The news cycle over the past two weeks has been dominated by acts of civil disobedience by supporters of Wet’suwet’en hereditary chiefs,
Their goal, by and large, has been to uphold the hereditary chiefs’ authority over their unceded territory by thwarting a pipeline project.
But not much has been said about who will be left holding the bag if the Coastal GasLink pipeline ends up being cancelled.
B.C. taxpayers had better hope that Premier John Horgan’s eagerness to woo this investment hasn’t made them financially liable in any way.
That’s because if this pipeline is halted, the corporation’s lawyers will likely be examining whether the province misled investors.
As just one example, they could allege in court that the province falsely asserted legal authority to approve a pipeline on lands where Aboriginal title was not extinguished.
At a cost of $6.6 billion, the Coastal GasLink project is expected to deliver returns for decades to come to its investors—TC Energy, KKR, and Alberta Investment Management Corporation.
If that income is suddenly cut off—due to demonstrations or due to market conditions or due to a political change of heart, or a combination of all three—it could turn into a legal quagmire.
That pain for provincial taxpayers could conceivably be multiplied several times if the LNG Canada plant, which will receive natural gas through the pipeline, is also kiboshed.
Imagine the impact on the provincial treasury if the B.C. government was held liable for the loss of future profits for that corporate behemoth.
The LNG plant, terminal, and pipeline have been described as the largest private-sector infrastructure project in Canadian history.
On second thought, don’t imagine this—it will only make you want to leave the province.
Coastal GasLink has already ordered pipes for its $6.6-billion project.Coastal GasLink
Did Shell and government misread the market?
Two years ago, the federal and B.C. governments rolled out the welcome mat to persuade Royal Dutch Shell make a final investment decision approving the LNG Canada plant in Kitimat.
Shell’s partners are Mitsubishi and three Asian state-owned energy giants—Petronas, PetroChina, and KOGAS.
Prime Minister Justin Trudeau says it’s a $40-billion investment if one includes the export terminal and the $6.6-billion Coastal GasLink pipeline that will bring fracked natural gas from northeastern B.C. to the LNG Canada plant.
In early 2018, Shell released a rosy report about rising Asian demand for LNG, just as spot prices in Asia were around $12 per million British thermal units.
Since then, prices have crashed to below $3 per million British thermal units. That’s due in part to the COVID-19 outbreak but also due to warmer than expected winter weather and a growing appetite for solar and wind power.
And the long-term outlook for LNG in Asia may be far bleaker than people believed in 2018, thanks to China’s rapid moves to become a renewable-energy colossus.
There’s a new twist to the story that could render Canada’s relatively high-cost LNG—according to the Carbon Tracker Initiative—even less competitive.
The U.S.-based Center for LNG said this week that China’s Customs Tariff Commission of the State Council has given a one-year exemption to LNG imported from the United States, beginning in March.
The Center for LNG’s executive director, Charlie Riedel, hopes that this exemption on a 25 percent tariff will be extended into the future.
This is a rendering of the LNG Canada plant that will be built in Kitimat.LNG Canada
LNG glut threatens big players
As of this writing, Royal Dutch Shell shares are trading at US$50.21 on the New York Stock Exchange. That’s only slightly above its 52-week low of US$49.95.
But there’s even more bad news for the LNG titan, thanks to an article in Oilprice.com.
Long-time energy market analyst Cyril Widdershoven reported that a glut of LNG—triggered by booming U.S. exports and sagging Asian demand—”is a major recipe for disaster”. He noted that it will have an impact on Shell, among other producers.
“All eyes are currently on China, as the Asian giant has accounted for 40% of the global growth in LNG demand since 2015,” Widdershoven wrote.
He added that LNG producers’ strategies were “decided on demand projections for China to exceed 82 million tons per year by 2023”.
“The same was expected, at lower volumes, for India and possibly other areas in Asia and even Europe,” Widdershoven wrote. “The current slump and the coronavirus effect has put all in doubt. A main concern will be that the LNG glut spirals out of control, pushing major operators over the edge too.”
Last September before prices crashed, McKinsey forecast demand for LNG to grow by 3.6 percent per year to 2035, with the market rebalancing in 2027-28.
“China will be a major driver of LNG-demand growth, as its domestic supply and pipeline flows will be insufficient to meet rising demand,” the international consulting firm stated at the time. “Similarly, Bangladesh, Pakistan, and South Asia will rely on LNG to meet growing demand to replace declining domestic supplies.”
That assumes this fuel will remain competitive with renewable energy, which can be more easily stored nowadays, thanks to dramatic advancements in battery technology.
China is the leader when it comes to manufacturing solar panels.Getty Images
“The Brattle Group published a nuanced report on the future prospects of LNG back in January 2016—two years and eight months prior to the formal announcement of the project—raising serious concerns about Canada shipping LNG to China, in light of the blitzkrieg competition there from solar and wind energies,” Rifkin writes in his book. “Its reticence should have raised some red flags but apparently was either ignored or not taken seriously.”
Meanwhile, Forbes contributor Daniel Araya pointed out in October that China has six of the world’s 10 largest solar-panel manufacturing companies and generates one-quarter of the world’s solar power. It also has four of the top 10 wind-turbine manufacturers.
The International Renewable Energy Agency has said that no country in the world has “put itself in a better position to become the world’s renewable energy superpower than China”.
Solar power is also gaining ground in India, according to an article this week in the Wall Street Journal.
It remains to be seen whether this will bring B.C.’s nascent LNG industry crashing down
But watching this saga unfold, it’s a reminder of the risks of the province betting its future on Asian demand for energy.
Back in the early 1980s, the Social Credit government led by Bill Bennett invested $400 million into a 300-kilometre rail line to support a northeast coal project. Electricity and other services were provided for a new town, Tumbler Ridge, to serve this industry.
Coal prices collapsed and the province took a financial bath.
This time around, postsecondary education programs have been retooled to support the LNG industry. British Columbians have been encouraged to move to northwestern B.C. Indigenous communities are being told that LNG will offer them a way out of poverty.
Fuelling the frenzy several years ago was a Fraser Institute report, “Laying the Groundwork for BC LNG Exports to Asia”, which stated that in Japan, LNG was selling for $15.45 per thousand British thermal units.
Reports like these led former premier Christy Clark to predict a $100-billion windfall for B.C., wiping out the entire provincial debt.
Former premier Christy Clark predicted that LNG would deliver a $100-billion bounty to B.C.
B.C. public pension plans may have sidestepped disaster
Fortunately, the overseers of B.C.’s public pensions haven’t appeared to have bought into the hype.
The B.C. Investment Management Corporation manages $153.4 billion in assets for municipal, provincial, college, B.C. Hydro, and WorkSafe B.C. employees’ pension plans, as well as for members of the Teachers’ Pension Plan.
BCI’s 2018 “Responsible Investing” annual report showed that it had investments that year in a long list of fossil-fuel corporations—including ExxonMobil, Chevron, Imperial Oil, Kinder Morgan, Marathon, and Suncor.
However, it may come as a relief to current and future pensioners that BCI had no exposure in 2018 to any of the partners in the LNG Canada plant or Coastal GasLink pipeline.
No Royal Dutch Shell. No Mitsubishi. No TC Energy. And no KKR.
So even though the premier and the prime minister are excited by the prospects of B.C.’s LNG industry, this enthusiasm doesn’t appear to be shared to the same degree by the guardians of B.C. public-sector workers’ retirement savings.
Fortunately, these money managers, unlike Horgan and Trudeau, appear to have taken Warren Buffett’s golden rule to heart:
“Rule No. 1 is never lose money. Rule No. 2 is never forget Rule No. 1.”
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
