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andrew.weaver.mla@leg.bc.ca

The ongoing subsidy of natural gas extraction in BC

Today in the legislature I rose during budget estimate debates for the Ministry of Energy, Mines and Petroleum Resources to ask a number of questions concerning the natural gas industry in British Columbia. My questions were designed to explore whether or not the BC Government was going to continue giving away our natural resources.

As I have mentioned numerous times over the past few years, the BC Liberals were so desperate to try and land an LNG industry in British Columbia that they literally gave the resource away. This giveaway is embodied in a number of Acts that they passed including Bill 30 — Liquefied Natural Gas Project Agreements Act, 2015 and Bill 19: Greenhouse Gas Industrial Reporting and Control Amendment Act, 2016.

My first two questions were designed to see whether or not the BC Government would pull the plug on the agreement with Progress Energy and its partners which was predicated on Petronas making a positive final investment decision by June 2017. Petronas decided to walk away from the project in July 2017.

The remainder of the questions were designed to contrast the BC taxpayer subsidy to the natural gas industry as embodied in the “deep-well tax credits” with royalties that the province receives from the natural gas sector. As you will see in the discussion below, the province makes virtually no money on natural gas royalties. And we have an accumulated $3.2 billion dollar tax credit subsidy on the books for this industry.

Below I reproduce both the text and video of the exchange. I am sure you will be shocked by what you read.


Text of Exchange


A. Weaver: I have a number of questions on this subject matter. First off, I am troubled by some of the direction this conversation is going. We’re still trying to double down on the economy of the last century, while the rest of the world is moving forward. But with that said, let me ask a couple of issues with respect to the royalties that we’ll get.

The first is this. We know that the previous government made a deal with Progress Energy and its partners that would have locked in royalty rates, low rates, for years and would have cost British Columbians millions in lost revenue. One of the key conditions of the deal, however, was that Petronas had to make a final investment decision on Pacific Northwest LNG by June of 2017, and Petronas decided to kill that project in July of this year.

Our government now has the legal right to terminate this backroom deal, this bad backroom deal, which literally gave away our resource. My question to the minister is: can the minister tell us if the long-term royalty agreement with Progress Energy will be terminated?

Hon. M. Mungall: Thank you to the member for the question. I appreciate that he’s done his homework and he’s looked at the details of this particular project. What I can tell him right now is that the ministry has started looking into it and started to look at some of the legal aspects around that. We’ll be able to have a better idea later on. Apologies for not being able to have a more fulsome answer for him today.

A. Weaver: Can the minister let the House know if any other long-term royalty agreements are being negotiated with other oil and gas companies in line with using the Progress Energy agreement as the bar by which others will be judged?

Hon. M. Mungall: There’s nothing of that kind at this time.

A. Weaver: If we move now to the deep-well royalty program — a program that has, in my view, surpassed its usefulness, but we’ll come to that…. This deep-well royalty program was designed to enable the provincial government to share the costs of drilling in B.C.’s deep gas basins. It has since transformed into a massive subsidy for horizontal drilling and hydraulic fracturing.

It is my understanding that natural gas companies now receive hundreds of millions of dollars in “deep-well credits,” even for shallow wells, provided their horizontal sections are long enough. So five questions on this topic. One is: can the minister please tell the House what the amassed or outstanding value of these deep-well credits currently is?

Hon. M. Mungall: We’re getting that value of outstanding credits for the member. We don’t have it. We’re trying to find it in these big binders, so we’re getting that for him.

I just wanted to point out that in terms of how the program works…. I’m sorry if I missed it — perhaps the member already mentioned and he knows. What it is, is it’s credits against royalties owing. So it’s not money going to government. It’s just that we’re collecting less royalties based on a credit program that looks to incentivize industry for doing a particular task that government is hoping it will do.

A. Weaver: Very specifically, then: what is the value of the deep-well credits that were redeemed in 2016-2017?

Hon. M. Mungall: I’ll have to get back to the member on that as soon as possible. We’re just grabbing that for him.

A. Weaver: At the same time, I’d like to get the information as to what was the value of the royalties that the province of British Columbia earned from exploration in 2016 and 2017? And then I’d like to have the difference of those two numbers as well.

Hon. M. Mungall: We do have the first number for the member, and it’s the total of accumulated deep credits at $3.2 billion. That’s the total accumulation of all credits. Those credits are only available, however, to any company if their well is producing. So, if their well isn’t producing — say they earned credits as they did their exploration phase, but they didn’t produce the well — then they wouldn’t be able to access those royalty credits.

A. Weaver: The point I’m trying to get at here — and I really need the second part of those numbers — is that the credits that we give exploration companies from this deep-well program, these deep-well credits, essentially preclude us earning any money on royalties from the natural gas that is extracted.

Why it’s critical that we get the actual amount of money that we made from royalties for natural gas in 2016-2017 is we only have a cumulative total — $3.2 billion — that is yet to be claimed in the credit program. But we need to know the numbers based on an annual credit-versus-royalty gain to tell British Columbians how much we are actually making from our resource.

The reason why I think this is important — and I hope we can get these numbers before estimates end today — is that, frankly, I have no idea why this program is still needed. Why do we still need to have this deep-well credit program in light of the fact that horizontal fracturing is no longer a new technology? In fact, it’s in use all around the world. We had deep-well vertical fracturing, which my friend from Peace River South was referring to earlier, that went back decades.

Horizontal fracturing is not new. We don’t need those credits. So why do we continue to have this program? Because all that this ensures is that we earn nothing from our natural resource here in British Columbia.

Hon. M. Mungall: I’m going to make sure that we get all the correct numbers to the member opposite as soon as we possibly can, and if we’re not able to do that today for some odd reason, I’ll be sure to get it to him in the very near future.

On that, I appreciate his points. I think they’re fair points. I’ll take that into consideration.

A. Weaver: I was so dutifully notified that I was speaking at this microphone over here, where I should be speaking to my…. I’m standing at my desk, but the microphone was not pointed correctly. Corrected now.

The final question on this topic is: does the minister plan to continue this subsidy program? You know, we’ve talked about subsidies to the oil and gas industry in this province. This is a gigantic giveaway. It ensures that we essentially make no money from royalties because of the magnitude of the credit program that it can be claimed against.

In fact, my understanding is we’ve received virtually zero in 2016-2017 in natural gas royalties because of the deep-well credits that were claimed against those royalties. So will the minister continue this subsidy program?

Hon. M. Mungall: I’m terribly sorry. To the member, I didn’t catch the actual question because I got those numbers for him.

The total credits that were earned in 2016-2017 was $229 million, and the net of all royalty credits was $145 million. So we took in $145 million as government, in 2016-2017.

A. Weaver: And we gave away $229 million in the process. If I might add….

Interjection.

A. Weaver: Yes, because those credits were not claimed, were claimed against royalties — so that’s $229 million that could have come into our revenue here. We’re subsidizing the oil and gas sector to that amount.

Imagine this. If we actually subsidized renewable energy in British Columbia to the tune of $229 million a year, let alone the generational sellouts embodied in the Progress Energy agreement that we referred to earlier….

So my final question is: does the minister plan to continue this program, and if so, why does this industry still need a subsidy?

Hon. M. Mungall: In terms of reviewing the royalty credit program, there isn’t a plan to do so at this time.

 


Video of Exchange


3 Comments

  1. Bob MacKie-Reply
    November 21, 2017 at 2:42 pm

    Well done! It is about time we addressed the sale of this very valuable non-renewable resource for peanuts.

  2. Mary Williamson-Reply
    November 21, 2017 at 6:48 am

    Shocking indeed. Thank you Andrew for bringing the attention needed to this another example of the damage done over the last few years and the need to hold the NDP to their promise to do better.

  3. Kathryn Spears-Reply
    November 20, 2017 at 10:27 pm

    Very disturbing. I thought transparency was supposed to stop these outrageous deals on disclosure. Instead I feel like the bullies out there are saying ” and what’re you gonna do aboud it”. You have all inherited a “big machine” when elected and then all of us together had to learn to “love the process”. In the meantime the quality of life for the average person is slipping, slipping, slipping. Makes no sense to most of us.

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