When Premier Christy Clark said in 2013 that a liquefied natural gas industry could generate $100 billion and wipe out the province’s debt, some critics thought she was dreaming.
But selling that dream has already generated billions of dollars worth of transactions in B.C., much of it foreign investment by Asian oil and gas companies.
To date, 18 companies have made various levels of investment in potential LNG projects. Even if no LNG plant is built, the province would still be at least $9 billion richer through money already invested here by energy companies since 2012, according to the Ministry of Natural Gas Development.
That includes $7 billion in the acquisition of natural gas assets and another $2 billion on things such as LNG site acquisitions and preparation. That figure doesn’t include the $6 billion acquisition of Alberta’s Progress Energy and its B.C. assets by Petronas.
Nor does it include other acquisitions of LNG assets in the province (see sidebar on page 28).
Until recently, Petronas’ $36 billion Pacific NorthWest LNG proposal was considered a front-runner project. But in December, the company delayed a final investment decision, and some analysts say falling oil prices could now threaten or delay the project. Even if companies like Petronas folded their tents and quit B.C. tomorrow, communities like Kitimat and Dawson Creek would arguably still be better off, thanks to the investments energy companies have made acquiring land and doing engineering work, environmental studies, First Nations consultation and site preparation for LNG projects.
“I would say hundreds of millions – probably over the $1 billion mark – has been spent here for Kitimat,” said Rose Klukas, the municipal district’s economic development officer.
In addition to the purchase of an idled methanol plant and terminal by Shell and its partners in the LNG Canada project, Chevron Corp. (NYSE:CVX) and its partners also acquired a site for its Kitimat LNG project on Haisla First Nation land.
“I believe at peak in this last year … they had up to 600 people working on that project,” said Klukas. “So in a small town, that’s a significant number of employees.”
Since 2010, Kitimat’s population has grown from 8,500 to about 10,000, Klukas said, and the district is seeing economic spinoffs in the form of new businesses, restaurants and a new 95-room hotel that is under construction.
But LNG isn’t the only major economic driver in Kitimat. A $4.8 billion modernization of the Rio Tinto PLC aluminum smelter also triggered a major construction boom, so it’s hard to determine just how much of the economic activity in Kitimat in the last couple of years is directly related to LNG. But Klukas said it’s significant.
“We have not seen investment in Kitimat of this kind ever in its history.”
A single large LNG plant is estimated to require an investment of $35 billion to $40 billion, including the plant itself and associated pipeline and upstream gas wells and plants.
Shell’s LNG Canada plant alone is estimated to cost $12 billion; with wells and infrastructure included, the total project is estimated at $40 billion.
Even smaller LNG proposals generate considerable investment. In Squamish, for example, Woodfibre LNG, a subsidiary of Singapore-headquartered Pacific Oil and Gas, inked a $25 million deal to acquire the site of a pulp mill shut down in 2006 from Western Forest Products Inc. (TSX:WEF). The deal is still being finalized.
Although communities such as Kitimat, Prince Rupert and Squamish would benefit from the construction and operation of LNG plants, it’s Dawson Creek, Fort Nelson and Fort St. John that are seeing the biggest boom in terms of dollars spent, because it’s the upstream activities – extraction and processing – that are the most labour-intensive.
“For every dollar that’s invested by industry in the downstream – building the [liquefaction] plant on the west coast – that industry is going to invest between $5 and $10 in the upstream,” said Dale Bumstead, mayor of Dawson Creek, which is in the heart of gas country.
“So when you talk about what’s going to take place in the northeast of British Columbia, it’s unbelievable. A plant that maybe cost $7 billion to build in Kitimat, they’re going to invest $50 billion in developing the upstream to get the gas to that plant.”
The job boom in B.C.’s gas fields is already well underway, as energy companies prove out their resources before making a final investment decision on LNG.
Although it has stretched its timelines and reduced the number of workers it plans to put to work in the gas fields, Encana confirmed it is still planning to open a work camp this spring outside of Dawson Creek that would house about 1,200 workers.
Even though most gas field workers are housed in work camps, Bumstead said the number of hotel rooms in Dawson Creek has doubled in the last eight years with the addition of half a dozen new hotels.
Just getting a pipeline through the environmental review process costs millions, so a significant number of professional service jobs have been created in Vancouver – lawyers, accountants, engineers and environmental and First Nations consultants.
In May 2014, Laing O’Rourke, a global engineering and construction company, opened an office in Vancouver.
“Or main focus is LNG,” said John Nitties, the company’s vice-president of corporate affairs and finance.
According to the B.C. office for Stantec, a global professional services company, LNG-related work has resulted in the equivalent of 130 full-time jobs between 2012 and 2014 in B.C.
Many of those jobs are related to environmental assessment processes and consultations with First Nations, including biologists, regulatory specialists, aboriginal consultation specialists, hydrologists and air, water and soil scientists.
The company has also made expenditures on sub-consultants, First Nations field assistants, hotels, flights and rentals of vehicles, boats and other equipment.
But what happens if B.C. misses the LNG boat? Edward Kallio, director of gas consulting for Ziff Energy, said that has become a distinct possibility.
Since 2008, Kallio has been saying B.C. has excellent drivers that could make B.C. a major LNG producer.
“The only party that could mess it up is the government, and that appears to be what is happening,” he said.
He fears the B.C. government may have “dithered” too long in establishing a new LNG tax regime, and now U.S. producers with brownfield sites and existing pipelines could beat out producers in B.C., who need to build an LNG industry from scratch.
“One or two – maybe three – projects can get off the ground, but they’re a lot more risky now than they were before, and that concerns me,” Kallio said.
Should an LNG industry fail to take off in B.C., Kallio said there is still a value proposition for B.C. gas in the North American market.
The big losers would be those businesses that have invested heavily in anticipation of a boom that never really takes place.
He points to the losses suffered by businesses that invested in the Northwest Territories in expectation of the Mackenzie pipeline being built as an example of what can happen.
“You’d have no boom – never mind the bust.”
