Natural Gas

Something is rotten in the state of…

According to a BC Government website, “When you produce and sell oil or natural gas resources in B.C. you need to pay royalties and taxes.

Payments for rights to use renewable and nonrenewable natural resources are fairly equivalent to rents we pay routinely for homes, offices, work sites, cars, hotel rooms and even the interest when we borrow money from the bank. We pay for using someone else’s stuff.

However, Christy Clark’s Liberal Government turned the resource royalty and rights program upside down. In 2016, BC started paying gas producers to remove and sell BC gas. By ordinary accounting standards, natural gas cost the province more than $400 million in fiscal year 2016.

With the Liberal plan to provide massive amounts of electricity to gas producers at a fraction of the price BC Hydro pays to acquire power, the gas industry is at the centre of a looming financial disaster like no other before it in BC history.

unrecorded-creditsIn FY 2016, natural gas royalties were  calculated to be $487 million but producers took advantage of royalty deduction credits and reduced the amounts paid to $139 million. However, the balance of credits owed producers grew by $538 million. That left the actual net royalty amount for the year at a deficit of $399 million.

The total of credits that producers can use to reduce future royalties has almost tripled to $2 billion during Christy Clark’s time as Premier. These numbers are never discussed by government officials and they are only disclosed within footnotes of audited financial statements issued annually. With 8 months now complete in FY 2017, the liability may already be close to $2.5 billion. We’ll probably not learn the actual number until next summer.

Following is a footnote to the province’s audited financial statements published in public accounts. A majority of the $1.13 billion shown as petroleum, natural gas and minerals revenue was actually received in the days before Clark. Billions in revenues were taken in, particularly in 2008-2010, but deferred, to be recognized over nine years following receipt.

So, while bonus bids on natural gas sales brought in only $16 million in FY 2016, the recognition of deferred revenue made it seem that more than $700 million came into treasury. Not surprising since the main accounting principle followed by Liberals is deception.

2016

While the royalty accounts are in deficit, receipts from sale of gas and petroleum rights have almost disappeared. In three years (2008-2010) when Gordon Campbell was Premier, monthly rights sales brought in $142 million a month. In the last 20 months, the sales averaged $1.4 million.

rights-and-royalties

10-years-of-subsidies

16-11-05-gas-royalties-and-credits-fro$487m-2001

In October, the Globe and Mail reported:

Hefty U.S. duties could be slapped on Canadian timber exports to the United States by early 2017…

American lumber producers allege provinces – BC is the primary exporter – subsidize companies through below-market stumpage rates. At stake is the multi-billion dollar a year export trade for BC forest products.

The long lasting lumber dispute provides a warning that the southward flow of natural gas from BC is at risk because of heavy subsidies by the province. Gas producers have taken or accrued $4.6 billion in benefits during the last five years. Billions more are promised through subsidized electricity.

With American gas markets in surplus, the commodity price has been low and U.S. producers may be happy to block imports from Canada. Christy Clark and Rich Coleman have provided them with the tools.

Categories: Natural Gas

13 replies »

  1. This might have been predicted when we learned that Gwyn Morgan was waiting in the Premier’s office as “transition advisor” when Christy Clark scurried in after Morgan contributed hundreds of thousands to her leadership campaign. In fact Norm and others that were paying attention did predict such an outcome. Unfortunately the vast majority of the voting public didn’t hear those predictions. Now they aren’t hearing that what was predicted is a reality.

    The public had better start hearing this message from John Horgan and the NDP very soon, or the cupboards will no longer just be bare; they too will be stolen.

    Find an innovative and effective way to get these and similar facts out loudly Mr. Horgan, or the BC Liberals reign of pillage will stretch to over twenty years with no end in sight.

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  2. It will be interesting to know what Woodfibre LNG will be offered as a Hydro rate — and who will be paying the bill for any power-line extensions.

    Woodfibre LNG inherited an old (1947) power plant and dam from Western Forest Products, which used to power the old pulp mill. WFP got this orphaned power plant accepted as an IPP, shortly before selling the site to WLNG.

    The plant is rated at 11,000 megaWatt/hours per year. In the 2015 fiscal year, Hydro paid WLNG $1,745,928. If they shipped all 11,000 mWh, market price of $30 per mW/h would have given them only $330,000.

    I’m wondering what Hydro will do if the LNG plant DOES get up and running. By IPP contract, Hydro should pay WLNG 5x the market rate… then sell it back at the wholesale “heavy industry rate.”

    By moral contract, Hydro should say, “The old deal is now over. Use your own dam power and we’ll top you up.”

    (‘Good to see you back at it, Norm!)

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  3. I read that Woodfibre would get the eDrive rate of $60/MWh or 6 cents per KWh.

    The idea is to encourage LNG plants to use electricity from BC Hydro, rather than using natural gas as the power source for turning natural gas into LNG.

    They say this would reduce GHG emissions.

    But no, it just means more natural gas is available to be turned into LNG and exported, on GHG-emitting ships, to be burned at the final destination (emitting GHGs).

    Do they think we’re fricken stupid?

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    • “Do they think we’re fricken stupid?” At the very least, they believe that the passage of time will dull our senses. It has worked for them before. Fingers crossed for May 2017 that it won’t work again.

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  4. Yes Hugh, they do. And so far we haven’t let them down.
    Norm, I used to read your blog first thing in the morning over breakfast. But I realized the content really ruined my day. So I took to reading it in the evening; and found that I can’t sleep at night. Might the answer be to stop reading it altogether? I think not, but I wish the rest of the taxpayers would get on board and read it too. It might ruin their day/night, but it would go a long way to ridding our Province of this deplorable blight!

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  5. Wow! Welcome back and with a big bang as well.

    Where is the MSM, I guess sucking off the Liberal teat as always.

    I listened briefly to Palmer on Dead dog 98 and he fawned over Clark and the Libs. at the weekends convention. It is more than embarrassing.

    This province has become a sinkhole in corruption and just not on the Hydro/LNG front, but on the Massey Tunnel replacement Bridge; TransLink’s Transit planning; the erosion of the ALR; the $50K Premier’s stipend, and on and on it goes!

    The media will soft shoe around and Liberal scandal and the NDP will still pretend they are dead.

    God help us all.

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  6. So, let me get this straight. Woodfibre LNG currently produces power and sells it to Hydro for $158/Mwh. Hydro then sells it back to Woodfibre LNG for $60/Mwh.
    Wow! What financial wizards! And we’re only $66 Billion in the hole?
    And after this bit of financial wizardry we turn around and build Site C for $9 Billion? And we’re still only $66 Billion in the hole? Might as well build a bridge to replace the Massey tunnel with what’s left over.
    No wonder we have to steal from the disabled and can’t afford seismic upgrades to the schools. Makes one wonder how we can afford to keep on paying MLA’s pensions.

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  7. “Now Clark has offered LNG developers a stunning give-it-away “eDrive rate” of $53.60. That is less $30 below the original quote and about half the expected $100-plus cost of a megawatt-hour from the $9-billion Site C dam. That dam will raise electricity prices so Clark can give away money to tax evaders and LNG developers.”

    “David Hughes, one of the nation’s foremost energy experts, calculates that B.C.’s LNG — if delivered to China — would be actually 27 per cent worse than coal over a 20-year timeframe.”

    From:

    http://thetyee.ca/Opinion/2016/11/10/BC-LNG-Fraud/

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  8. Goes to show what you don’t know can hurt you! Always suspected but never heard anyone come right out and say it…….with facts and figures. Why does this not hit the news? The people have a right to know.

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  9. It is interesting that the Provincial Government is now running ads stating that LNG proponents have invested $20 billion into the game, creating jobs, etc.

    Is there any way of verifying this amount? It seems to be an awful lot of money before there are any shovels in the ground., so to speak.

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  10. Norm, Can you expand on what is included in “Deductions taken from royalties paid”? Can the industry (and government) argue that this is part of the cost of doing business and are valid business expenses, or is this something else entirely?

    The magnitude of these numbers is breath-taking.

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