Thomas Gunton is director and professor in the Resource and Environmental Planning Program at Simon Fraser University and is a former BC NDP deputy minister
Right up to the most recent B.C. election in May, the British Columbia government had been promising three to five new liquefied natural gas plants that would generate between $130-billion and $270-billion in government revenue and create more than 75,000 jobs.
Cancellation of the Petronas project, which was among the most advanced and economically viable of B.C.'s 19 proposed LNG plants, clearly exposes the fallacy of the government's promise.
The cancellation is not surprising. Private-sector forecasts as far back as 2012 were warning that there were three times more LNG projects being planned worldwide than required, making development of any one project in B.C. challenging and the building of unneeded LNG capacity highly likely.
And the Asian price boom that motivated the development of LNG was a short-term phenomenon fuelled by factors such as Japan's decision to replace nuclear with gas-generated electricity. In fact, prior to this boom, the first approved LNG proposal in B.C. was designed to import Asian gas to take advantage of higher prices in North America.
B.C.'s response to these cautions was to push development even faster on the grounds that if B.C. did not speed up, the opportunity would disappear.
If there is good news in this story, it is that B.C. was not successful in speeding up development. If it was, the multibillion-dollar LNG projects would be coming on stream after the LNG price collapse, would be losing billions and would, no doubt, be demanding taxpayer subsidies to stay afloat.
What lessons can we learn from B.C.'s LNG venture? The first is that those promoting large capital-intensive resource-development projects have a propensity for exaggerating benefits and underestimating costs. Large projects are extremely risky and should not be developed based on short-term market conditions that are likely to change.
Investors should be doubly wary if those promoting these projects urge fast action to exploit a short "window of opportunity." This means that there are a large number of competitors who collectively are likely to create excess capacity and drive down prices.
Second, governments should not make unrealistic promises to develop projects that are subject to world markets that they have no control over. Making such promises is not only misleading, it is dangerous because governments will become increasingly desperate to deliver.
In British Columbia's case, the government made a series of concessions to deliver on its unrealistic promises that undermine the rationale for developing the industry in the first place.
First, B.C. cut its proposed LNG tax in half and added a corporate income-tax cut for natural-gas producers to help offset the tax. The federal government added additional tax savings by providing accelerated depreciation allowances for LNG.
Then, B.C. provided a new natural-gas royalty for LNG producers of 6 per cent with a gradual rise to just over 13 per cent by 2038, a significant reduction from the current royalty that ranges from 9 per cent and 27 per cent, depending on prices.
Third, B.C. exempted LNG producers from having to use clean energy and best available technology to reduce emissions from their plants. The result is that B.C.'s greenhouse-gas emissions would rise dramatically and prevent the province from meeting its legislated GHG targets.
B.C. also agreed to provide electricity at a special rate below Hydro's cost of production. Hydro's other customers will end up having to make up the difference through higher rates.
Providing these concessions means that if LNG ever does develop in B.C., many of the alleged benefits will be lost.
The final lesson from the LNG experience is that we need independent assessments of major development projects so that the public knows all the costs and benefits. Prudent resource development is an important contributor to Canada's economic success and we need to be able to distinguish between the projects that make sense and the ones that don't.
What are the chances that we will learn these lessons from LNG to help guide future development?
Unfortunately, they are low. From the overexpansion of railways at the turn of the century to the current proposals for building more new oil pipelines than needed, Canada has been making the same mistake over and over again.
Exaggerating benefits and underestimating costs are part of Canada's DNA and we are unlikely to change any time soon.