Christy’s Folly: Betting the Farm on LNG

With the development of natural-gas fields in B.C.’s northeast, the province has suddenly become an energy powerhouse, and recent budget projections paint a rosy picture of a robust economy fuelled by LNG exports. If it all sounds too good to be true, well, it just might be.

Premier Christy Clark’s decision to embrace LNG exports as the province’s economic salvation has a very shaky foundation. This multi-billion dollar, capital-intensive industry indeed has the potential to fill Victoria’s coffers over the next few decades, but it also has the potential to be a complete bust.

The high hopes are understandable. B.C. now has a viable and growing natural gas industry with ever-increasing annual production and natural gas reserves that are looking Alberta-like. With the U.S. also developing lots of natural gas fields, there’s a supply glut, and North America prices are in the dumpster. LNG represents an opportunity for B.C. to find Asian export markets that will pay a much higher price.

But there are at least a couple of major obstacles.

First, because B.C.’s gas production comes mostly from shale gas, it’s more a product of technology than geology, the result of improved horizontal drilling and hydraulic fracturing techniques. This shale gas revolution has happened not just in North America, but all over the world, and B.C.’s bid to become an LNG exporter is late in the game. What happens to the economics of selling B.C. LNG (or any LNG, for that matter) into markets that are increasingly producing their own shale gas for a lot less money?

The second obstacle to the rosy projections of an LNG-fuelled economic boom in B.C. is summed up in Drill, Baby, Drill, a new report from Geologist David Hughes, who challenges the oil patch mantra that shale gas production will keep growing and have a very long run. He argues that the decline in production from shale gas fields is very steep, and that meeting current projections in the U.S. would require investments of about $42 billion a year to drill more than 7,000 wells. If Hughes’s conclusions are correct, B.C. shale fields would likely face similar issues. What happens to B.C.’s LNG exports if the supply isn’t quite as robust as expected and the costs of gas production climb steeply?

If oil and gas companies think LNG is worth the gamble, by all means let them push ahead and spend their money. But is it wise for a provincial government to make it the centerpiece of public energy policy?  Would it make more sense, for example, to stimulate the growth of a large domestic use of the gas? Here are a few possibilities:

• Start converting the province’s automobile fleet to use natural gas. Westport Innovations is a successful homegrown company that does this for trucks, buses and other commercial fleets.

• Convert the ferry fleet to run on natural gas – not just in new ships, but for the existing fleet.

• Explore the feasibility of enticing the gas-to-liquids (GTL) business here. This is a process that converts (cheap) natural gas to zero-sulphur diesel. Sasol Ltd. of South Africa is studying this now with the possibility of a plant in Alberta. Why not B.C.?

• Maybe generate electricity with natural gas rather than build Site C.

The point is, there are a lot of things that public policy could stimulate that would not rely on the vagaries of global energy markets. And if they don’t all pan out, the impact would not be quite as serious. LNG is a one-shot, all the eggs in one basket approach: wonderful if it works, devastating if it doesn’t.


Don Whiteley is a North Vancouver writer who specializes in natural resources.