Kinder Morgan’s decision to suspend work on its controversial $7.4-billion Trans Mountain pipeline looks like a another corporate attempt to blackmail Canadian governments.

On Sunday the Texas-based company, which emerged from the ashes of scandal-ridden Enron, abruptly announced it was suspending all “non-essential” work on the export pipeline.

Steve Kean, CEO of Kinder Morgan Canada, blamed the B.C. government for the suspension — even though the National Energy Board has not approved construction for any portion of the project but the Westridge marine terminal in Burnaby.

Even Kinder Morgan has repeatedly acknowledged the reality of setbacks in presentations to investors, citing “a potential unmitigated project delay to December 2020” as recently as last month.

Still, Kean blamed B.C. “What we have is a government that is openly in opposition and has reaffirmed that opposition very recently,” he said.

But aren’t democracies supposed to challenge projects that impose unprecedented economic and environment risks on their citizens?

Wouldn’t a tanker spill of diluted bitumen in the Salish Sea, where one-third of western Canada’s population lives, be an economic and environmental catastrophe, devastating tourism, property values and marine life?

Wouldn’t the doubling of tolls on the expanded pipeline, as approved by the National Energy Board, raise gas prices for British Columbian motorists by $100 million a year? The pipeline now supplies southern B.C. with most of its petroleum.

Won’t Alberta, by exporting diluted bitumen to Asian refineries, repeat the original Canadian sin of failing to add value to resources at home, giving up thousands of jobs and billions in revenue?

How can exporting one of the world’s most carbon intensive fuels help fight climate change?

And can’t corporations with viable projects accommodate citizens, courts, First Nations and economists who think such costs and liabilities should be properly accounted for?

But Kinder Morgan prefers bluster and blackmail instead of the reality that the project was never a sound venture because it was about privatizing gains and socializing costs.

Economist Robyn Allan has repeatedly argued that Kinder Morgan is no ordinary company and the Trans Mountain expansion project has been uneconomic since day one.

She told The Tyee that “Kinder Morgan is looking for an exit strategy, but it likely includes a need to demonize Ottawa in order to set the stage for a suit under NAFTA.”

The drama begins with the biased workings of the National Energy Board, which refused to look at downstream and upstream climate impacts of the project and even failed to scrutinize its commercial viability during public hearings.

The best evidence from experts shows that Kinder Morgan, the Canadian government and Notley have misrepresented the pipeline’s illusory benefits.

A pipeline to the coast will not raise bitumen prices, because all global markets discount junk crude due to its poor quality.

The ill-conceived project will export refining jobs and great clouds of climate-changing emissions to China. In addition tanker traffic place southern resident orcas at risk.

The Houston-based firm that Prime Minister Justin Trudeau and Alberta Premier Rachel Notley now salute as a defender of Canada’s national interest is the spawn of Enron, found guilty of accounting fraud and corruption. The energy trader’s collapse cost shareholders $74 billion and killed 20,000 jobs.

Kinder Morgan, a dirty and unsexy mover of gas and oil, began as Enron Liquids Pipeline in 1997. Enron alumni continue to populate the senior ranks of Kinder Morgan.

They include Richard Kinder, a Texas billionaire and Kinder Morgan’s chair. He worked at Enron for 16 years. Jordan Mintz, the chief tax officer, served as the vice-president of Enron’s tax division from 1996-2000.

Kean, the man now baiting Canadian governments, worked as Enron’s senior vice-president of government affairs. And so on.

These Enron alumni probably think Canadian politicians are the ultimate pushovers and dimwits.

During the 2014 NEB Trans Mountain hearings the U.S. parent firm vowed to provide 100 per cent of the debt and equity for the pipeline.

But after a Wall Street analyst suggested the third largest energy company in North America wasn’t spending enough to maintain its pipelines or returning value to investors, the company’s share price fell. Kinder Morgan’s stock value plummeted in 2015 and continues to languish. Lower oil prices and rising debt put its largest capital project on shaky ground.

Allan says investors recognized a year ago that the Trans Mountain project didn’t make commercial sense. As investor interest waned, Allan said, Kinder Morgan couldn’t raise debt or equity in the U.S. markets or find a joint-venture partner.

The job of raising money for the project then fell to Kinder Morgan Canada. But $1.6 billion it raised in 2017 went to pay off debts of its parent company.

Richard Kinder explained the move in a conference call with investors: “So we were able to strengthen KMI’S balance sheet using the IPO proceeds to pay down debt… ”

Kinder Morgan Canada has arranged $5.5 billion in construction facility loans from Canadian banks — but only if Kinder Morgan raises $2 billion in equity for the project.

“And now we learn from Premier Notley and Kinder Morgan Canada CEO Steven Kean that conversations with Alberta for financial support have taken place,” says Allan.

Rachel Notley, Canada’s leading petro politician, apparently can’t wait to pour taxpayers’ money into a project that the market views as high risk and that British Columbians regard as a threat to their best interests.

“Alberta is prepared to do whatever it takes to get this pipeline built — including taking a public position in the pipeline,” Notley said Sunday.

So corporate blackmail works like a charm in Canada.

Allan says Kinder Morgan is looking for a way out.

“The project is not commercially viable and, even before it’s built, Kinder Morgan is looking for a bailout,” she said. “If Kinder Morgan’s long-term contracts for moving 700,000 barrels of bitumen and oil on a controversial pipeline were solid, would Kinder Morgan now be blaming the government of B.C. for its problems?”

In a normal world governments concerned about fiscal prudence and the public interest would let Kinder Morgan abandon a non-viable project. (Some analysts have already said cancelling the project would be a “significant blow,” but not “the end of the world for Kinder Morgan.”)

In a moral world Canadian governments would admit that pipelines and tankers export refinery jobs and greenhouse gas emissions on a disastrous scale.

In a just world Alberta would have to admit it has allowed industry to overproduce bitumen due to low royalties and bad governance. The province has no strategic plan for bitumen other than screaming for pipelines.

But Canada, like its southern neighbour, is having trouble behaving normally, morally or justly these days.

But Trudeau and Notley think it’s OK to embrace a debt-ridden U.S. company so it can export, via tankers, unrefined bitumen to Chinese refineries where the upgraded resource can enrich the authoritarian Communist party.

Canadians should be more than ashamed.

They should be alarmed.

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.

By Andrew Nikiforuk for The Tyee.

The B.C. budget claims the province is making money from shale gas. But last month The Tyee showed the province is pouring more cash into the industry than it is getting back.

In fact the only time the B.C. government made any money from shale gas was during a land lease boom nearly a dozen years ago. Ever since then, revenues have dwindled to next to nothing due to low royalties and taxpayer-funded subsidies to the ailing shale gas industry.

Dig deeper, and four more claims made by the B.C. government turn out to be liquefied natural gas whoppers as well.

New information on employment numbers, shale gas reserves, transmission lines and the LNG promise of economic prosperity show that stretching the truth remains a persistent trend in the Christy Clark administration.

Whopper #1: Vastly less gas to sell than claimed

Let's begin with the government claim that British Columbia "has more than an estimated 2,900 trillion cubic feet (tcf) of marketable shale gas reserves," or more methane in the ground than the entire United States. Last year David Hughes, a former analyst with Natural Resources Canada who mapped much of the nation's coal and gas supplies, took a hard look at real reserves and found that the government claim had no basis in reality.

Hughes pointed out in a report for the Canadian Centre for Policy Alternatives that the BC Oil and Gas Commission estimated that B.C. only had 376 tcf of marketable shale resources. (Hughes added 40 tcf to this number for good measure, for a total of 416 tcf, to account for possible resources in developing plays.)

But proven reserves, or what industry can extract with existing technology, were only 44.4 tcf. That's one sixty-fifth of the government's inflated figure of 2,900 tcf. When Hughes noted that the emperor was wearing no clothes, the emperor (Minister of Natural Gas Development Rich Coleman) accused Hughes of misrepresenting the facts.

Coleman wrote an op-ed that said "B.C.'s natural gas supports long-term prosperity." The op-ed did not correct the government's accounting errors.

But according to a series of freedom of information requests just received by Marc Lee at the Canadian Centre for Policy Alternatives, that's not what civil servants were telling politicians.

In several email exchanges, they admitted that the government had used the wrong terminology and "misused terms or values such as 'reserves,' 'resources,' or 'marketable' in describing B.C.'s oil and gas endowment."

Hughes notes that the BC Oil and Gas Commission now estimates raw methane reserves in the province to be 51 tcf. Once processed, that gas might amount to 44.4 tcf.

Yet National Energy Board regulators had already approved 12 export permits totalling 205 tcf at the time Hughes's report was published, and were reviewing seven more with a combined total of 435 tcf (the NEB has since approved another six permits).

If the Clark government's aspirations of five LNG terminals come to fruition, this would require exports of 150 tcf of gas by 2040, or more than three times current proven marketable reserves.

Given the uncertainties in resource estimates compared to proven reserves, coupled with Canada's own needs, Hughes, a conservative energy analyst, questions the wisdom of a strategy hell-bent on liquidating these finite resources as fast as possible, particularly if B.C. and Canada care about meeting the greenhouse gas emission reductions committed to in the Paris climate talks. Yet the dubious figure of 2,900 tcf remains on the government website.

Whopper #2: Vastly fewer LNG jobs than claimed

The next wacky accounting LNG figure concerns the government claim that its non-existent industry will gainfully employ 100,000 British Columbians some great day in some near future, or more specifically 2018. Last year, Lee at the CCPA also dug into that fiction.

He discovered that the impressive and magical number came from a report written by the accounting firm Grant Thornton. The firm only used government-provided data and economic models.

Not surprisingly the government published the report just prior to the 2013 election. In his study Lee found the numbers were highly inflated and bore no resemblance to the real economic world of LNG.

Lee concluded that B.C.'s LNG sector could be expected to support "only 2,000 to 3,000 construction jobs per LNG terminal over three years and 200 to 300 permanent workers once operational." As a consequence, five LNG terminals might create between 15,000 short-time jobs, but not 100,000.

When Lee released his findings last year the government immediately attacked the CCPA report as "misguided and poorly researched."

A freedom of information request, however, has revealed, once again, that email exchanges between civil servants largely supported Lee's version: real job creation numbers might be a few thousand but not 100,000. One email thread confirms that the Petronas Pacific NorthWest LNG project will launch only "330 long-term operation careers."

Clear-headed analyses by the industry around the world also confirm Lee's realistic job assessment and question the government's credibility. The International Monetary Fund, for example, recognizes LNG as a capital-intensive industry with a poor record of job creation. A typical LNG plant will only create a few hundred jobs during the planning phase, a few thousand during the construction phase, and only a few hundred when operating. That's it.

Consider the example of Mozambique, which wants to exploit its rich offshore natural gas reserves. A 2014 report on its prospects emphasized the well-known fact that LNG is not a job-creating industry. "In terms of employment, the capital intensive nature of the industry means that its direct contribution to job creation is extremely limited, at less than 0.5 per cent of formal sector jobs," explained the Oxford Institute for Energy Studies report.

"Of key importance will be the ability to link the extractive sector — which is capital intensive and responsible for few direct jobs — to the wider economy," added the report.

And then the report makes this notable revelation: "Unlike the situation in Tanzania, where politicians frequently promise citizens tens of thousands of jobs in the gas industry, the Mozambique government's expectations of massive job creation have already been moderated. Most estimates put job creation linked to the LNG ventures at around 7,000–7,500."

To date, a million-dollar government website designed to connect citizens looking for work in the LNG industry has not connected anybody to anything. But it has employed one previous politician, Gordon Wilson, a former leader of the BC Liberal party.

Wilson now earns $150,000 a year to advocate for a capital-intensive industry that hasn't created any jobs — except for Clark supporters.

In Australia, LNG has left another poor employment horror show that the government in B.C. has failed to study or acknowledge. Unfettered LNG exports in Australia not only increased both natural gas and electricity costs for consumers, but also reduced the manufacturing sector's ability to compete and create jobs.

"U.S. policymakers should look to the Australian LNG export example as a warning for what can occur due to escalating LNG exports," recently warned one industrial energy consumers' group. In other words, a successful LNG business could kill the province's manufacturing base by inflating natural gas prices.

Whopper #3: No, LNG prosperity is not close at hand

Along with the jobs fiction, the government has also manufactured a prosperity fiction. In February the Conference Board of Canada published a glowing report on the province's proposed 21 LNG projects called "A Changing Tide: British Columbia's Emerging Liquefied Natural Gas Industry."

Even though not one project has proceeded to the construction phase, the optimistic report concluded that just three large LNG terminals could export 30 million tons per annum (MTPA).

Such activity would generate 33,000 permanent jobs and $7 billion in investment and raise GDP. It would also double the amount of shale gas production by an additional five billion cubic feet, and carpet-bomb much of northeastern B.C. with gas wells.

But these figures are all pie in the sky and again bear no resemblance to reality.

Here's one bitter taste of reality. Most readers will recall that Apache Corp., a Houston-based energy firm, conducted some of the largest frack jobs in northern B.C. and was one of the first companies to champion an LNG terminal. But in 2014 it sold its interests in its Kitimat proposal along with an Australian project. Here's why: last year the shale fracking company posted a loss of nearly $25 billion. That's right: $25 billion. Fracking shale gas, an exercise in declining returns, rarely pays the bills.

More reality can be found in a 2015 report by Oxford Institute for Energy Studies, a rigorous non-profit educational group based in London that analyzed the prospects for North America's LNG industry.

It was blunt: "Despite Canada's abundance of gas resources and the plethora of proposed LNG export schemes, the current business environment, characterized by low oil prices and industry consolidation, does not indicate that any Canadian LNG scheme will be commissioned before the middle of the next decade."

Moreover, "the window of opportunity to capture premium Asian markets has eluded the Canadian projects" because of deep uncertainty and falling demand in those markets. U.S. LNG projects are also cheaper.

The report concluded that the fate of Canadian projects is tied to the price of oil, and they would only succeed if oil were selling for somewhere between $76 to $90 a barrel, "which does not seem competitive with the first generation" of U.S. LNG projects.

In other words there is no emerging LNG industry in Canada, and if one does appear it won't arrive until 2025, or nearly a decade from now. And even that is uncertain.

The Conference Board (which makes no mention of the Oxford Institute report) was funded by Progress Energy, which is owned by Petronas, the Malaysian state-owned oil giant backing the Pacific NorthWest LNG project.

Most media stories on the report failed to mention this apparent conflict of interest. But the government of B.C. is only too happy to cite this as gospel while cheerleading a fantasy industry.

Whopper #4: Yes, Site C dam is for powering frackers

Last but not least come some wacky accounting numbers on the Site C dam, a $9-billion public works project that analysts generally agree will increase everyone's electricity bills. Although provincial authorities swear the project has nothing to do with LNG, Ben Parfitt, an investigative journalist, has revealed otherwise in a DeSmog Canada article.

Last January, the province announced a new $300-million transmission line to power shale gas development in the south Peace Region. Two other transmission lines are also being proposed. The lines will allow shale gas drillers to use electricity to power their operations instead of methane.

As a consequence they'll have more gas to export and access to cheap energy subsidized by taxpayers.

What the press release did not explain, notes Parfitt, is that "virtually all of this new transmission infrastructure is being built at public expense to provide power to one entity and one entity alone — the natural gas industry."

Two other proposed lines reinforce the story. One 140 kilometre-long project will fragment the forest to bring power to the Pink Mountain Region in the north Montney basin. It will benefit one shale gas extractor in particular: Progress Energy.

That shale gas drilling company is owned by Petronas, which successfully lobbied the government to lower its LNG tax rates. Meanwhile, Progress Energy paid for the boosterish Conference Board report.

Petronas is also one of the backers of the controversial Pacific NorthWest LNG project off Lelu Island at the mouth of the Skeena River.

ATCO, the anointed builder of the Petronas transmission line, recently argued that no public review of the project was necessary and asked for an exemption under Section 22 of the Utilities Commission Act.

"The project is being developed on an aggressive schedule to meet with Progress [Energy] timelines. Failure to meet these timelines reduces the feasibility of electrification and poses a substantial threat to the project proceeding."

Energy Minister Bill Bennett supported the corporate request in a Business in Vancouver story: "My understanding right now is that if I do not direct the BCUC [British Columbia Utilities Commission] to allow these projects to go ahead, that we may lose some interest on the part of the gas companies…. They just don't feel that they can wait for a long BCUC process."

When politicians elect to bypass mandated legislated safeguards to protect the public purse by evaluating the need for projects (and that's what the BCUC does), then they are no longer working for taxpayers.

But the logic is clear, says Parfitt. "The more transmission lines erected to allegedly 'green up' the field operations of fossil fuel companies, the more fossil fuel industry activity. The more such activity, the more the government and BC Hydro can justify Site C."

It's all a self-serving story. The government produces wacky numbers and accounting figures to justify corporate LNG scheming that no longer make any economic sense.

Years ago Jacque Ellul, the French philosopher, noted that "propaganda is called upon to solve the problems created by technology, to play on maladjustments, and to integrate the individual into a technological world." It's how government and industry now work.

In B.C. the government uses propaganda not only to integrate its citizens into its wacky LNG fantasy, but to subsidize foreign companies and pay for unneeded dams and transmission lines at the same time. It is designed to make taxpayers smile while they are being robbed. 

Image: Facebook

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.

The spectre of a massive, floating LNG plant in environmentally fragile Saanich Inlet may seem unlikely to gain environmental approval, but the proposal must be defeated before liquefied natural gas prices increase to the point that the project becomes too tempting, worried southern Vancouver Island residents are being warned.   “It is best not to let your guard down and say the economy is not good right now,” said Eoin Finn, founder of My Sea to Sky and a retired partner in KPMG, who holds a PhD in physical chemistry.   Proposals by Steelhead LNG Corp. for a floating plant anchored adjacent to Malahat First Nation land at Bamberton, fed by gas pipelines criss-crossing the Salish Sea and then snaking across Vancouver Island to Sarita Bay near Bamfield, where the company wants to build a larger LNG plant on Huu-ay-aht First Nation land, were initially greeted with incredulity.   However, last October, the National Energy Board approved export licences for Steelhead to export up to 30 million tonnes of LNG per year for 25 years, with six million tonnes from Malahat and the remaining 24 million tonnes from Sarita Bay.

There are currently 20 proposed LNG projects in B.C. although none have received final investment decisions. Three projects, including LNG Canada in Kitimat, Pacific Northwest LNG near Prince Rupert and Woodfibre LNG near Squamish, have advanced beyond the proposal stage but a combination of low prices, First Nations opposition and federal permitting have prevented the industry from gaining a major foothold in the province.

“The NEB seems to hand out export permits like confetti at a wedding,” Finn told capacity crowds at meetings in Esquimalt and Mill Bay.   It is not only the Steelhead plant itself — which would be the first floating LNG terminal in the world — that should worry southern Vancouver Island residents, they should also consider the massive ships, about the length of three football fields, that would pick up LNG, Finn said.   The ships suck in vast amounts of seawater to cool the frozen gas, which means phytoplankton and small fish are also sucked in, making “the biggest bouillabaisse engine of all time,” Finn said.   “Then they blow it out again and, because they don’t want anything fouling the pipes of their very expensive ship they add a little biocide into it,” he said.

Like what you're reading? Sign up for our email newsletter!

“That means 50,000 tonnes of hypochlorited hot water poured into the Inlet every year, making it into a marine desert.”   Or, think about the greenhouse gas emissions, Finn suggested.   “It would be like adding 400,000 cars a year to the Malahat.”   Saanich Inlet, a glacially-carved fjord with deep water that is oxygen-depleted for much of the year, has been studied by scientists for 80 years because of the rare ecosystem that produces phytoplankton blooms. It is home to shellfish, herring, salmon and many other species and currently houses the Ocean Networks Canada VENUS (Victoria Experimental Network Under the Sea) cabled undersea laboratory.

VENUS Laboratory in the Saanich Inlet. Photo: Ocean Networks Canada.   It is flanked on one side by the winding Malahat highway, dotted with numerous small communities, and on the other side by Saanich Peninsula, with villages such as Brentwood Bay, tourist attractions such as Butchart Gardens and Victoria International Airport. At the tip of Saanich Peninsula is the busy Swartz Bay Ferry Terminal.

Steelhead CEO Nigel Kuzemko said one of his priorities is ensuring that there will be no detrimental effects on Saanich Inlet, so the company has commissioned a study that will model the effect of one LNG ship a week picking up gas from the floating plant.   Using seawater for cooling the giant LNG thermos tanks is more efficient than air and will produce less greenhouse gas emissions, he said.   “But the water comes out warmer which is what we are concerned about and we want to know what the effect will be on Saanich Inlet,” Kuzemko said.   A chemical will be used to stop bacteria growing in the pipes, he said.   “We are looking at different ones, but they will all be biodegradable so they don’t have any long-term impact,” he said.   Saanich Inlet is a unique area, but has had its share of industrial activity over the last 100 years, Kuzemko said, pointing out that the area where the plant would be situated is beside the old Bamberton concrete plant, where the bottom of the Inlet is covered in concrete dust.   Information compiled in the study would be needed for the environmental assessment process, but Steelhead wanted to get out in front and ensure all the questions were answered and that the community had been consulted from the start, Kuzemko said.   “We hope to do it the right way, but, some people think any energy project is wrong,” he said.   “What we are trying to do is something that we think is great for the world. There’s no reason industry and Saanich Inlet can’t co-exist.”   The aim of reducing the environmental footprint is the reason Steelhead has chosen to use existing pipeline routes, meaning the route wends from B.C., across the Strait of Georgia to Washington and then back to Saanich Inlet, rather than cutting across an untouched landscape over the Coast Range mountains, Kuzemko said.

Adam Olsen, B.C. Green Party deputy leader, who lives 100 metres from Saanich Inlet and grew up on Saanich Peninsula, fears that the belief such a proposal will automatically be rejected is resulting in apathy, which could allow Steelhead to slip through the approval process.   Even though the project is unlikely to be viable at the current price of LNG, many options open up once the company is given a certificate, he said.   It could be sold or put on stand-by for the future, so the focus has to be stopping it at this stage, said Olsen, who believes the provincial government is likely to be in favour.   “This government has basically bet everything they have on LNG and they are also the regulator,” he said.   “I don’t think we can have any confidence that, just because the project appears to be outrageous, that this government won’t look at it seriously.”   Olsen is a member of Saanich Inlet Network, a group formed to fight the LNG proposal, which, during the last week, has collected almost 500 signatures on a petition asking provincial Environment Minister Mary Polak and federal Minister of Natural Resources Jim Carr to reject the Malahat proposal.   Investigative energy reporter and author Andrew Nikiforuk, who has written extensively on LNG, worries that, if Steelhead builds the plants, there will be a push to extract methane from the many coal seams around Vancouver Island.   “A company which has spent billions on LNG terminals will want to keep those facilities full and there’s a lot of methane in old coal seams on the Island,” he said.   “It could mean fracking in watersheds full of salmon.”   However, Finn believes that using methane from coal seams would not be tolerated even if the company is given approval for the plants.   “The coal seams are very close to the surface and any government that gave a company the right to frack so close to people’s drinking water would be hung, drawn and probably quartered,” he said.   It is not yet known whether the 300-member Malahat First Nation will continue to support the project following the election of a new chief and dismissal of three top economic development officials as part of a review initiated by new Chief Caroline Harry.   The agreement-in-principle was signed while former chief Michael Harry was in power and has raised the ire of some of the other four First Nations with land surrounding Saanich Inlet, who say they were not consulted.   Caroline Harry, who could not be reached before publication, said shortly after her election in November that she would reach out to Tsartlip, Tseycum, Pauquachin and Tsawout. Without Malahat support it is doubtful whether the project could proceed.

Steelhead has been talking to Malahat First Nation for 18 months, said Kuzemko, who does not believe there is any reason to think the relationship has changed with the election of a new chief and council.   “It’s going great actually. There are different concerns and a different environment with a new chief and council, but we will work with them,” he said.   Steelhead’s timeline calls for a final investment decision to be made in 2018 and, as with other companies looking at investing in LNG export plants in B.C., economics are likely to be a major factor.   Currently the LNG Asian spot price per million British thermal units is $5.72 and studies indicate that LNG prices are likely to remain low into the 2020s.   That means building LNG plants in B.C. makes no sense as the cost of fracking, transportation, capital costs, liquefying the gas and then shipping it to Asia would be about $12 per million British thermal units, Finn concluded after crunching the numbers.   However, Natural Gas Development Minister Rich Coleman said studies being used by the B.C government show that there will be a worldwide shortage of LNG within four or five years and, as it takes about four years to build an LNG plant, B.C. is well-positioned for developing a thriving LNG industry.   “If the demand is larger than the supply, the price will start to creep back to an economic level,” he said.   Kuzemko knows there are many hurdles before the project can start.   “B.C. is the most arduous location in the world to get approval,” he said.   “We know this project has to be community-based from the start. We are trying to do things in a different way.”

Image: Saanich Inlet by Lotus Johnson

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.

This is a guest post by Ben Parfitt, resource policy analyst with the Canadian Centre for Policy Alternatives. It orginially appeared on policynote.ca.

Well, I won’t back down No, I won’t back down You can stand me up at the gates of hell But I won’t back down

— Jeff Lynne, Tom Petty

In the mid 1960s, the world’s two superpowers hit on a novel idea to try to coax more oil and natural gas from the ground. In what they hoped would prompt the release of “endless fountains of fossil fuels,” first the Union of Soviet Socialist Republics and then the United States of America detonated nuclear bombs belowground.

The hoped-for geysers of fuel never materialized. Instead, nearby oil and gas wells became contaminated with radioactive gases that in some cases later broke to the surface and swept over the homes of unsuspecting residents. Groundwater was polluted. And giant subterranean craters filled with cancer-inducing gases that no public power utility in its right mind would touch.

The failed experiments of a half-century ago were not, however, a surprise to those who were familiar with mining the earth’s depths for oil and natural gas. If anything, the nuclear detonations were simply part of a continuum that traced back to the mid 1860s in Pennsylvania. Flummoxed by the rapid decline in production from the world’s first intensively drilled oil field, wildcatters embraced the ideas of a Civil War veteran who sent torpedoes underground to stimulate oil flows.

The new technology, the magazine Scientific American enthused, “would fracture the rock, and clear the closed passages or make artificial ones reaching the oil veins.”

Many people would subsequently be blown to bits during well-torpedoing events and later with the use of nitroglycerin as a brute-force mining technology. But more oil flowed, and the era of hydraulic fracturing or fracking was born.

For Andrew Nikiforuk, the brutal antecedents to today’s fracking operations are critical to understanding what is going on now. Contemporary fracking involves pumping massive amounts of water, cancer-causing chemicals, fine-grained sands or artificial “proppants” belowground to fracture gas-bearing rock or coal formations. But the objective is no different than it was back when the industry and government played with nuclear bombs. Brute force is harnessed to fracture rock in an effort to make it let go of the oil and gas it stubbornly holds. And no amount of computer modeling has yet to make sense of how far those cracks or fractures will go or in what direction. “Chaos” reigns. And human life, human health, water, the environment, our climate be damned.

Slick Water: Fracking and One Insider’s Stand Against the World’s Most Powerful Industry, captures like never before how fossil fuel companies must do more and more to coax oil and gas from the ground. And how that each time more effort is made, the social and environmental costs mount. The publication of Nikiforuk’s most recent book could not be more fortuitous, as the B.C. government continues to woo energy industry giants to build liquefied natural gas plants on the province’s coastline: processing facilities that would link via new pipelines to the northeast interior of the province where B.C.’s largest natural gas deposits are located. The book should be required reading for every MLA.

Given the tricky geology where some of B.C.’s natural gas is found, unprecedented volumes of water would be required to “stimulate” gas production. To date, those stimulations or fracks in the northeast of the province have caused lake levels to drop dangerously low, triggered clusters of earthquakes, and led to “failures” or leaks at sites where highly toxic wastewater from fracking operations was allegedly safely stored. All of this and more occurred when drilling and fracking activities were a tiny fraction of what they would be were just one LNG facility to be built.

No one who has paid even modest attention to the controversies associated with fracking will have escaped noticing the many ways in which governments and oil and gas companies defend modern-day extraction techniques:

We drill and frack at such great depths that there’s no possibility of contaminating drinking water.

We pour cement around our wellbores to protect groundwater from gas leaks.

Household water that can be lit on fire and water wells that are filled with methane gas has nothing to do with us. Mother Nature is responsible.

In each case, Nikiforuk debunks such assertions with a wealth of data that will leave readers shaking their heads and questioning how, if at all, fracking operations can be conducted safely. But it is the human story — that of Jessica Ernst, a one-time energy industry consultant whose well water became heavily contaminated after Encana conducted numerous fracking operations in the aquifer that supplied her and other residents in and around Rosebud, Alberta, with their water — that is the most compelling, heart-breaking and anger-inducing.

And not just because of the shoddy, dismissive attitude that the energy company had when it came to what impacts its operations might have on peace and quiet and on water quality. More troubling by far is the almost complete lack of meaningful action, incompetence and acts of overt hostility and intimidation visited on Ernst by members of the Energy and Utilities Board (EUB), Alberta’s then energy industry regulator, provincial environmental officials, and the RCMP.

From the moment that the energy company began experimenting with extracting gas from shallow, thin coal seams in and around Rosebud in the early years of the last decade, Ernst was in constant touch with the company and provincial agencies. First about the horrendous noise associated with compressors that the company had installed near her home to push gas to the surface. (Imagine a jet engine roaring constantly not far from your backyard fence.) And then, about her water. Water that came from a well that had been given a clean bill of health with no gas present before the frackers arrived, and that after the frackers left was so contaminated with methane that the water pouring from Ernst’s taps and showerhead could be lit on fire.

But if the company and regulators thought that Ernst would roll over like so many had before her, they were wrong, although precedent was clearly on their side.

Over and over again, landowners who got angry enough and rattled the cages of the fracking companies long and hard enough eventually got a cheque. The cheque covered the cost of their house and land if they were lucky, and they moved on. But there was always a catch. Landowners had to first sign papers that amounted to gag orders. They got the money in exchange for their silence. The silence even extended in some cases to the written record itself. If a landowner had filed a claim against a company in court, the court records were sometimes sealed under a “protective order.”

It was clear whose interests were thus protected. But Ernst wasn’t — and to this day still isn’t — rolling over. Instead, three years after Encana encroached on the unsuspecting citizens of Rosebud and began what amounted to a giant experiment to frack and extract methane gas from shallow coal seams, Ernst sued Encana, the EUB and Alberta Environment.

“Gag orders erased history, Ernst realized, and allowed regulators to claim there had been no proof of contamination in the first place. To her way of thinking, the courts were participating in ‘criminal activity’ by allowing the gag orders. She had compassion for families who signed to protect the health of their children but only contempt for the authorities that willfully covered up industry’s dangerous methane liabilities.”

Eleven years after Ernst’s problems first began and nearly eight years after lawyers filed her lawsuit, Ernst is still awaiting justice. The slug-like pace of the legal proceedings coupled with the drying up of all opportunities for her to work in the oil patch means that Ernst is draining her life’s savings in the fight. But she is not backing down. Blessed with an encyclopedic memory and a willingness to go to the wall to extract information from a government that holds onto it about as stubbornly as a shale rock formation holds onto its trapped gas, Ernst has armed her lawyers with a wealth of information that may one day set a precedent that tens of thousands of other landowners living in harm’s way will thank her for. She has also become a folk heroine in the process, speaking on the dangers of fracking to audiences in Ireland, England, the United States and Canada.

Fourteen years ago, Nikiforuk wrote Saboteurs. Subtitled Wiebo Ludwig’s War Against Big Oil, the book recounted the horrors visited upon numerous rural landowners by encroaching natural gas operations, and in particular the toxic legacy of “sour” gas. Sour gas contains hydrogen sulphide, a neurotoxin that can be lethal at high enough concentrations and that has killed scores of workers in the oil patch. Farmers and ranches living in proximity to gas flares or gas lines, wells and other infrastructure that may leak such gas, frequently report that their cattle spontaneously abort. And then there are the miscarriages that have happened in farmers’ and ranchers’ homes . . .

Saboteurs went on to win a Governor General’s Award for non-fiction. In its first hardcover incarnation it featured a cover that looked like a stand-in for a still from a Quentin Tarantino film: a low-angle shot, of a thickly bearded Wiebo Ludwig, clutching a rifle. A light shines on Ludwig’s face, warming it and setting it off from the ominous gray sky behind him. He stares directly and somewhat impassively down into the camera. Behind him, a sign emblazoned in red and black block letters warns of the dangers to the local community of gas wells and orders the gas industry to abandon further operations.

Ludwig was eventually found guilty of sabotaging a string of oil and gas wells and infrastructure in northern Alberta. As the dispute between him and the industry intensified prompting one of the most expensive and bizarre police investigations in Alberta history, one company and one man in particular would become Ludwig’s primary adversary. That man was Gwyn Morgan, then president of Alberta Energy Company, which later merged with PanCanadian Energy Corporation to become Encana, a company that Morgan would go on to head and that would move aggressively into mining numerous “unconventional” gas reservoirs. Including, of course, those in and around Rosebud.

Ludwig was eventually stopped. Although another raft of sabotaging activity would subsequently occur in northern B.C., showing that for some “The Weibo Way” was the only way to deal with gas-drilling operations encroaching on their lands. The Weibo Way also factors into the Ernst story but in ways that one would not expect and that will leave readers shaking their heads at the levels to which vested interests will stoop to discredit those who seek justice.

Fourteen years into her battle with Encana and the Alberta government, Ernst is still very much on her own lonely path, continuing to remain strong in the face of government and industry adversity. She shows no signs of stopping. And there isn’t a shotgun in sight.

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.

When you cover energy and environment issues day in and day out, you’re prone to having some pretty geeky fantasies.

Case in point: over the holidays, my mind wandered to considering what advancements in Canadian energy policy I’d put on my wish list for 2015. I could have rattled off five or 10 things, but one kept rising to the top.

If I could wave my magic wand and make just one thing happen on the energy and environment front, what would it be? I’d like Alberta to start managing its oil wealth more responsibly.

The context: as 2014 draws to a close, Calgary public-school officials are asking the province to cough up the funding required to complete eight new schools and two modernization projects on time.

Right now, one-third of Calgary’s schools are running at more than 90 per cent capacity. All of the projects that require funding have been announced by Alberta Premier Jim Prentice since he took office in September.

“With the recent fluctuation in oil prices, we’re concerned,” Calgary Board of Education trustee Amber Stewart told Metro Calgary.

Let’s take a pause and reflect on how totally absurd this is for a moment.

Alberta has been developing one of the world’s largest sources of oil for more than 40 years and yet Calgary’s schools are nearly overflowing and the province doesn’t know if it’ll be able to locate the cash to build new ones because — surprise! — the price of oil changed.

So what’s wrong here? For starters, new infrastructure shouldn’t be tied to the price of oil. Even the Fraser Institute and the Canadian Centre for Policy Alternatives can agree that the Alberta government shouldn’t rely on non-renewable resource revenue to fund its operating expenses. (For the best run-down on this topic, read Money for Nothing: The Province vs. Non-Renewable Resource Revenue by Alberta Oil editor Max Fawcett.)

Fawcett references a 2013 Fraser Institute report that said to treat oil revenues as “analogous to sales tax receipts, and to spend them on projects that provide a flow of present services, would be to engage in unwise capital consumption, a drawing down of principal. Intuitively, the present generation would be selfishly eating away at a finite stock pile of wealth, rather than acting as custodians of ­nature’s gifts on behalf of all future generations.”

Another report by former Premier Ed Stelmach’s Council for Economic Strategy noted: “The true Alberta advantage is not the ability to create a low-tax environment by underwriting a significant proportion of government services with funds received from the sale of energy assets.”

Despite generating almost $190 billion in non-renewable resource revenues since 1980, the value of Alberta’s Heritage Fund was just $17.3 billion at the end of 2013 — paling in comparison to both Norway and Alaska’s non-renewable resource savings.

So here we are digging up two millions barrels of oilsands per day, and Prentice is warning that tough times could lie ahead as oil prices plunge below $75 U.S. per barrel. The province has projected that there could be a $7 billion shortfall in revenues next year as a result of the price crash.

Could these fiscal woes offer the window of opportunity needed for Albertans to wake up and see how poorly their oil wealth is being managed?

It took millions of years for all of that oil to end up trapped in sand in northern Alberta. We only get one shot at digging it up. It’s high time we start getting that right (and getting that right would inevitably mean going slower and collecting higher royalties).

The first step in changing the way Alberta manages (or mismanages) the oilsands is to untether government spending from oil revenues, thus starting to dismantle the government’s reluctance to fairly regulate industry. Right now you have a situation in which the Alberta government is reluctant to bite the hand that feeds it.

As an added bonus, keeping one-time resource wealth out of the province’s operating budget could weaken the government’s chokehold over its citizens (pretty easy to stay in power when you’re dishing out $400 “prosperity cheques”) — not to mention actually creating a savings fund for the future.

In an interview with The Tyee, Terry Lynn Karl, one of North America's foremost experts on the politics of oil, offered some wise words on the impact of oil revenue on governments. 

"Let me be clear: the commodity itself is neither good nor bad,” she said. “But the excessive profit involved from what Adam Smith called 'reaping what has not been sown' has led to a concentration of power and influence that makes it exceptionally difficult to fight the negative consequences of hydrocarbon dependence.”

The first step to breaking up that concentration of power and influence? Stop borrowing from the future and spending oil revenue like it's going out of style.

So here’s a little new year’s resolution suggestion for Prentice and the Alberta government: show your commitment to managing the oilsands responsibly by weaning yourselves off relying on one-time oil revenues to provide government services. If you showed that kind of courage, there may be short-term pain, but Albertans 50 years from now would still be clinking their glasses in your honour.

Photo: Jim Prentice by Connect 2 Canada

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.

"Alberta is very much a petrostate," says journalist and author Andrew Nikiforuk. "It gets about 30 per cent of its income from the oil and gas industry. So as a consequence, the government over time has tended more to represent this resource and the industry that produces it, than its citizens. This is very typical of a petrostate."

The flow of money, he says, is at the heart of the issue. "When governments run on petro dollars or petro revenue instead of taxes then they kind of sever the link between taxation and representation, and if you're not being taxed then you're not being represented. And that’s what happens in petrostates and as a consequence they come to represent the oil and gas industry. Albert is a classic example of this kind of relationship."

In this interview with DeSmog, Nikiforuk explains the basics of his petrostate thesis and asks why Canada, unlike any other democratic nation, hasn't had a meaningful public debate about the Alberta oilsands and how they've come to shape the Canadian landscape, physically as much as politically.

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.

The Globe and Mail’s Report on Business reported Friday that investors are reconsidering the viability of the Alberta tar sands as a worthy venture.

After putting numerous assets up for sale earlier this year, tar sands companies have so far come up empty-handed. With operating costs constantly rising, unstable oil prices and dropping revenues, major energy corporations are losing deals due to skittish investors.

They are being forced to hold off on selling what they anticipated would be valuable assets after receiving less than enthusiastic bids.

Suncor Energy Inc., Canada’s largest oil company has scaled back its spending by $1 billion from last year as a means of offsetting lagging revenues.

Recent predictions by the International Energy Association and British Petroleum show that instead of a rise in the demand for Canadian crude oil, Canada’s prime export destination—the United States—is on its way to becoming the world’s largest energy producer, potentially becoming energy self-sufficient by 2020.

There are American companies, such as Murphy Oil based in El Dorado, Arkansas, who are considering selling off their stake in Canadian oil companies. The Houston-based Marathon Oil Corporation spent the last seven months in talks to sell part of its 20-percent stake in the Athabasca Oil Sands Project before the deal fell through. The company has declined to say what went wrong.

Environmental journalist Andrew Nikiforuk warned Canadians almost three years ago that government overspending to develop fossil fuels and a failure to diversify would lead to the industry’s collapse. In an opinion piece for The Tyee, he wrote about the dangers of allowing the Canadian dollar to become to closely tied to the price of oil, something that was already beginning to happen at the time:

“For better or worse Canada's economic fate is now chained to oil exports and oil price shocks. That's what happens when a nation supplies the United States with 20 per cent of its oil and refuses to have a national conversation about the consequences.”

Recent stocks reports show that Canada’s biggest oil companies have taken a turn for the worse.

In April, major companies including Shell, Exxon and BP, were trading at the lowest numbers seen in nine months.

These numbers cast doubt on the Harper government’s assertion that oil sands production will triple by 2035. If BP's predictions are correct, some say Canada will be lucky to hold steady at current levels of export to the US, let alone increase it by millions of barrels per day.

The fossil fuel industry may in fact be undermining its own economic viability. The rise of natural gas production via hydraulic fracturing is at least partially to blame for the drop in demand for crude oil down south – due to the high volume and availability of shale gas.

Investors' wariness will also have a huge impact on development should the Canadian and America governments approve the Keystone XL and Northern Gateway pipelines.

With willing investors dwindling, it's hard to say who will be willing to risk the money to build more tar sands insfrastructure.

Image Credit: Kris Krug via flickr, used with permission.

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.