the purposes of economic and fiscal strategy, the province best move on.
But move on to what, exactly?
The NDP's economic platform contains relatively non-specific pledges to promote sustainable growth, green industries and the technology sector. It wants to spend more on infrastructure, education and training. But there's nothing there, at least in concrete form, that replaces building a world-class LNG export industry from scratch. To B.C.'s credit, it does have a relatively healthy and diversified economy – even without a large-scale LNG industry. The province led the country in real GDP growth and job growth over the past two years, and should be near the top of the provincial tables again this year.
But the province has been leaning pretty heavily on its booming housing sector to deliver that growth. About one-third of B.C.'s economic growth last year came from residential construction and real estate services. The sector can't possibly keep up the pace it has delivered in recent years and, indeed, it has already been slowing. With the housing sector having become such a relied-upon source of economic growth and, by extension, government revenue in recent years, a prolonged slowdown would be a problem for the new government, without something to step into the void.
What might take over as the driver for B.C.'s next phase of growth is exports. Global trade is finally showing signs of picking up in the long wake of the Great Recession. And while the new government's initial export focus has been to the south – namely, to defend the interests of B.C.'s forest industry in the U.S. softwood-lumber dispute – it shouldn't lose sight of the great growth opportunities that lie to the east. Asia is still the fastest-growing source of global demand and, thanks to geography, B.C. is uniquely situated to take advantage.
Despite a moderation in China's expansion pace, its economy is still growing at better than 6.5 per cent a year; the International Monetary Fund projects growth for emerging and developing Asia of about 6.3 per cent annually for the next five years – only marginally slower than it has been over the past five years.
The province's future success and hence its most hopeful economic growth strategy might still lie in tapping the markets across the Pacific. Even if LNG exports are no longer so central to that strategy.