BC LNG's uncertain future

Markham interviews Mark Zackarias, executive director of Clean Energy Canada.

What is Energi Talks?

Journalist Markham Hislop interviews leading energy experts from around the world about the energy transition and climate change.

Markham: 00:04

Welcome to episode 284 of the Energy Talks podcast. I'm energy and climate journalist, Mark Up Hislop. I've conducted many interviews over the past few years trying to get a straight answer to a simple question. Is there a business case for British Columbia LNG? Does it make economic sense to build natural gas liquefaction plants on the West Coast of Canada?

Markham: 00:27

You would think such a simple question would have a simple answer. You would be wrong. The oil and gas industry says that, yes, there is a business case, but has not provided the numbers to prove its claim. One economist I interviewed said the capital cost to build a plant in BC were twice what it takes in the US Gulf Coast and that the lower operating costs in costs in Canada's northern climate did not make up for those higher costs. In other words, there is no business case.

Markham: 00:57

Now a new report from Clean Energy Canada, an uncertain future, argues the case against Canadian LNG is far stronger than the case in favor. To discuss the report, I'm joined by Mark Zacharias, executive director of Clean Energy Canada. Welcome to the interview, Mark.

Mark: 01:15

Welcome. Thank you very very much for having me.

Markham: 01:19

Well, why don't you give me an overview of the report? We'll start there.

Mark: 01:22

Well, we focused on 3 questions in the report. Is the first one is, is are there going to be markets for BCLNG into the future? And particularly, are there gonna be markets in Asia where we're best positioned to export to? And, you know, on that question, it really depends who you ask. We looked at every publicly available LNG trade forecast into the future out to 2050.

Mark: 01:46

And there may be some behind paywalls that we were not able to access. But we looked at everything public. And we found out that basically, if countries follow their climate plans and their plans towards net 0, we see LNG demand falling off cliff in the coming decades. But if people stay with status quo, there could be, LNG growth globally and in Asia. It really depends on who you ask.

Mark: 02:10

So that was the first thing. Second one was, is there enough electricity in BC to actually electrify and support all of the projects that are in the provincial EA process, or out of it and under construction? So that's 6 facilities. We found there'd be about 8.4 new site sees of power needed to support the industry. The third aspect we went after were the climate considerations.

Mark: 02:34

We hear a lot about coal to gas switching and how BC LNG would be a climate solution, particularly in Asian economies. And again, we went back and we trolled all the literature, and we found well, it really depends on who you who you ask, and it really depends on, you know, whether governments, provincial and federal, are going to stick to their climate policies on methane, on net zero emissions, and on oil and gas emissions gap. And And then last thing, we looked at a report very quickly. We looked at the impact on DC households in terms of what they would pay for electricity and what they would pay for utility gas.

Markham: 03:09

Okay. Let's talk about the the business case first because that's what I mentioned in the introduction. And, on page 15 of your report, you do have some data from Wood Mackenzie that suggests that, Canada, the price delivered to Asia is competitive. And it we're not the we're not the the cheapest, but we're also not the most expensive. And so that would seem to bolster the case of the industry and its supporters who say that we should build out more, liquefaction capacity on the West Coast.

Markham: 03:46

And how are there other estimates, other modeling that you've seen that are either higher or lower than the Wood Mackenzie data?

Mark: 03:57

Not that we could find. The Wood Mackenzie data seem to be the one that kind of most illustratively looked at. Are we cost competitive with the US on shipping LNG to Asian markets? And in that respect, yes, we are according to that study. However, for those looking at the report, we'll also see that we are almost double the cost of Qatari LNG, being shipped to Asia.

Mark: 04:23

A lot cheaper than Australian and a lot cheaper than Russian, but, you know, right in the middle of cost competitor with the US. Now, again, all of this depends on a whole bunch of things. Right? Like, it's the financial incentives provided to industry. Do you get relief on your provincial sales tax?

Mark: 04:39

Do you get relief on your corporate income tax? Do you get relief on carbon tax? You know, does government help with electrifying these facilities, either in the upstream, you know, or at the drive and the compression stage? All of that's unknown. The other piece too that really has a consideration on whether BC would be competitive, is the federal and provincial government's climate policies.

Mark: 04:58

You know, if they stay and if they do what they say they're going to do, those will have cost implications on these projects. And then the other one more recently is just labor source and labor costs of getting these built. And, again, we tried, but we couldn't really find any information on that.

Markham: 05:13

One of the things that's come up in the last, I'd say 6 months is more information on the extent, the problem with measuring natural methane leakage, methane emissions leakage within the natural gas system. And this is not confined to Canada. The the whole industry around the world has had a problem with measuring its methane emission leakage. Its technology was pretty outdated, and it's only in the last couple of years, that we've seen, methane emission satellites. We've seen, remote measurements, that sort of thing.

Markham: 05:45

But the the general consensus, I think, in Canada is that the emissions, are actually 1a half to 2 times what the official, inventory numbers were. And that has that has cost implications because there's carbon tax applied to each one of those molecules. And so how do how might that factor into the cost implications?

Mark: 06:09

Well, it really depends. Like, you know, if we get methane capture and methane prevention, a leakage prevention to 75% to 90%, you know, obviously, it cleans up the carbon intensity of the product, but it also could add costs on that. We also again, we don't know what is going to be happening with the federal and provincial government's kind of oil and gas emissions cap in the next year and a half, 2 years or so. Again, all of that would impinge on, you know, whether the cost of LNG is cost competitive into markets, but also, you know, does LNG displace coal for the betterment of the climate? And again, you know, we were talking before the interview, and and there's so many studies out there, and they're all over the map on whether LNG is a global climate solution.

Markham: 06:55

Okay. Let's deal with that because, I've had a number of experts on the this podcast, and the one that comes to mind is, Anne Sophie Korbel. And, Anne Sophie, worked for BP. She was head of their, one of their gas divisions. She has been an analyst at the IEA and is currently a professor at Columbia University.

Markham: 07:20

She, is very well versed in this, and and I she was a little uncertain about, you know, giving me a prediction about when natural gas, demand and when LNG demand would peak, but she finally said she didn't stick with the 2030 IEA AP APS, scenario. She said sometime in the 20 thirties. Okay. Fair enough. Let's take that.

Markham: 07:50

If you were now to build if we had a a final investment decision on a plant on the West Coast in Canada, and by the time it got built, it would be what? We're in 2024 now, might be 2027, 2028, 2029. What does that mean? That means a a decade before, LNG peaks. And then how how long is the plateau, and when does it start to decline, and then when do that does that plant become uneconomic?

Markham: 08:17

Well, it could be a fairly short time. And if you're if you're invest investing 1,000,000,000, that kind of uncertainty has got to weigh heavily on the companies looking at building these projects, that have been proposed, but not built on the West Coast.

Mark: 08:33

Yeah. Absolutely. And and the other kind of denominator in that equation is the amount of new LNG coming on stream by 2030. So there is 43% more LNG that's gonna be hitting the ships, between now and 2030. And so the question then becomes is, is any future demand increase in a lot of these markets that might be looking for LNG?

Mark: 08:57

Is that actually met by this new 40 43% coming on stream and for how long? So as you say, we are kind of looking at all the numbers here, and it's not clear to us that there won't be stranded assets at some point into the future. Because, again, you know, we're looking at the global demand for LNG, you know, past 2040. It gets very, very murky. And it really depends on what happens with climate policy in the destination markets.

Markham: 09:24

The argument is often made in Canada that the, Canadian Clean LNG, and that there's a lot of ifs in there because Clean is doing a lot of work. First of all, it assumes that the provincial government's going to enact regulations, and the industry are gonna follow them and clean up and get their emissions down to under 3%, at which point the LNG is better than than coal. And in the case of Alberta and Saskatchewan, that is not the case right now. They're probably somewhere either at 3 or or higher. BC is different because it's mostly dry gas.

Markham: 09:59

That's mean it's not produced associated with with oil, and most of the industry is electrified, which makes a which makes a big difference. Okay. So the problem then, is is the uncertainty around here, around around these projections. I tend to be on the more conservative side. I tend to think that the IEA has got it got it nailed, and I think that the case for that the industry makes for displacing coal in in Asia is way overblown.

Markham: 10:39

I mean, first of all, China doesn't use much gas. Many of the other, countries are not set up to use gas in their power sector. And with the continuing fall in the cost of renewables and the ease with which you can construct renewables and get them onto your grid or even off grid, I don't see the I just don't see the case for that. I think that's overblown.

Mark: 11:06

Well, there's there's 2 parts to your question there, and both are quite good. The first one, and this comes back to the fact that for 10 years now, we've been talking about how to create a price premium for low carbon or low carbon intensity LNG. And it hasn't happened, and it may have happened, if there wasn't the Russian, Ukraine conflict, but just that created such chaos in the gas markets for 2 years that that really we may never see a kind of price premium, for that low carbon energy. So that's kinda setting that aside. And then there's the second question of coal to gas switching and where Asian markets are going.

Mark: 11:41

You know, our report using Japanese government data showed that, you know, over the last 14 years, this past year, 2023, Japan imported a lower amount of LNG than it's imported over the last 14 years. And that's because of post Fukushima nuclear restarts, it's because of renewable energy, efficiency programs. We're also looking at the kind of demographics of a lot of these markets that we want to sell into. You look at China, South Korea, and Japan, you see populations and you see total energy use, that's absolute total energy use. Populations that are declining in total energy use that's flat, and sometimes in some places like Japan is declining as well.

Mark: 12:22

One of the questions that we have in the report that we just seem to answer is we don't know whether a cargo of LNG is actually displacing, like a dirty older coal plant, a newer cleaner coal plant, renewables, nuclear or something else. And, you know, until that math is shown, it's really hard to kinda make a judgment around whether our LNG is actually going to be going into, coal switching or something else.

Markham: 12:48

Yeah. And I as many times as I've heard this, and I mean, Alberta premier Danielle Smith is fond of making this argument all the time, but she's not alone. I mean, the industry does it. Financial analysts I was thinking of Eric Nuttall, who's a Canadian based and well read, financial analyst. And he did a piece in the financial post, or maybe it was a national post last year where he was in, Qatar, and he said, well, look at what they're doing.

Markham: 13:12

Why can't we do this? That's not an argument. That you don't make a final investment decision on the fact that a competitor is pouring money into a particular industry. And it's the simplicity oh, and and the other argument, of course, is that the only the only to final investment decisions is federal climate policy or federal regulatory uncertainty, And I find all of these arguments are just not persuasive, and, clearly, the executives who are making the final investment decisions on the for these projects don't find them persuasive either. Otherwise, they would have FID'd them.

Mark: 13:52

Yeah. No. It's, you know, it's kind of a great unknown here. The other one too is we know that for LNG Canada phase 1, they have locked in contracts for, I think, minimum 20 years. We know wood fibers production has been, you know, off taken by BP.

Mark: 14:08

You know, after that and kind of past 2030 or past 2035, it gets a little bit more mercury mercury. A little bit murky for some of these kind of newer facilities, that don't yet have locked in contracts. I think silosms has a kind of proposed output of 14,000,000 tons per annum, but only has a contract for 2 1,000,000 tons per annum of that. So, again, you know, we're looking at, really uncertainty in the future market around all of this.

Markham: 14:36

Let's talk about the power requirements for electrifying the BC liquefaction plants. LNG Canada, of course, is the is the whale on the West Coast. It's a $40,000,000,000 project. I forget what its output is, but it's it's fairly impressive. And, the argument was that it would be the cleanest LNG on the planet, that it would be electrified using BC Hydro's, you know, 97% hydro, you know, clean grid.

Markham: 15:07

And now there's a lot of there's some question about whether, in fact, that'll happen, whether BC Hydro will actually build the transmission, in time or whether the l LNG Canada will have to go ahead with gas driven equipment, which is is much more, polluting. And it just doesn't seem like even the one plant that is is planned for this, is not certain, and they're being offered preferential electric electrification rate electricity rates if in fact it happens. If you were to add 5 or 6 or 7 times more, I don't know where you get to power in BC.

Mark: 15:49

Yeah. We we've done some analysis kind of going looking at the Western North American electricity markets. And let's say we guarantee an LNG proponent 247 power at 6 or just above 6¢ a kilowatt hour. In 2023, the average daily spot price from the mid Columbia market is near almost 12¢. So, you know, that works out to be about $600,000,000 for one site c worth of power.

Mark: 16:17

So you can see that the cost could add up fairly quickly if we can't self generate in DC. You know, we also know we've got critical mineral mines. We've got green hydrogen production. We've got advanced manufacturing, and we've got a population that's growing very quickly and quite likes heat pumps and electric cars. So we've got this load growth developing very quickly, in BC.

Mark: 16:38

And even 5 years ago, we did not expect that we would have, you know, such a demand for EVs. So, you know, we really need to kinda rethink the electricity system here, and and LNG expansion is part of that conversation.

Markham: 16:50

One of the things that has happened recently is that BC Hydro is finally last year, it it released its integrated resource plan, and now it's planning for 2% load growth after 15 years of flat load growth. So clearly, it's already preparing for electric vehicles and for and for heat pumps and other, electrification aspects of elect electrification, but it doesn't seem to be planning for electrification of LNG. And the capital plan that it has now says we're not after site c, we're not building any more hydro dams. That's our last hydro dip. And going forward, we're going to reach out to indigenous communities, to integrate, independent power producers, and others to build wind and solar that we will then contract, which is ironic given the fact that how billified that was in 2017 when the government changed.

Markham: 17:45

Nevertheless, that's the way they're gonna go, and it's a very sensible plan, because you can use the those big hydro dams as batteries, basically, for the renewables generation inside your province. I I think that's a a terrific idea. But if you if you build out if you electrify the liquefaction that's coming on stream now, LNG Canada and others, and you build out more, how many solar farms and wind farms can you build in BC? Certainly not enough to keep up with LNG electrification, I would suggest.

Mark: 18:23

Yeah. Absolutely. I mean, hydro's kind of clean power call that's, you know, already been announced and it's gonna be happening very soon. I mean, that's a great first step, and we would hope that we would see similar calls pretty much annually over the next 10 years as they build up the supply. You know, now that they've got a better picture and better handle on what's going to be happening with demand.

Mark: 18:45

But again, you know, we look at this and we look at, you know, what it's gonna cost to generate wind and solar in BC. We know they did it in Alberta about 4 or 5 years ago for, you know, just over 4¢ kilowatt hour. That'll be hard to match in BC with inflationary pressures. So you're already producing power that's gonna be more expensive than, you know, what you're getting out of a lot of your hydro legacy assets. So, so that's gonna be, just the cost of power and then what kind of LNG and other large industrial proponents are gonna wanna pay for power.

Mark: 19:14

There's gonna be a delta there. It's gonna be hard to meet. So I think that's kind of the first part of that question. And the second is the transmission. You know, what we're advocating in our recommendations to government is government do what it did with the crypto industry.

Mark: 19:29

Basically said, no. We decide whether your application goes through or not, you know, depending on where you are in the regulatory process. And we expect government, probably in the next kind of year or 2 to actually create electricity decision making framework. So they can figure out what exactly is the highest and best use of BC's electricity? Where should it go for the most jobs, the most return on government, the most revenues back into government to pay for all the social services?

Mark: 19:53

So, we think it's very doable. They've already got the precedent with the crypto industry. So, we would expect to see government do that in the next couple of years.

Markham: 20:01

Couple of years ago, I interviewed professor, Kent Fellows, who's an economist at the University of Calgary. And he was looking at site c, and and he he was asking the question, is it economic to go ahead with site c or such site c be scrapped? And one of the things that came out of his study was that the value of, like, a megawatt hour of of hydroelectric power is much higher if you're using it to as a battery, as storage for renewables, which are very low cost. And when those 2 work together, he said, if you use site c that way, then it would make economic sense to go ahead with site c. If all you did was sell site c as, you know, you know, 9¢ or 12¢ a a kilowatt hour, which is basically what it's going for in BC now, it makes no sense whatsoever.

Markham: 20:54

And and so that if there's going to be a government decision making process that looks at the value of a megawatt hour of hydroelectric power, Vantage I I think it would take those things into consideration.

Mark: 21:09

Yeah. Absolutely. And there's been a number of public commentators over the last kind of month or 2, you know, suggesting that hydro's power imports over the last year or 2 have been, you know, we've been importing more than we sell. But, you know, as you say, right, our reservoirs are giant batteries and, you know, assuming that we have enough water in them and the hydrograph remains stable over the coming years, there's no reason hydro shouldn't be kind of importing cheap power to meet our needs and then selling it when it's expensive. So, yeah, and I agree with you on the battery side.

Mark: 21:41

And we are gonna build out more renewables in BC, and baseload power is going to be important and continue to be important. I don't know if you saw in the BC Hydro IRP, they also had, I think, around 500 megawatts of battery storage as well to kinda help load balance the system. And, again, that's part of the equation and what every other jurisdiction is doing as well.

Markham: 22:00

Yeah. We've done another a number of interviews lately with people like Gerhard Schlage from, who's chief technology officer at Hitachi Energy, who talked about how grids are changing and how you have to have storage, and power electronics, and digital controls, and AI, and and on and on, all of these new technologies in order to accommodate intermittent, renewables and all of the other challenges that are coming with electrification. It's not just enough to, you know, double your hydroelectric output, to meet, you know, the the demands of a 2030 economy or a 2040 economy. You have to do things differently with your grid. And it's and it you know, in in fairness to BC Hydro, they seem to be now moving in that direction and probably quicker than many of, other crown utilities in in Canada, one could argue.

Markham: 22:54

But I wanna talk now about climate policy because, if I remember my numbers correctly, BC right now emits about 64 megatons of greenhouse gas emissions. And the plan under clean BC was to get it down to 16 megatons, and I can't remember if it was by 2030 or 20 40. It might even have been 2050. But the there is a plan in place, and everyone I've talked to about this issue agrees that, if LNG is expanded in any significant way, then the chance of hitting those climate targets is almost impossible. And one would think that the government I know the government wants economic development, It wants the capital expenditure that comes with, you know, big LNG plants, but it it's trying to you can see them trying to balance that against the the climate, targets that they've set.

Markham: 23:52

How is that gonna play out, do you think?

Mark: 23:54

Well, you know, our analysis showed that, the 6 projects that are, you know, in the process or under construction right now, we're not about 13 megatons of total emissions. That's upstream, midstream, and downstream. And, you know, as you say, we're looking for about 20 somewhat tons, reductions between, you know, 2018, 2019, and 2030. So there is a problem. There's a challenge there in terms of the math.

Mark: 24:19

I mean, to give government credit, you know, about this time last year, they had their energy action framework, which basically said there's now emissions test in the provincial environmental assessment process. You basically have to be scope scope scope 1 or scope 2, sort of net zero, emissions. You can use some offsetting in there if you if you have to. So that was a good piece of this. The second part that we're looking for more details on is the provincial and for federal oil and gas emissions cap.

Mark: 24:48

That's gonna be very critical to figure out kinda how many of these projects can fit into the provincial, climate targets and, you know, how many might not be able to do so. But again, you know, we haven't seen details on both these policies. We know the federal cap won't cover pipelines. Pipelines are a big source of emissions in DC. So the DC system will have to make up that deficit somehow, but expect to see something over the coming months.

Markham: 25:15

I I have a question for you, and this is you know, builds on what you just said, but isn't directly related to, the conversation we're having. And that is why the federal government, which already has a carbon an industrial emitters carbon tax, and so all of the provinces have to have an industrial emitters carbon tax, and BC has 1. Why for their oil and gas emissions cap, they would layer on a cap and trade system? I don't understand that. Why don't you just toughen up the system that you have, you know, make it more stringent each year, rather than adding complexity and and cost for everybody concerned?

Mark: 25:58

Well, I think there are kind of two reasons for that. One is you would have to tighten up methane regulations and a carbon price. You would need to get further tightening over time to be able to kind of reach the same goal as, you know, setting an emissions cap. And the other 2, I think the federal government is envisioning its emissions cap as somewhat of a backstop. Right?

Mark: 26:19

You know, for global reporting mechanisms, if you can say, look, we've capped out at a 130 megatons or whatever the number is gonna be or 135, whatever the number is gonna be at the end of the day. It just makes it a whole lot easier to actually balance the system after that. And yes, you have to create a cap and trade system. And yes, you have to give facilities allowances and, you know, but it also creates a credit system. So, you know, those good actors do get rewarded.

Mark: 26:43

And, you know, as you know, we've got a number of oil and gas assets that really are not all that clean. They're not all that efficient. And this is yet another way, you know, in addition to the carbon price of actually making sure that, you know, there are no free riders in the system.

Markham: 26:58

Okay. Fair enough. I I I I've heard the federal government make that case. I'm still not convinced that that's the most efficient way to go about it or effective way to go about it when they already have I I would have personally, I would have preferred to see, increased stringency applied to the industrial emitters carbon tax. I think that would have been the better way to go and, who knows?

Markham: 27:21

Maybe, we'll have a minister wake up one day and go, oh, man. I made a mistake on that. I need to go back and revisit that decision, but not likely. So where are we at then with the climate converse with the climate policy conversation? Because it seems like BC is one of the more cooperative jurisdictions with the federal government.

Markham: 27:44

It does negotiate equivalency agreements, so it puts in place provincial policy that are in line with federal requirements, and then the the two governments sign off on it, and it seems to have a fairly cooperative relationship. But then this LNG is kinda hanging over it like the sword of Damocles, you know, and we don't know. So what's the current thinking about that? Is is are they BC climate targets going to be blown to smithereens, or what does the government think about that?

Mark: 28:18

Well, I I mean, you know, on on the federal government side is they've committed to no more subsidies, for oil and gas. So, you know, they're very cautious around kind of what they incent and what they pay for, and that would probably include electricity transmission to some of these plants and using federal tax dollars to support those. You know, on the provincial side, I think the province is still in belief that they can make their 2030 targets. Again, all of this is predicated on a number of things. You know, the first and foremost is, you know, which projects, you know, get built, which ones get to FID.

Mark: 28:54

You know, you'd mentioned that LNG Canada's phase 2, it's fully permitted. They could build that tomorrow, as a gas driven compression plant, which would add another kind of 3 and a half kind of megatons emissions, and that would make reaching the BC targets that much harder. You know, obviously, they're probably prevented by doing so by carbon pricing, which would make operation of that plant very expensive. So, I think it's all fairly still in limbo right now. I think the province's commitment to kind of net zero LNG on the scope 1 and scope 2 emissions was a pretty good start.

Mark: 29:28

I think proponents are taking this very seriously, and they're actually looking at ways to electrify basically everything in their value chain, you know, right back to the upstream. So, in that respect, it's having the anticipated effect of of, you know, having the engineers go back and go, how can we do this a little bit differently, which is actually very good. The other thing you mentioned too is, like, we are going to be producing natural gas in British Columbia for many decades to come. Whether it's exported or whether it's used domestically, we're we're not getting off natural gas anytime soon, so we still are gonna be a producer. So those wells and those projects in the upstream that have their approvals, if we can electrify them and reduce their emissions, that's gonna be a good thing.

Markham: 30:12

Well, before we get on to the question of how the households might be affected, I I wanna raise the issue of, because that's kind of down at the grassroots level. That's at the pointy end of the stick as they say. But I wanna attack I wanna ask a question that's grounded in the 35,000 foot level. We have done, I don't know how many, you know, dozens, probably 100, over the last few years of of interviews about electrification. Where are renewables going?

Markham: 30:42

Where is the cost of electricity going? Where are power grids going? And I think what we've come to the conclusion, at the broad level is that China is driving the energy transition. China is adopting huge, huge amounts of wind and solar, but also building, a little more hydro and more nuclear. So they are in fact so they're driving that.

Markham: 31:07

Everybody's scrambling to keep up. So now you see even the Americans are adopting a lot of a lot of wind and solar into their into their power grid. And it seems like every year, we underestimate the amount of renewables that are adopted because they're clean and cheap. And if I was an investor sitting here looking at a a an asset that would have to run for at least 20 years to get my money back, maybe 30 years, And now every year, it looks more and more like it could be a stranded asset. You know, it's one thing if you're if you're, Qatar and you're the, you know, the low cost producer in the global market.

Markham: 31:48

It's another thing if you're the high cost like the Russians are. But if you're in the middle, like Canada is, along with the US, you're sitting there going, well, am I gonna be a stranded asset? You know? And so I can see where those projects, like the ones on the West Coast of Canada, are caught in that indecision, in that uncertainty. Those are often the ones that, you know, that get delayed and and are are tough for, to find FIDs on.

Markham: 32:18

And I can't help but think the more, you know, work we do on this at Energy Media, that it is gonna be an electric world, and it'll be here a lot quicker than we thought, and that is just not the best environment in which to build more LNG plants.

Mark: 32:38

Yeah. And we we've come to the same conclusion. You know, those plants that are under construction in BC right now probably have a pretty good decade of profits ahead of them. They've got contracts that are guaranteed. You know, after that, as you say, people just every year underestimate the pace and scale of renewable build out worldwide.

Mark: 32:57

And now we've got battery grid storage at costs that are approaching, you know, parity with anything you could have from any other energy source. And some of these batteries are just gonna be massive. You know, we're seeing gigawatts scale utility storage out there right now. And then the other thing people tend to forget is that it's not just about the generation. It's actually about the transmission.

Mark: 33:18

You know, you're gonna see more granular ties, for load balancing being built across North America where you can send power around fairly quickly. It's gonna be run by AI. It's gonna be digitized a whole lot better. It's gonna be a very, very kind of thoughtful system of kind of energy transfers. So that's gonna happen.

Mark: 33:34

And then the other one that people tend to forget is, you know, we are gonna have distributed energy resources in a big way in North America over the next decade. You know, your car is gonna have vehicle to grid capability. You know, you'll be able to load balance and make a bit of money, you know, depending on when you've charged it. You know, your house may have rooftop solar, your community kinda may have community batteries, which protects you from wildfires that are another, you know, emergencies that may happen to your community. So there's a whole different way of thinking about energy that's coming along.

Mark: 34:05

And I think, you know, BC, Canada, North America, we're not the only ones doing that. China's already there, as you say. You know, they have now built brand new coal fired power plants that haven't turned on. And the reason for that is because the renewable energy beside them is so much cheaper. You know, we're seeing renewable energy being produced, you know, down at the 2¢ a kilowatt hour.

Mark: 34:24

You just cannot beat that anywhere else, especially if you can store it. So, you know, it really is a question for governments around, you know, how much financial incentives, do they put forward to some of these projects that are still in the design stage or still in

Markham: 34:42

the project approval stage? So We're gonna get to the issue of households in a minute. In and in a in a more general sense because if if we're electrifying at this pace, I I'm concerned that Canada the Canadian energy conversation is way too overloaded with with with discussions about the energy of the 20th century, the oil production, the gas production, the LNG production. Meanwhile, we spend very little time having a conversation about the energy of the 21st century, which is primarily going to be electricity, generated by some sort of, you know, renewables, whether it's mostly wind and solar, but then some hydro, then some nuclear, then some geothermal, thermal, all of that sort of we spend very little time talking about that. And and we we underestimate the risks from the transition.

Markham: 35:47

We underappreciate the opportunities that are presented to us because we're not having the fulsome conversation that we should have. And here I am doing yet another podcast on LNG when there are so many other things. Like this morning, I interviewed John O'Donnell, the CEO of Rondo Energy, who's they built a heat battery that will work with wind and solar to deindustrial or, sorry, decarbonize industrial processes, and it's basically built around 200 year old brick technology that the steel makers in Britain have used for, like, literally 200 years. And we why we should be talking about those sorts of in innovations, not about whether or not rehashing this old question about whether LNG is should be built or shouldn't be built. If I had my way, I'd stop at phase 1 of of LNG Canada, and we get on with the hard work of of building what needs to be done over the next 30 years, the infrastructure and the and all of everything that comes with it.

Markham: 36:46

So that's my little rant, Mark. I this bothers me, that we're yet having another conversation, but here we are.

Mark: 36:56

No argument here. You know, I think our general consensus and our our advice to government is these projects need to stand on their own 2 merits. Like, they need to be able to self finance. They need to be able to kind of get through and navigate regulatory processes. They need to operate, you know, without any more level of subsidies or incentives than any other sector industry would get.

Mark: 37:19

And then, you know, ultimately, end of the day, they need to show their math that their product is going to be a global climate solution. So I think that's kinda where we are coming from, on our work.

Markham: 37:30

Fair enough. Fair enough. And and you guys, we should acknowledge that Clean Energy Canada does a fine job and all of that. I know I read many of studies that your organization puts out, and it's, it's very credible work. Well, let's let's finally get to the households.

Markham: 37:43

I've been promising listeners that we would talk about this. What, does your report say about the impact, potential impact of LNG build out on households in British Columbia? And I'm particularly interested because because as the comic strip used to say, I is 1.

Mark: 37:59

I is 1. Yeah. Well, we're all ratepayers in one way or shape or form, whether you're on gas or whether you're on electricity. So we don't have any hard numbers or any modeling around what would happen to utility electricity rates, You know? But, again, anybody that studies the markets would realize that if you have a whole bunch of large off takers that are using up BC's electricity, we have to import.

Mark: 38:21

You know, what we import costs, what more than we produce here, that delta is gonna be picked up by the ratepayer, which is you and I, or the taxpayer, which is also you and I. So it's really hard to say what exactly would happen. We just do know that buying on the spot market, is expensive right now. And and, yes, you know, hydro can buy power when it's very cheap or when the rates are actually negative, which is great. But when you guarantee 247 load to industrial proponents, you know, LNG and others, you know, you have to meet those loads.

Mark: 38:51

So you have to buy the electricity when it's needed or generate it here when it's needed. The other thing too that I think most people have not yet thought of, and I don't think governments have got their head around it yet either, is the phenomenon that's happening in the US in those jurisdictions that are, you know, producing, natural gas, you know, or exporting it. And they're finding that the utility gas bills, you know, have gone up almost 30% in some areas. That's, again, it's a scarcity question. Right?

Mark: 39:19

You know, we will have a a new way to move gas, out of BC, you know, rather than use it domestically or through the Henry Hub. And that's gonna put upward pressure on utility gas rates. And again, that may or may not happen in BC because we have such a large reserve, but it's just something to be aware of and something to pay attention of.

Markham: 39:40

I have made an the argument in the past that the the the least risk, but still an, that provides a reasonable return for the the producers is to backfill the American LNG expansion, You know, to ship more down south of the border as their, LNG output increases, they, of course, are are put a strain on their domestic producers, and and these prices go up. So backfill by exporting more, producing more in Canada, sending more of it south of the border, assuming, of course, that we have the the pipeline capacity to to do that, as opposed to spending tens of 1,000,000,000 of dollars building out the LNG on the West Coast and then risking stranded assets. Yeah. And and I know, you know, the argument will be from some that the l n g if we build out LNG and it turned into stranded assets, well, that's the investor's problem. Oh, no.

Markham: 40:32

It's not. Because one of the things the oil and gas industry has done throughout its history in North America is walk away from uneconomic assets. It never it is not required under any, regulatory regime in North America, and, boy, Alberta is the biggest example of that. It is not required to provide a security or or, funding at the beginning, against cleanup down the road. So it's it's not inconceivable.

Markham: 41:01

You could imagine a worst case scenario where LNG Canada goes bust sometime in the in the 20 thirties and just walks away from their plant. Well, who has to clean that up? It's taxpayers that have to clean that up. So

Mark: 41:14

Yeah. Absolutely. And that's government's job to make sure that these facilities are properly bonded. So, you know, end of life is addressed and taken care of. We're seeing more of that in the oil and gas sector, particularly for the upstream assets, you know, where they have to have kind of end of life plans.

Mark: 41:30

We're seeing it in mining a bit more now where you're actually looking for sureties and bonding. So, I would expect that we would see in the future the same happen with gas plants. And in terms of kind of exporting gas to the US, 25% of BC's gas already goes into the US market. And, you know, as you say, most of that will probably end up in LNG at some point. So, you know, to say that DC is not kind of helping our friends and, you know, helping out with LNG and natural gas exports,

Markham: 41:56

we already are, and have been for many years now. I wanna make one final point before we go and that is I remember about 5 years ago, Bruce Ralston, who was the, energy minister at the time, talk he was he was, you know, taking actions to break contracts with independent power producers, and he said, look, as things grow, we know they're gonna we're going to have electrification down the road, we'll buy cheap California solar. And getting back to this, my conversation this morning with, with with John from from Rondo Energy, The Californians understand as well as anybody the cost of curtailing solar and and how cheap solar is there, and there are so many companies mobilizing to take advantage of that resource. Why wouldn't they? I mean, it's basically it's either, a marginal cost of 0 or it's less than 0.

Markham: 42:52

You know, it's a negative a negative price, which would be it's perfect if you're the buyer. Somebody's paying you to take their electricity. And why wouldn't you be do making hydrogen or putting in a Rondo battery and storing that energy long for long longer term you know, longer duration you can with a battery, that kind of stuff. And the idea that BC can rely on this long term supply of of cheap solar from the US from from California because it's gonna be available that long, I think it's a pipe dream. Yeah.

Markham: 43:23

I I I don't think that's gonna be the case at all.

Mark: 43:26

No. I I think you're gonna watch that duck curve, basically get subsumed by industry. We'll turn it into hydrogen or kinetic or battery storage or some sort of way of kinda capturing it. The other thing too is the inflation reduction act in the US, under the production tax credits created this really interesting incentive. Is that if you're not generating, you're not getting your production tax credit.

Mark: 43:46

So, you know, there is now a very big incentive for the market in the US to be able to figure out kinda, you know, how to monetize, you know, that part of the day, where overproduction occurs. And, you know, so meanwhile, you know, DC will take what it can and preserve our reservoirs. But I I agree with you. I think the solar overproduction is a very short term market, fluctuation.

Markham: 44:11

And and we should also point out that the IRA is already responsible for over a $100,000,000,000 worth of investment in new manufacturing facilities. And what do manufacturing facilities use as energy? Electricity. So as the Americans, build out their clean energy technology manufacturing, whether that's wind and solar, wind panel solar panels, wind turbines, batteries, electric vehicles, heat pumps, whatever it is, they're all gonna require more and more power. That's a that's a given.

Markham: 44:42

And I I would suggest to Canada, if it's thinking of importing, power from the US, maybe would take that out of their plan. I I just I there's too much the system the situation in the US is too fluid Yep. Too uncertain to depend on. We we need to stick to our knitting back at at home and do the hard work here of reengineering our electricity systems to meet the future rather than relying on somebody else to bail us out.

Mark: 45:11

Yeah. Absolutely. And and people tend to forget in the US too is they're, you know, enhanced oil recovery, has a very finite lifespan ahead of it, another decade, decade and a half at best. Natural gas resources and all of their fracking operations, you know, their return on investment there kinda starting to decline now as those fields start to get tapped out. So, I mean, the US is doing the right thing by electrification, and they're doing the right thing by electrification, and they're doing the right thing by figuring out how do they keep the power all for themselves.

Mark: 45:37

So I agree with you on that. And think Canada and Canadian provinces need to look carefully around side of south of the border and figure out, like, what is our larger energy strategy and energy plan look like?

Markham: 45:48

Oh goodness. You brought up the topic of energy planning. The the bugaboo of of of of, policy, wonks across Canada. How did we get to 2024 and not have an energy plan, an energy strategy? We have lots of provinces that don't even have an energy strategy, which all of which to say is that Canada needs to hitch up its pants and get to it because we have we have lagged too long in this.

Markham: 46:16

But we could go on all day about this, Mark. Thank you very much. Really appreciate your insights.

Mark: 46:20

Yeah. Thanks very much thanks very much for having me.