B.C. Premier Christy Clark brands gas ‘clean’ to spur exports
Revision of Clean Energy Act solves power problem for LNG developers
British Columbia Premier Christy Clark would be a formidable opponent in the word game Balderdash. The aim in Balderdash is to write out convincing definitions of words, then get opponents to believe them. If any players choose your definition as the correct one, even if it’s actually wrong or just made up, you score points.
That, more or less, is what Clark did on July 24. That’s when B.C. rejigged the province’s Clean Energy Act (CEA) and changed the definition of what sources of electricity constitute “green” energy in the province.
In playing her word game, Clark may score big with sponsors of an emerging liquefied natural gas (LNG) industry.
Her revision makes natural gas, once considered “dirty” in B.C., a clean fuel, provided it’s only burned to produce the huge amounts of electricity needed to power proposed new export terminals.
Specifically, Clark modified a section of the legislation that says 93 per cent of electricity produced in the province must come from “clean or renewable resources.”
The changes exempt electricity used to serve demand created by “facilities that liquefy natural gas for export by ship.”
The amendment removes a significant hurdle to building the energy-guzzling facilities in remote territory. Clark, who was unavailable despite repeated interview requests for this story, has described the legislative change as a critical component in her government’s B.C. Jobs Plan.
The Liberals predict the province’s budding LNG industry, if it comes to life, would add $600 billion to the province’s GDP over 30 years and produce 28,000 jobs between 2010 and 2035.
The provincial government concedes greenhouse gas (GHG) emissions created by any gas-fired generation used to power export terminals will make it difficult to meet its 2020 and 2050 reduction targets. But it’s a trade-off officials appear willing to make. “By exporting LNG, B.C. will be supplying growing markets with the world’s cleanest burning fossil fuel,” a government spokesman with the department of energy and mines says. “It will generally be used as a substitute for higher emission energy sources.”
When Clark first announced her intention to dicker with the Clean Energy Act, she told reporters, “My government is positioning liquefied natural gas as a cornerstone of British Columbia’s long-term economic success.”
But not everybody is convinced the amended policy is inherently good. “What saddens me is what the redefinition of clean and renewable means is that they are willing to play tricks with legislative language to create exemptions for this LNG strategy,” says University of British Columbia professor George Hoberg, who specializes in environmental and natural resource policy and governance.
Hoberg argues the Clark government’s ambitious LNG strategy is inconsistent with the province’s greenhouse gas reduction targets as set out in 2007. The province’s legally binding Green House Gas Emissions Target Reduction Act, calls for GHG emissions in the province to drop to 33 per cent below 2007 levels by 2020, and by 80 per cent in 2050.
Hoberg also says the government is grossly overestimating LNG’s long-term export market potential. “I just don’t see a market case or a carbon case for an LNG strategy at the level of ambition that the Clark government is talking about,” Hoberg says.
Warren Brazier, chair of the energy and natural resources group at Vancouver law firm Clark Wilson LLP, says Clark’s redefinition of natural gas as a clean fuel for LNG production will, in fact, spur greater development in the province’s natural gas sector. The move gives industry “a little more certainty,” he says.
There are still questions, however, about the efficacy of environmental permitting for any gas-fired generation plants needed for future LNG terminals, he notes. “You still have to go and permit a 1,200-megawatt gas plant,” he says. “It’s still a fossil fuel-emitting facility.”
That could spark lengthy environmental assessments, public hearings and public outcry. Indeed, B.C.’s history of permitting natural gas plants is not particularly comforting to the natural gas sector. In 2005, BC Hydro cancelled plans for the Duke Point gas-fired plant near Nanaimo after 10 years of study and a $120-million review.
That facility, according to the website B.C. Citizens for Green Energy, “would have spewed out 800,000 tonnes of greenhouse gases each year” and potentially caused a 25 per cent increase in the GHGs B.C. produces through electricity generation. “That’s equivalent to an extra 145,500 cars on the road,” the group said. Similar proposals were blocked in Cowichan, Duncan and Port Alberni.
There is speculation among environmentalists that B.C., following in the footsteps of the federal government, would expedite the environmental assessment process for industry, perhaps even – as it did with the CEA – tweak language and numbers in its Greenhouse Gas Emission Reductions Act to favor development. (The government told Alberta Oil no changes in emission targets are planned.)
Regardless, time is a luxury B.C. does not have when it comes to LNG, says Lance Mortlock, a partner in the Calgary office of advisory firm Ernst & Young. Globally, exports to the Pacific Rim are expected to increase from the current 120 million tonnes per year to 240 million tonnes per annum by 2020.
Mortlock says project proponents in Canada must move quickly to secure long-term export contracts with Asian customers and open LNG facilities in the next five years, or risk missing the boat.
Australia, he notes, is accelerating its LNG capacity at a “massive” rate. “They’ll have an export capacity of 39 million tonnes per annum by 2014,” Mortlock says. “And that will continue to increase possibly to above 91.5 million tonnes per annum by 2020. We need to hurry up because that window of opportunity is finite.”
Clark has her supporters. The Business Council of British Columbia (BCBC) applauds the legislative change. Even the provincial New Democrats, staunch opponents of Enbridge Inc.’s Northern Gateway pipeline, have bought into the government’s plan to spur an LNG industry.
Jock Finlayson, executive vice-president of the BCBC, says global competition underpins the rush to expedite construction of export terminals. “We don’t have time to sit back and dither on this for years as we typically do in Canada. We have to move ahead with some real speed,” he says.
Finlayson also calls the environmental and academic criticism against Clark – accusations that she’s poked a hole in the CEA – “unfair.” He says there is broad public and political support for Clark’s Jobs Plan and an LNG industry as a whole.
The GHG Act that is proving problematic for B.C.’s LNG export ambitions was created by the Liberal government under Clark’s predecessor, Gordon Campbell. Finlayson says the province “legislated excessively ambitious and very poorly thought out targets for reducing greenhouse gas emissions over a very short period of time, without really having done its homework.”
He suggests, as did others who spoke to Alberta Oil, that the current act’s days under the Clark government may be numbered. “The province will ultimately have to reconcile its economic goals with its environmental policies.”
That would be a mistake, says Kathryn Harrison, a professor of political science at the UBC. She co-authored an editorial in the Vancouver Sun last July in which she lambasted the Clark government’s assertion that exporting LNG would help mitigate global climate change, even as it increased GHG emissions in B.C.
“It doesn’t necessarily follow that increasing production of natural gas eventually substitutes for coal. It could substitute, as I would expect in Japan, for nuclear,” she wrote. “And if it does that, there is a net increase in greenhouse gas emissions, because we are moving from a non-fossil fuel to a fossil fuel.”
And, she adds, producing LNG is highly energy intensive, as is shipping it across the ocean. “I expect that if the economics continue to support development of these LNG export terminals, then the province will have to back off on its 2020 greenhouse gas emission target.”
Those economics could change rapidly. “Right now it seems attractive to build large gas plants, because it’s a two-dollar domestic price,” Brazier says. But when Australia began scrambling to develop its LNG export industry, he notes, the price of its natural gas, once as low as Canada’s, shot up to the equivalent of $9.
“Companies will suss out the risk, that’s what they do,” Finlayson counters. “You won’t be building an LNG industry that is selling at the spot price. You need long-term contracts that you have to lock in.”
The Canadian Association of Petroleum Producers (CAPP) forecasts that natural gas exploration, drilling and production will actually go down next year in B.C., because of the current low-price environment for natural gas in North America. That “does hammer home the importance of competing on that world market,” says Victoria-based Geoff Morrison, manager of CAPP’s B.C. operations.
“B.C. is still in the race,” he says. “From a global context, the demand for energy is going to be increasing significantly in the next 20 or 30 years and all sources of energy are going to be required to meet that demand.”
Evidently, some legislative changes will be required, too.
More posts by Anthony A. Davis
- How to appease activist investors, without losing your shirt
- Why the oil patch needs more mentors
- AIMCo's $380-million bet on Precision Drilling pays off
- CEO-board relationship key to good governance
- What sustainability rankings say, and don't, about oil and gas