CPABC Industry Update Summer 2014 - Page 8

Separating Rhetoric from Reality – Part I (cont’d) for the LNG industry prior to the finalization of all of the relevant details. It has also provided negotiating flexibility between government and proponents. The question is not whether there are significant economic benefits to be reaped from LNG development (there clearly are), but rather about their magnitude and timing. Ultimately, whether the direct government tax value of future LNG development ends up closer to $20 billion or $100+ billion,5 it’s clear that the fiscal upside for the province is substantial.6 While critics can question the government numbers, the reality is that much of the fiscal benefit will be determined not by government, but by the global marketplace for LNG. LNG in the Global Marketplace for Energy Globally, natural gas is going through an adjustment phase as the shale gas revolution transforms traditional regional supply and demand dynamics, driving price differentials that have opened up attractive market opportunities for natural gas exports into Asia.7 The Asian marketplace is in a very dynamic phase for natural gas import planning and supply option analysis, which creates some urgency to ensure that BC’s supply options are fully and fairly explored.8 Importantly, and also linked to this analysis, BC (and Alberta) faces significant risk from continental natural gas prices that are likely to remain relatively flat for a decade or more as the implications of the North American shale gas bounty are priced into the domestic market. The current phase of active planning by Asian energy importers will not last forever – even if natural gas demand in Asia continues to grow over time. As the recent RussiaChina natural gas trade agreement highlights, long-term energy import decisions are being made now. Taken in combination, there are clearly a series of marketdriven imperatives that underpin the sense of urgency around LNG policy development in BC, and a real, marketdriven urgency to advance the LNG opportunity in BC as various Asian energy-importing countries take steps to secure energy supplies for the future. Conclusion – A Bright Economic Path Ahead? Overall, we believe there is a solid economic fact base supporting the view that LNG development will be positive for BC economically and essential to realizing the benefits of the province’s vast shale gas resources over the short, medium and possibly long term. Based on our analysis of both current and predicted private sector investment activity, there is little doubt BC is benefitting from LNG development now, with a strong possibility for transformational growth in the near future. LNG and natural gas development hold real promise for sustained benefits over the medium to long term across many key metrics. In fact, we believe that slowing the pace of LNG development at this stage, as some critics suggest, would significantly disadvantage the province. While the majority of LNG critics tend to focus mainly on environmental matters, the purely economic arguments against LNG development in BC are weak, in our view. Critics would contribute more to the economic aspects of LNG policy debates by focusing on global competitiveness challenges as well as domestic distributional issues – such as looking at First Nations and community-level benefits, infrastructure needs, downstream diversification opportunities, and the potential structure and governance of the proposed Prosperity Fund. To read the original version of this article, visit www.bcbc. com/publications/2014/the-lng-opportunityin-bc-separating-rhetoric-from-reality-part-i. 8  This situation is brought about by a number of factors: LNG contract cycles, major capital deployment choices between LNG and pipelines, geo-political tensions, and climate/air pollution matters. 5  The $20 billion is a “low” scenario put forward by the CCPA; $100 billion is a figure proposed by government as part of the analysis tabled with the 2013 budget and undertaken by Ernst & Young. 6  Even assuming a modest build-out of the sector, the investment levels would be unprecedented. 7  This price differential is well explored in many other assessments. page 8 | I N D U S T R Y U P D AT E Tom Syer is the vice president of policy and communications at the Business Council of British Columbia. Jock Finlayson is the Business Council of British Columbia