POLITICAL RISK SKYROCKETS FOR B.C.’S RESOURCE PROJECTS
LNG front-runners face big decisions on next steps, writes Claudia Cattaneo.
British Columbia’s election results are finally in. No matter how you cut them, they are not encouraging for planned resource projects.
Those that are already advanced, like Kinder Morgan’s Trans Mountain pipeline expansion and some liquefied natural gas proposals, may try to march forward. A lot of money has been spent and such projects are designed to withstand electoral change over decades.
There is no denying that B.C. was a risky place to do business when it had a majority Liberal government, due to its unique combination of having an aggressive environmental lobby and a powerful aboriginal population. But now that the Liberals have been reduced to a minority and will need the support of the Greens to stay in power — or that the left-leaning NDP and the Greens could get together to form a government of their own — the political risk has skyrocketed.
To be sure, B.C. is known as a place of wacky politics. The difference this time is that the world is watching, since much of the cash on the line comes from abroad, whether Malaysia, Europe or the United States.
The inclusion of absentee ballots this week after a tight May 9 election result confirmed that the Liberals won 43 seats in the 87-seat provincial legislature. The NDP has 41 seats and the Greens have three.
The vote for change gives oversized influence to Green Leader Andrew Weaver. He’s been in talks with both parties about forming a coalition in exchange for adoption of his own priorities, such as official party status, banning corporate and union donations to political parties, and changing the electoral system.
But environmental organizations that went to bat for the NDP and the Greens during the campaign have their own list, and it’s time for payback.
As Sven Biggs, climate and energy campaigner at Stand. earth (the former ForestEthics), said in a statement: “The two parties who gained the majority of votes must now work together to stop this (Kinder Morgan) pipeline, as they promised voters they would.”
One of the first indications of investor concern is the weak pricing of the Kinder Morgan Canada Ltd. initial public offering to help fund construction of the $7.4 billion Trans Mountain expansion. It’s now expected to sell at around $17 a share, rather than the targeted $19 to $22 range, an indication that demand from investors is not as strong as previously expected, according to Reuters.
The IPO itself, which would raise $1.75 billion and is moving forward at an odd time given the uncertain political landscape, could also be seen as an indication that Houston-based Kinder Morgan is reducing its exposure to the pipeline from Edmonton to Burnaby, B.C., while recouping hundreds of millions invested so far to obtain regulatory approvals.
According to the offering prospectus, construction is expected to start in September. It will take a firm hand from the federal government to get the project done. So far Prime Minister Justin Trudeau has only offered platitudes about the need to protect the environment and build the economy.
More reactions to B.C.’s new political landscape will come soon enough from LNG frontrunners — projects like Woodfibre LNG, the Shell-led LNG Canada and the Petronas-led Pacific North West LNG. They are currently restructuring to reduce costs so they are competitive with other regions like the U.S. Gulf. As demand for LNG increases, they’ll have to decide whether to take the next step and begin construction — or put their projects on ice, perhaps until government becomes more supportive, perhaps for good.
They could count on the provincial Liberals because they were big LNG boosters. Now it’s a different story. The Greens are against fossil fuels altogether, while the NDP could give a hard time to already challenged LNG investments in B.C., such as increasing carbon taxes, reviewing hydraulic fracturing and demanding higher provincial rent.
The Alberta oilsands experience after the election of a provincial NDP government could be a template of things to come in B.C.
Oilsands proponents that had other options cashed out at the earliest opportunity, as shown by the exodus of international companies. Those that were in too deep, particularly domestic operators, stayed and did their best to adapt to the new environment.
The Alberta NDP, which with its anti-oil policies worsened the impact of the oil price crash, softened its stance after government revenue collapsed, unemployment soared, and the province’s reputation took a beating, discouraging investments across the board, not just oil and gas.