For weeks, the B.C. government had been telegraphing the focus of Monday's Speech from the Throne. And that was the same subject the government has been obsessed with now for the past couple of years: liquefied natural gas.
What it couldn't have anticipated was that on the same day it planned to once again trumpet the joys and riches that LNG development represented, a big-name project proponent would utter fresh threats to walk away from the province unless tax and regulatory issues were resolved to its liking … by the end of the month. And if it did leave, it could be 15 years before the same business opportunity in B.C. arose again.
Shamsul Azhar Abbas, the CEO of the Malaysian oil and gas giant Petronas, issued the edict in a statement release Monday morning, knowing full well it would change the tenor of whatever the government announced in its Throne Speech. This latest diktat from Mr. Abbas followed a similar one delivered a week ago, also intended to weaken the knees of B.C. negotiators.
While senior officials in the government tried to play down that threat, it had the desired effect. According to senior government sources, the province has dialled back its LNG tax revenue expectations. And it is also trying to find ways to relax environmental codes of practice that would add to the cost of doing business in the province for Petronas and others. The fact is, B.C. has little choice if it wants to be competitive with other LNG-producing jurisdictions around the world. Most of them are unburdened with elements such as First Nations buy-ins that can affect projected profit margins.
That said, you also get the feeling that what we're witnessing here is a sophisticated, skilled CEO trying to tighten the screws on those running a provincial backwater with limited experience negotiating with high-powered, international corporations. In 2013, Petronas was the 75th largest company in the world, and the most profitable one in Asia. Mr. Abbas's job is to use every tactic at his disposal to create the most favourable conditions possible for his company to make money.
And he also knows he has B.C. over a bit of a barrel. Premier Christy Clark has staked the economic future of the province on LNG development. Even if it doesn't end up being the trillion-dollar opportunity she has touted, the one that is going to wipe out the provincial debt, some LNG development is better than nothing. In fact, the Throne Speech was notable for the absence of the grand LNG declarations that the Premier has been known for in the past.
There was no mention of a potential $260-billion Prosperity Fund that would dwarf anything Alberta's Heritage Savings Trust has been able to amass. In fact, the speech, which is written by the government, described the nascent LNG industry as a "chance – not a windfall." That is a far cry from the virtual sure thing LNG represented for Ms. Clark and the Liberals in the most recent provincial election. There definitely seems to be an effort here to temper expectations.
At one time, there were 17 different consortia looking at LNG opportunities in the province. Ms. Clark has maintained that all B.C. needs is five of those to go ahead to realize the kind of treasures she has been hyping. But the world of LNG has also changed since the last election when a thriving industry in B.C. was being imagined by the Premier. Prices have dropped. Competition has surged. The economic future of the commodity is unclear.
Petronas sees that. So does Shell and the others that have expressed interest in developing a large-scale LNG business in B.C. What we're seeing now is the pressure those market forces are exerting on the B.C. government.
There is an enormous amount at stake for the Premier and her government. From the outside, it appears B.C. needs Petronas and the others more than they need B.C. Ms. Clark comes out the loser if those companies walk away and her LNG dream evaporates. She can also lose if her government signs desperate deals that are deemed to be so slanted in favour of the project promoter that the province becomes a global laughingstock.
"We're a government in a hurry," Ms. Clark told reporters Monday about the LNG window of opportunity that exists.
Which is precisely when the biggest mistakes are made sometimes.