Billion dollar bets

Last week I wrote about how northern B.C.'s fracking industry had garnered global attention. This week the news got even bigger, and turned into a regional story involving Alaska.

Last week I wrote about how northern B.C.‘s fracking industry had garnered global attention. This week the news got even bigger, and turned into a regional story involving Alaska.

Malaysia’s prime minister announced that Petronas, the government-owned energy company, will invest an eye-popping $36 billion to move B.C. natural gas to Asia. Meanwhile, Alaska’s big three oil companies and pipeline company Trans-Canada announced that the Kenai Peninsula was the leading contender for a gas export terminal for a new Alaskan gas pipeline system that could cost anywhere from $45 billion to $65 billion.

On top of these announcements, China’s CNOOC and other North American energy companies have announced several other multi-billion-dollar natural gas projects in B.C.

To put this in perspective, Victoria Gold is looking for a mere $430 million in construction and working capital for its proposed Yukon mine. It would take roughly 90 Victoria Golds to equal the economic footprint of just the Petronas project. Given the much lower profit margin a typical mine has compared to a gas well, the tax revenues from the Petronas project are probably much more than 90 times bigger than what a mine like Victoria Gold’s would generate.

These billion-dollar investments, assuming they actually happen, will change the economic map of our region. It used to be that our part of North America was in the upper left of a map with Toronto and New York at the centre. Now Asia is at the centre of the map, and natural gas trade routes converge there from around the periphery of the Pacific Ocean: Kenai, Kitimat, Oregon, Latin America and Australia.

Like it or not, and many don’t, liquefied natural gas looks like it will be the central part of the economic story in our part of the world for the next few decades. Alberta has a long-standing gas industry too, and even the N.W.T. hopes to get in on the action with its Canol shale gas play. N.W.T. politicians were recently in North Dakota marvelling at the opportunities and excesses that state’s fracking boom have created.

There is strong opposition to natural gas production in the Yukon. Anti-fracking groups have dominated the headlines. The Yukon Party government, keen as it appears to be to mine the Peel watershed, even took gas exploration in the Whitehorse trough off the table last year. Unresolved land claim issues in southeastern Yukon also limit the potential in that potentially gas-rich region, just across the border from the now world-famous gas fields of Fort Nelson.

The regional natural gas mega-trend has big implications for the Yukon, even if we don’t end up with a natural gas industry of our own. This is because, although the tax revenues from gas mostly stay where it is produced and transported, the economic impacts and climate impacts travel across borders.

Consider a future where we have a gas industry similar in scale to Fort McMurray spread out from Kitimat to Fort Nelson, and another in Alaska. Businesses will be attracted to invest in nearby regions rather than the Yukon. Workers will be getting offered higher pay and better benefits to work in the gas sector. All of this will put upward pressure on costs here in the Yukon.

Even if our mining industry is in the doldrums in a few years, it will still cost us top dollar to build new schools or renovate our houses. This is because we’ll be competing with booming regions for businesses and labour.

Some businesses and workers based in the Yukon will be able to travel to the boom regions, which will be good for them, but the rest of the Yukon population may not share in the benefits. The incremental tax revenue to the Yukon government may be more than outweighed by the higher prices it ends up paying for infrastructure and construction.

Climate change also crosses borders. All those wells, flare stacks, pipeline compressors, LNG tankers and Asian power plants will be pumping carbon dioxide into the atmosphere. Even if the Yukon says no to fracking and a big natural gas industry, global warming will affect us as much as it does everyone else. The Intergovernmental Panel on Climate Change’s most recent report says it is extremely likely that humans have been the primary cause of warming observed since 1950, and that increases in global surface temperatures are likely to exceed 1.5 C this century in most scenarios. There are also scenarios where temperatures go much higher. The effects would be very serious.

Future generations may wonder whether responding to recent climate change science by building an enormous natural gas industry in northwestern North America was a good idea.

Nonetheless, elected governments in our region are charging ahead with natural gas. The recently elected B.C. government has appointed a special minister for natural gas development. Premier Alison Redford of Alberta is headed for China soon to discuss petrochemical business opportunities. N.W.T. ministers, as noted above, are touring North Dakota’s energy industry.

Even the left of the Alaskan political spectrum is pro-gas. Here’s what Senator Mark Begich, a Democrat who is up for re-election in 2014, had to say recently: a “liquefaction plant and export terminal will be a multi-billion investment and huge shot in the arm to both Alaska’s economy and confidence in our state’s energy future… a gas line from Prudhoe Bay to the Kenai Peninsula can meet Alaska’s in-state energy needs while supplying the energy-thirsty countries of the Asia Pacific.”

Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. You can follow him on Twitter @hallidaykeith

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