A major piece of unfinished business left behind at the end of last year looks certain to haunt British Columbia in 2022, as the province’s NDP government faces determined Indigenous opposition to the Coastal GasLink pipeline and the project itself runs into serious financial headwinds.
As 2021 drew to a close, the government of Premier John Horgan faced a mini-revolt within the New Democratic Party over its support for Coastal GasLink (CGL) and liquefied natural gas (LNG) development. CGL parent company TC Energy was in the midst of tough negotiations over project delays and cost overruns, and Wet’suwet’en water protectors had reoccupied a key pipeline construction site and evicted CGL work crews.
In the new year, analysts tell The Energy Mix, the project’s tenuous business case could become even more fragile, with the province’s longstanding dreams of an LNG boom and the success of its highly-touted climate plan hanging in the balance.
Going All-In for LNG
In a year-end update, the Wet’suwet’en protesters leading the campaign against Coastal GasLink traced the fight back to 2010, when 13 new pipelines were slated to go through their territory. Investors like Enbridge Inc., Pacific Trail Pipeline, Spectra Energy, and Pembina Pipeline “were forced to pull out of these mega-destructive projects through our territory,” the community wrote, “and the CGL pipeline is the only one left.”
In mid-November, the Gidimt’en Clan issued an eviction order that gave CGL employees an eight-hour deadline to leave the territory. Clan members had previously set up a blockade camp on a CGL work site south of Houston, B.C., “halting plans to drill under the Wedzin Kwa (Morice River),” CBC reported at the time. Clan spokesperson Sleydo’ (Molly Wickham) had called the river “the major concern”, adding that enforcement of the eviction notice was “the next step” to protect the Wet’suwet’en sacred headwaters, salmon spawning river, and source of clean drinking water.
RCMP responded with the heavily militarized arrest of nearly three dozen blockaders, as well as two journalists who were onsite to cover the story and clearly identified as media, and the Horgan government took harsh criticism for diverting resources from the province’s flood emergency to defend CGL’s interests.
“While rescue teams searched for bodies, and soldiers filled sandbags in Abbotsford, police dressed up like soldiers spent the week serving as mercenaries for the Coastal GasLink pipeline,” wrote Dogwood Communications Director Kai Nagata, in a searing email to supporters. “A squad of at least 50 heavily-armed RCMP officers, flown in from detachments around the province, headed north to arrest Gitxsan and Wet’suwet’en people on their own land.”
The “diversion of public safety resources, during a provincial state of emergency, had to have been authorized by cabinet ministers,” he added. “The B.C. government is going all-in to build LNG Canada, a fracked gas megaproject that would ensure tomorrow’s climate disasters are even more deadly and destructive,” and was brought to life by more than C$5 billion in provincial subsidies.
In early December, the Aboriginal Peoples Television Network (APTN) reported that B.C. Solicitor General and Deputy Premier Mike Farnworth had authorized the RCMP action by declaring an emergency under the province’s 20-year police service agreement with the federal force. Farnworth’s office said only that “enforcement decisions are made by police. Politicians do not direct police operations in B.C.” But RCMP Chief Supt. John Brewer, a commander with the force’s Community-Industry Response Group, told APTN the province “granted the request to beef up forces on the territory,” APTN wrote.
“It certainly wasn’t planned during floods,” Brewer said. “The operation was being planned to open up that road before the floods hit.”
‘Dismay and Anger’ at NDP Convention
None of that news went down well with many of Horgan’s and Farnworth’s political allies, who were on their way into their provincial party’s virtual convention. In early December, three NDP Members of Parliament “joined 15 former federal candidates and around 1,000 NDP grassroots members saying they [were] ‘angered’ by actions toward Indigenous protesters who oppose the pipeline in their traditional territories in northern B.C.,” The Canadian Press reported.
The petition called on federal NDP leader and B.C. MP Jagmeet Singh “to publicly denounce the violence enacted against members of Wet’suwet’en First Nation by the RCMP”. It expressed “dismay and anger at the federal NDP’s statement in response to these events, which obscures the oppressive role the RCMP and BCNDP are playing in perpetuating colonial violence.”
That same week, B.C. NDP Cabinet minister and former federal MP Nathan Cullen took the RCMP to task for using “undue force” to arrest two of his constituents. And former federal candidate and longtime climate hawk Anjali Appadurai said the party’s support for the project put it on the “wrong side of history”.
But that effort fell short at the two-day convention, with the 715 virtual delegates voting down a resolution aimed at ending lavish fossil fuel subsidies that critics say will “neutralize” the province’s best efforts to meet its 2030 targets under the CleanBC climate plan.
Convention delegates heard repeated calls to cut off fossil subsidies and end support for the LNG Canada and Coastal GasLink projects from North Island delegate Ashley Zarbatany, chair of the party’s environment and economy committee, and former federal candidate Avi Lewis, The Tyee reported.
“We can’t continue to underwrite and finance on the taxpayer dime LNG Canada,” Zarbatany told the convention. “It’s like paying for suicide, so I cannot support that.”
“I know, as so many of you know, there’s a pipeline-sized elephant in the room at this convention and in this province,” Lewis said. “It is our government’s continued support of fossil fuel expansion in the very teeth of a climate change emergency.”
In the end, The Tyee wrote, 62% of the delegates voted against a procedural move to delay support for the CleanBC plan until language opposing fossil subsidies could be strengthened.
Pipeline to a ‘Financial Albatross’
The multi-billion-dollar question hanging over the NDP convention debate was why the Horgan government would support a contentious, climate-busting project, even issuing the order that led to an overwhelmingly militarized police response, at the risk of alienating party activists and regular voters concerned about the climate emergency or Indigenous rights. Some part of the answer might lie in the financial stability of the project itself, and the expensive legal jeopardy the province could face if it ever pulled the plug on the pipeline, observers have told The Mix.
The news that Coastal GasLink was running behind schedule and over budget dates back at least to July 2021, when The Canadian Press reported that the project could be delayed unless TC Energy and the multinational LNG Canada consortium could settle an ongoing dispute over project costs. In an emailed statement, LNG Canada said TC Energy had proposed cost increases and schedule performance that went “well beyond” what the two companies agreed to when LNG Canada made its final investment decision in October 2018, CP said at the time.
By November, the cost overruns had hit C$3.3 billion, CP wrote. Later that month, the Institute for Energy Economics and Financial Analysis (IEEFA) warned that LNG Canada, the biggest construction project in Canadian history, was on its way to becoming a “financial albatross” and “could be the last liquefied natural gas project built” in the province.
“Over the last three years, market shifts and policy changes have tested LNG Canada’s long-term economic viability,” IEEFA’s energy finance Canada analyst, Omar Mawji, said at the time. “This project could become a financial albatross for its sponsor investors, and it stands as a warning to other natural gas producers” involved with natural gas fracking projects in the Montney Basin in northeastern B.C.
Lots of Risk to Go Around
In background briefings over the last month, analysts have explained that any delays, disruptions, or unforeseen costs on the Coastal GasLink project would only throw LNG Canada into a deeper financial hole. If TC Energy gave up on CGL, it could expect to face legal action from LNG Canada and its own contractors. And one observer said the B.C. government—in other words, B.C. taxpayers—could face billions in liability if the province could be shown to have caused or forced a cancellation.
But that isn’t the whole story. Across the fossil pipeline industry, investors are realizing they face less financial risk when they build on existing infrastructure, rather than attempting to get a new project through an intricate maze of climate concerns, community opposition, and regulatory requirements. With Coastal GasLink, an observer said, TC Energy failed to anticipate the fierce, sustained pushback it would receive on a project it had pitched as a gold standard for community relations.
That error in judgement showed up in the financial plan behind the project, they said: while a fossil operator would demand a financial return of 20 to 30% over 20 years in a politically risky jurisdiction like Iraq, TC Energy settled for 13% on Coastal GasLink.
With more than half of their investment capital already committed, observers say it’s unlikely the companies behind LNG Canada or Coastal GasLink will just walk away from the projects.
But even so, “the building of Coastal GasLink has always been one of the biggest risks” for LNG Canada, IEEFA Energy Finance Analyst Clark Williams-Derry told The Mix last month.
“It was always the teetering point. So with any additional pushback against the pipeline, which is currently happening, there’s a threat that could potentially postpone the pipeline indefinitely. It only increases the cost for the pipeline, and that trickles down into the entire project,” ultimately forcing the companies to either take the financial loss or press for a government bailout—an unlikely prospect, given the fierce pushback the Trudeau government received for buying out the Trans Mountain pipeline.
Abandoning the project would be the third option, Williams-Derry said. But “for them, for those in the oil and gas industry, for the LNG industry in Canada, that would be absolutely devastating.”
Mawji said the two projects may not face too much immediate pressure from financial backers worried about their investments. But the prospects for those investments are by no means certain.
“They could be graced by issues in the LNG market that somehow bode well for them,” he told The Mix. “There’s no guarantee they’ll come out of it reeling from the project, or that they’ll come out making a tonne of money. It’s all at the mercy of LNG prices.”
But for a company like Royal Dutch Shell, the lead investor in LNG Canada with a 40% stake, “you should be allocating money to places where you know you can build out a project, and where you have expertise,” he said. With many other fossil gas assets in other parts of the world, “the question is why you would put all this money into LNG Canada when you can put it elsewhere.”
But even that level of financial risk might not be enough to sink the project.
“I would dearly love to see the project collapse under its own weight and the shifting markets for LNG,” said Climate Emergency Unit Strategy Director Seth Klein. But prices and market factors “may not matter to some of the members of the consortium. There’s all kinds of weirdness in these consortiums around how the losses in one enterprise can become tax deductible against other arms of the enterprise, or the fact that the members of the consortium are both the suppliers and the buyer at the other end of the process.” In that case, “the larger economics of LNG may not matter to them.”
The Costs of Failing to Act
All of which circles back to the ethics of throwing taxpayer subsidies and other forms of government support at a contested pipeline megaproject through unceded Indigenous territory in the midst of a climate emergency—all at the behest of more than two dozen global banks and a consortium of foreign buyers.
“There’s a lot the government has the power to do to regulate industry in the long term,” Appadurai said. “In the short term, stopping the pipeline and the legal backlash that would ensue is a matter of political courage, and it comes down to a moral choice. There are very stark choices we have to make where we leave the extractivist model behind, and stopping the pipeline project is one of those milestones.”
Whatever it might cost to shut the pipeline down, she added, “the negative financial cost of failing to act has to be taken into account in that kind of calculation.” But the political system is heavily weighted against that kind of thinking, no matter which party is in power.
“We have put in place partnerships and systems that undermine our democratic structures and prevent them from working in the long-term interests of people and the planet, which it unfortunately falls upon the current generation of leaders to remedy and to undo,” she said. On CGL, the Horgan government must now face down “a lot of disillusioned NDP supporters who can’t square what they believe with the way the party is acting.” But “the NDP government is not acting differently than any other party would under these circumstances.”
Klein commended the MPs and other NDP partisans who signed the pre-convention petition for “sticking their necks out and taking a risk,” adding that the issue raises flags for the federal party, as well.
“The NDP are challenged because of the connection between the federal and provincial wings, and yet I do think it’s incumbent on the federal NDP to say the climate emergency doesn’t have room for this project,” he said.
“You can’t claim to be a climate leader and still allow a project that will be the largest point source of carbon emissions in our province. And you can’t say you’re adhering to the UN Declaration on the Rights of Indigenous Peoples when you clearly don’t have consent from the actual title holders, and when you’re in violation of the article that says Indigenous peoples can’t be forcibly removed from their own territory.”