BC’s fading LNG dreams are giving Alberta gas pains; time to make a deal or play hardball

A few short years ago, some sectors of the western Canadian energy industry looked and felt very different. Alberta was in the process of advancing multiple pipeline projects in anticipation of growing transportation demand, and British Columbia was on the verge of an LNG export boom with new projects being announced seemingly weekly.

Unfortunately, both dreams seem near dead. Pipelines can’t be built anywhere in Canada it seems (except in Alberta), and west coast LNG export terminals may never happen at all because of delays, regulatory quagmires, and a global glut of LNG. It seems like a double blow to western Canadian petroleum producers, and the energy business in general.

And it is, but it is also in one sense an irritating display of hypocrisy and double standards, with BC having its cake and eating it too. This may not be intentional, but unless it’s addressed it will certainly be seen that way.

What’s hypocritical is the difference in treatment the two provinces are showing each other with respect to market access. BC is getting its gas to market through Alberta, utilizing that province’s extensive pipeline systems and energy know how. (A smaller and jammed-full gas pipeline does go south from BC, but has nowhere near enough capacity to meet BC’s needs). BC benefits from full access to Alberta’s pipeline systems and Alberta’s commitment to ensuring that products move efficiently to where they need to go. Not only is BC able to sell it’s gas, it is generating positive PR for developing “the cleanest burning fossil fuel”.

At the same time, BC is apparently throwing its eastern neighbour under the bus by either outright denying Alberta access to tidewater for its oil production, or at the very least making it far more difficult than it should (as with the Kinder Morgan expansion). The market access comparison here is glaringly obvious, as is the double standard. BC’s intelligentsia often sneers at fossil fuels, perhaps because they get to benefit form it without having to deal with it – native natural gas production slides out of sight to the east with a mountain range or two between it and the dirty work, and the enviro-friendly lower mainland simply absorbs the benefits of natural gas revenues.

From a revenue perspective, Alberta is taking another kick in the teeth by allowing BC gas into the province when there is already stiff competition for Alberta’s production in historical sales markets. The prolific northeast BC gas fields are flooding Alberta with gas at a time when Marcellus gas is flowing from the US into eastern Canada and backing up western Canadian flows. Not only is Alberta being hammered by this new US competition (which is a separate and equally rankling topic, how US gas can flow freely into eastern Canada but Canadian oil has trouble flowing south), but BC gas is adding to the glut and driving prices down further. In fact Alberta storage is nearly full, and once it gets there Alberta gas prices could sink to ridiculously low values later this year. This hurts the entire province.

This set of circumstances isn’t necessarily BC’s fault. In 2013, the optimism in the province was palpable as multiple LNG export facilities were announced that would find a home for the new homegrown production. BC was expecting to take advantage of the growing global LNG trade, and Alberta looked to be on its heels with a landlocked North American gas market being the only option for its product (unless all the export terminals were built), and traditional markets were being flooded with US shale gas.

Now, it appears that any BC LNG facilities are years off, if they will ever happen at all. Massive costs and long construction times – never mind the regulatory hurdles – make it very difficult to proceed with these projects, especially in this low price environment. While this is a setback for BC’s development plans, the pain is certainly mitigated by the ability to sell the gas through existing infrastructure that is in friendly hands.

BC is therefore enjoying the benefits of having a market for its gas, and making hay at the same time for developing relatively environmentally friendly energy sources. The province uses Alberta’s pipeline system to feed its economic engine, and gets global green points for blocking (or at very least severely hindering) Alberta’s ability to sell its product.

The pipeline wars may not all be winnable; four alternatives are in various states of regulatory hell – Kinder Morgan (probably has the best chance since it’s just an expansion), Energy East (must win over Quebec – good luck, but a real possibility), Northern Gateway (not a friend in the house) and Keystone XL (in a coma with few vital signs, unless the king of the loons gets into the white house). Of the lot, the Kinder Morgan expansion should be the simplest and is undoubtedly in the BC government’s hands; rejection of this alternative would mean BC is consciously choosing to support hypocrisy.

This situation is beyond the reach of any one company to fix; government support is required because no one is listening to pipeline companies’ facts no matter how sound. BC may not be continuing this awkward situation through some diabolical plan; it may have found itself in this situation purely through circumstance, but at the very least BC should recognize the inequity of benefitting from market access while denying a fellow province the same benefit. If no discussions are forthcoming, Alberta should be playing hardball here and utilizing its leverage; we are wasting time and resources by not doing so. At certain key times, firm leadership with a firm plan is required to act for industry, taxpayers, and in the best long-term interests of the province. This is one of those times.