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Energy opportunity window could close

AN energy-sector expert says British Columbians need to decide if they want a flourishing oil and gas industry or not.

And while British Columbians have every right to make up their own minds, Alberta-based energy economist Peter Tertzakian says waiting too long may mean missing opportunities.

It comes down to “do you want to be part of it, or don't you,” Tertzakian said while speaking in Terrace last week. “That's what I'm here to find out.”

He met locally with the Kitimat Terrace Industrial Development Society as part of a partially Enbridge-sponsored trip to speak about Canada's energy-sector history and to help him better understand British Columbian attitudes toward regional energy issues.

To start with, oil and gas go hand in hand and money financing both end products come from the same coffers, he said.

It's not essential that Enbridge Gateway to be approved for LNG [liquefied natural gas] projects to be approved,” he added. “However, persistent flak and negativity about Enbridge and other oil pipelines will translate into greater concern by investors and stakeholder about investing in BC, or Canada in general.

And the negativity will spill over into the LNG side.

How local attitudes toward the oil and gas sector are publicly portrayed is important when it comes to attracting and retaining projects — as windows of opportunity don't stay open forever.

If investors see that public pressure in one area could slow or stay project development, and another location looks better, that's where investors will go. And, it's a global marketplace, he noted.

Adding to that, Tertzakian said he is talking about investors from outside of Canada too, saying foreign investment is key to sustaining the industry as Canada does not have the population or capital base to pay for major-scale projects.

And while our buddy to the south, the United States, no longer needs us like before as it now prepares to export energy products it imports form us, making new relationships is key.

So, foreign interest in investing in our natural resources, particularly the Asian Pacific market, is a lucky break, he said.

We need to find new customers,” said Tertzakian. “It's really a critical junction.”

But while Canada may produce more oil and gas than it consumes, we're not the only country that boasts this luxury.

The markets and rest of the world won't wait for Canada to make its decisions,” said Tertzakian. “Nobody lies awake at night thinking about Canadians.”

Just as quickly as windows of opportunity may open, they can too close.

It's then important for those who support oil and gas projects to speak up, said Tertzakian, adding that while there's now a number of proposed natural gas pipelines at various stages of project proposal a history lesson shows just how quickly optimism can run dry.

In the 1970s, Alberta's Dome Petroleum partnered with a Japanese subsidiary with the intention of exporting LNG to five major Japanese utility companies.

A LNG plant was proposed at a location 30 kilometres north of Prince Rupert.

The other was up in the arctic, proposed by Alberta Gas Trunk Line, championed by its CEO Bob Blair. In 1970, it announced plans to build a $1.5 billion pipeline through Alaska,” said Tertzakian. “Neither made it to fruition, because ultimately natural gas prices were not high enough and competitive conditions not favourable enough for them to proceed.”

The lesson is that macroeconomic conditions can change fairly quickly and serve to shelve projects, even after a significant amount of resources (money) have been allocated to them.

Relating that lesson to today -- if these projects don't proceed with a sense of urgency from all quarters (corporate, government, social), then they are vulnerable to cancellation from changing macro forces,” Tertzakian. “There is always a narrow window of opportunity to take advantage of opportunity.”

When it comes to oil and gas (Canada's largest industry) this country as a whole is not acting like it wants to compete,” he said.

If our complacent and self defeating attitudes continue, we will lose a big contributor to our collective prosperity.”

Looking at the state of the natural gas industry industry now, provincial natural gas revenues in B.C. have been declining.

In September this year, the province announced it would cut spending to compensate for the loss of $1.1 billion in natural gas royalties over three years following a declining in commodity pricing.

Tertzakian said British Columbia's revenues from natural gas have been declining for three reasons.

Prices are very low due to North American competitive forces (especially from the US as we discussed), so revenues are very low.,” he said. “Royalties are calculated on revenues.”

Next, producers are generating little to no profit on natural gas sales dues to process, he said.

Income taxes are paid on profits, so no profit, no taxes.”

Lastly, money paid to the province by oil and gas companies for permission to drill are at a 10-year-low.

Who wants to drill when prices are low and no money is being made?,” said Tertzakian. “Who wants to invest money for the right to drill when so much bickering and uncertainty exists?”

 

 

 

 

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