Time for BC journalists to ask energy economists why Petronas cancelled Pacific NorthWest LNG?

Pacific NorthWest LNG

BC Premier John Horgan has said publicly that he supports building a West Coast LNG industry.

BC media habitually reports on energy news stories without interviewing energy economists, Pacific NorthWest LNG just latest example

Are John Horgan and the BC NDP responsible for Petronas’ decision to cancel the $27 billion Pacific NorthWest LNG project? One would certainly think so after reading the bilious commentary since the Malaysian company made its decision Tuesday. The missing piece in all that punditry? Energy economists. Who, as it turns out, have a perfectly rational explanation for the Malaysian company’s decision.

Pacific NorthWest LNGUnfortunately, energy economists are not the BC media way. Morten Paulsen is the communications director for the School of Public Policy at the University of Calgary, the leading collection of energy economists in Canada.

“Calls from Vancouver media are, frankly, exceedingly rare,” he said in an interview. “When we go to Vancouver to present at a symposium, or to present a piece of research, we get good turnouts from the Vancouver press. But our experience is that they don’t turn to us proactively for expert comment on energy stories.”

They should have for the Petronas story because they got it wrong.

I’m going to start with widely read Postmedia columnist Vaughn Palmer because he was courteous enough to reply to my email asking for comment.

“Low commodity prices. Rival jurisdictions beating B.C. to the punch in developing liquefied natural gas for export. The glacial pace of project approvals here in Canada. All were factors in the decision,” the veteran newsman wrote Tuesday in the Vancouver Sun about newly minted NDP energy minister Michelle Mungall’s comments on the topic.

“Still, it was difficult to reconcile the energy minister’s response with what New Democrats had been saying in opposing the Pacific NorthWest LNG project every way they could.”

Then Palmer noted the mandate letter from Horgan instructing Energy Minister George Heyman to work with finance to expand the BC carbon tax by $5 a tonne in 2018 and apply it to “fugitive methane emissions,” a contentious issue in the natural gas industry. “So Petronas balked at the current carbon tax and regulatory regime,” Palmer concluded.

Pacific NorthWest LNG

Vaughn Palmer, Postmedia columnist. Photo: National Speakers Bureau.

There is no evidence Petronas did any such thing. The company “balked” at the market issues Palmer himself notes, low prices and a glut of LNG created by the rapid emergence of the USA as a major exporter.

“The competition is not just worldwide, but the competition is in the United States and the Gulf Coast. The have huge supply coming from shale natural gas and they have built export facilities by turning around plants that were intended to import LNG,” energy economist Michal C. Moore told me in an interview for a North American Energy News story.

“And the Americans now have a wider Panama Canal and much larger ships to be able to ship with. So that’s a hard space for Canada to break into. It’s hard to compete in that market and it’s harder to catch up once you’re behind.”

UBC economist Marvin Shaffer noted in an interview that a recent National Energy Board report confirmed what many had been saying for some time, that market conditions plus growth of supply from existing sources greatly limited the opportunity for large new LNG plants in British Columbia.

“It would have been far more surprising had they said they were going forward at this time,” he said, dismissing the idea that the NDP government played a role in Petronas’ decision.

Pacific NorthWest LNG

Andrew Leach, economist, University of Alberta. Photo: University of Alberta.

But the coup de grace on the Palmer column was applied by Prof. Andrew Leach of the University of Alberta in a Saturday Macleans blog post that meticulously destroyed the argument that government policy or the prospect of four years of the BC NDP – unlikely anyway, since minority governments rarely last that long – caused Petronas to withdraw from the BC LNG play.

Leach demonstrated that LNG prices were only ever high enough to justify the Petronas investment for a short window from 2011 to 2015, partly due to a huge increase in Japan imports. With transportation from BC to Asia averaging $8 to $10 per gigajoule, current prices aren’t close to what is needed to justify building Pacific NorthWest LNG.

In fact, American facilities are already being squeezed hard by low prices and can barely cover their variable costs, let alone generate a return on capital, says Leach.

“Will the remaining projects on the B.C. Coast get built? It’s hard to say.  If global oil prices recover, and pull gas prices up with them, the LNG window may open again. But, in a world awash in gas, and with other competing sources of energy getting cheaper by the month, the window may remain closed for good,” Leach wrote.

Energy economist Jennifer Winter told me in April that BC would be lucky if a new LNG plant – beyond the already announced small Woodfibre project and the $400 million FortisBC expansion – is built within 10 years.

Four economists explaining that markets, supply, and price are the reasons BC LNG is simply not viable. But Palmer insists on laying the bulk of the blame at the doorstep of Horgan and the NDP. His reason?

Pacific NorthWest LNGHe emailed that he has “six years of covering this story extensively,  since Premier Christy Clark first launched the LNG drive in September 2011. During that time I have interviewed experts, read reports, covered speeches and followed the coverage in the Financial Times and the Wall St.  Journal and other publications and news services.”

Fair enough, a reasonable person would agree Palmer is very well informed on the issue.

But he is not an energy economist. Nor is his BC Postmedia colleague Mike Smyth who wrote an over the top column using the same basic argument that economics be damned, Horgan and the NDP are to blame for the failure of Pacific NorthWest LNG and never bothered to interview actual economists.

Outside of BC, let’s tip our hat to Postmedia’s national energy columnist Claudia Cattaneo for her story with Geoffrey Morgan, based upon interviews with several people close to Petronas, about the frustrations the Malaysian company faced in Canada. “Petronas would love to be a long-term player and they would love to have LNG work in Canada, but they faced headwinds, economically and regulatory, and they continue to, in a way that surprised them,” one anonymous source said.

But in an interview for this column, Moore cautioned assigning too much influence to that frustration.

“Petronas had figured out the Liberal government’s policy and regulatory risk. But that permission was simply swamped by changing market conditions and I argue that was happening at least a year ago,” he said.

“I suspect [the election] posed a new challenge for them to keep going, especially since the Horgan government seems intent on reversing some of the previous government’s decisions, but this wouldn’t have been the thing that made them make the decision,” to cancel Pacific NorthWest LNG.

British Columbia journalists would know that if they interviewed energy economists more often.

Pacific NorthWest LNG

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Posted in: Markham on Energy

2 Comments on "Time for BC journalists to ask energy economists why Petronas cancelled Pacific NorthWest LNG?"

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  1. Wbonsan@telus.net says:

    Excellent article. Thanks for a defensible recap of what’s really happening.

  2. ED IVANISKO says:

    Finally ..Actual Journalism with complete information , none of it from undisclosed ” sources ” , and first and foremost : INTEGRITY

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