Petronas project could provide new fuel for Liberal promises

Why the Pacific NorthWest LNG project marks a huge decision for the Liberals

Canada's Finance Minister Bill Morneau at a news conference in Ottawa, Canada, December 7, 2015. The new Canadian government's planned tax hike on the rich will bring in less money than forecast. A government document said the tax hike would bring in C$2.01 billion ($1.49 billion), while the cost of the tax cut would be C$3.44 billion ($2.55 billion). (Chris Wattie/Reuters)

(Chris Wattie/Reuters)

This is the perfect storm for Finance Minister Bill Morneau. Even as he marches across Canada on his pre-budget consultation, he knows he needs help. The price of oil hovers at the same disastrous level as the Liberal seat count after Michael Ignatieff’s campaign. Growth hasn’t just cooled, it risks freezing over. You can practically see Bank of Canada governor Stephen Poloz erecting a rhetorical ice hut over the economy, despondently fishing for new jobs with zero-interest-rate hooks.

Meantime, the Prime Minister has asked Morneau to craft a budget with more promises than a drunk bachelor looking to get lucky in Las Vegas. There is almost nothing to which Morneau’s government has not said yes. New naval ships. Massive new infrastructure. Expanded CPP. A new health deal. More money for the environment, for vets, for First Nations. The provinces are salivating. Pierre Elliott Trudeau once said the federal government should not be the head waiter to the provinces, but these days, no waiter is needed. This is an all-you-can-eat budget buffet.

To be fair, the Liberals won’t do everything in the upcoming budget. All parties campaign on saying yes and govern on saying no. One political strategist told me that in opposition every decision is an 80/20, meaning 80 per cent of the evidence goes one way. It looks easy. Governing is all about 51/49 decisions, where everything is a near split, a tough call. It will be interesting to see to what Morneau says no in the new budget.

Related: What a $20 barrel of oil means for Canada

Still, as the Conservatives learned, saying no all the time doesn’t work either. If you keep rejecting everything, eventually you’ll be rejected in return. For Morneau and the Liberal cabinet, there is still one giant decision. It’s a classic 51/49er and perhaps the most important economic and political choice of the new government: whether to allow the Pacific NorthWest LNG project, a proposed $11.4-billion liquefied natural gas terminal on Lelu Island near Prince Rupert, B.C., led by the Malaysian state-owned energy giant Petronas. Call it the Liberals’ big yes.

“If a project of this size was in central Canada, this is all you would be hearing about,” B.C. Finance Minister Mike de Jong told me. The plant will invest up to $36 billion dollars in B.C., and that’s just one of 20 LNG proposals under way. LNG is to B.C. what oil is to Alberta, and the Petronas deal is the one de Jong is counting on first.

“I met with Bill Morneau before Christmas and, believe me, this was the most important thing I spoke about,” de Jong said. “This is the biggest single private investment in the country and it’s time to get it going.”

The fate of the project is in the federal government’s hands. Back in 2013, the Canadian Environmental Assessment Agency began its long review process. It’s examining various concerns, such as the impact the LNG plant will have on the salmon habitat on Flora Bank near Lelu Island. There have been multiple delays and B.C. hopes the federal cabinet will make a decision on this early in the new year.

If de Jong and other LNG supporters complain the process has gone on too long, there’s good reason. The process takes into account consultation with First Nations groups, in this case the Lax Kw’alaams First Nation band council, and the enforcement of environmental legislation. The new Liberal government has made these two issues priorities. Naturally de Jong is worried the project won’t be approved.

Time matters. While he’s putting together B.C.’s fourth consecutive balanced budget, to be released mid-February, de Jong knows the future isn’t all lotus flowers. He sees Australia upping its LNG production and locking up potential customers like China. Meantime, there is a glut on the LNG market, causing prices to plummet. Two years ago when I spoke to de Jong about this, LNG was selling in Asia for US$18 per thousand cubic feet. He sounded like a man in the middle of a gold rush. Today the price is under half that. Some think the LNG moment has passed.

“We may have missed out on a near-term window, but the long-term prospects of selling LNG to China are still very good,” David Mulroney, Canada’s former ambassador to China told me. Mulroney has long argued that China is now Canada’s most important economic and foreign policy interest. “Growth there will still be six per cent even if it gets messy, as we’ve seen lately, so Canada must engage on a much deeper level,” he said. Prime Minister Justin Trudeau has signalled he wants to strengthen the trade relationship with China. Mulroney believes LNG will be a key part of it.

The federal government regulator will make a decision on the Petronas deal just when Morneau will be looking for something to fuel his next budget. Forget oil. The bitumen genie has bolted from the magic lamp and can’t grant any more budget wishes. And building oil pipelines is more difficult than getting Donald Trump to hug Syrian refugees at the airport. So where does Morneau turn if he wants to stimulate growth in this budget, or the next? Despite the environmental concerns, the politics of state-owned enterprises, and First Nations concerns, don’t be surprised if Bill Morneau and the cabinet decide that LNG is the big yes of 2016.


Petronas project could provide new fuel for Liberal promises

  1. The article asks about the upcoming budget and where the money goes:

    “New naval ships. Massive new infrastructure. Expanded CPP. A new health deal. More money for the environment, for vets, for First Nations. The provinces are salivating.

    Here is what I suspect will happen.

    1. New naval ships. – the promise to build them will continue, but perhaps the timeline will be extended, and the number of ships reduced. (after all…..the Liberals swept the region and need to offer up some of the goodies; even if they were provided by the Conservatives)

    2. Massive New Infrastructure: – Will go ahead, but again, maybe not as much as they let on during the campaign. Oh, and most of the money will be spent in Liberal ridings of course, and not so much in the West.

    3. Expanded CPP. Nope, won’t happen just yet. Wait a few budgets maybe….or perhaps, the year before the NEXT election. then it’s back on the table.

    4. New health deal: The Libs will most likely continue with status quo, and claim the yearly increase provided by agreements with the previous Conservative Government, is really a LIBERAL idea. Just say thank you, and get on the wait list for 2 years to get your hip fixed.

    5. Money for the environment: Read: CARBON TAX. Oh yeah…..you can be sure that will be in there. but the money won’t really go to mitigate “climate change”

    6. Vets: yeah, the Liberals will reverse the damage THEY did prior to losing Government in 2006. and then they will claim to support the “brave men and women in uniform”…yadda..yadda..yadda. just don’t expect them to help those folks still in uniform.

    7. First nations: Yep, this had better be in there, and it will be substantial. Hopefully the funding will actually go to helping people, as opposed to simply lining the pockets of corrupt Indian band councils and Indian Affairs affiliated lobbyists. If the money we paid for First nations actually went to the average person who needed it…..there wouldn’t be these problems.

    when you buy a zamboni for your new arean when people are living in tarpaper shacks with blue tarp roofs….you have your prirorities wrong. but hey…nice Escalade and Big screen TV you have their Chief Spence.

    • I live in BC. BC is in an earthquake zone. To get LNG, you frack. Fracking creates earthquakes. So who’s going to guarantee my house repair/replacement when another fracking earthquake happens but is worse than the one on the 29th? The Feds? The Province sure as hell won’t. Maybe Petronas? I’m all for increasing our economy. I’m not in favour of damaging homes, lives, or the environment to get there.

      • Please tell me how minor tremors thousands of kilometers from from coast and hours from the nearest town would have any adverse effects? There are already 10’s of thousands of wells in these remote locations already and one small 4.6 magnitude earth quake that wasn’t even felt in the nearest town, was hardly felt kilometers from the epicenter. The benefits of LNG far out weigh the dreamed up negatives.

      • Mary,

        Fracking would NOT cause earthquakes if the area was not ALREADY under great tension. Fracking causes some slippage for sure, but what if fracking now, and the small releases it creates, is not beneficial? I know it sounds weird, but imagine the power of the earthquake if it all came loose at once, as opposed to after multiple releases caused by fracking?

        Just a theory. If the area wasn’t already under stress…fracking wouldn’t do anything.

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