Construction Labour Relations Association

September 16, 2015

Thank you for that kind introduction Clyde.

And a big thank-you to the BC Construction Labour Relations Association for inviting me to be the luncheon speaker this afternoon.

Before I begin, I would also like to thank the Secwepemc people for allowing me to enter their traditional territory.

This afternoon, I’d like to give you some fresh insight on the present state of the liquefied natural gas or LNG industry in British Columbia, particularly against the backdrop of current oil and energy prices.

So, this afternoon I am going to address:

  • Who the BC LNG Alliance is,
  • The status of the LNG industry,
  • The workforce challenges we face, and
  • The opportunities for all of us – if we get it right!

LNG is truly a rare opportunity, and from my perspective, LNG is not an, “if,” but a, “when.”

As I am sure many of you know, the BC LNG Alliance came together to serve as the common voice for British Columbia’s leading LNG project proponents.

Our mandate is clear: foster the growth of a safe, environmentally and socially responsible LNG industry in BC …

… An industry that will provide thousands of jobs to British Columbians and Canadians for generations to come.

For this to happen, we must develop an industry that is globally competitive; if we are not competitive on a global basis then we won’t be successful.

The members of the Alliance include:

  • Kitimat LNG (Chevron Canada and Woodside Energy)
  • LNG Canada (Shell Canada Energy, PetroChina, KOGAS and Mitsubishi Corporation)
  • Pacific NorthWest LNG (Petronas, JAPEX, Indian Oil Corporation, Sinopec and PetroleumBrunei)
  • Prince Rupert LNG (BG Canada)
  • Douglas Channel LNG (AltaGas and Idemitsu Canada),
  • Woodfibre LNG (Pacific Oil and Gas), and
  • ExxonMobil.

The fact that we have members who are leading players in the energy industry is a strong vote of confidence in the Alliance.

More importantly, it is a vote of confidence in British Columbia and the fundamentals that are at the core of the province’s LNG sector.

All told, these LNG industry leaders bring decades of experience, insight and best practices to British Columbia.

Part of our role at the Alliance is to provide British Columbians with reliable information on LNG, our operations and best practices, and the challenges and opportunities we face as a new industry.

In that regard, we are working on various initiatives, including:

  • Consulting with the Province on the implementation of the LNG tax regulations,
  • Collaboratively working with the provincial government to assess the potential impacts of implementing the Greenhouse Gas Industrial Reporting and Control Act, and
  • Working with the Ministry of Environment on developing the Climate Action 2.0 plan.

The Alliance also engages with, listens to and addresses the concerns of First Nations, communities and stakeholders.

And we are actively engaged with all levels of government: First Nations, local, provincial and federal.

Our mandate is clear, comprehensive and important, especially when one considers that the projects proposed by our members would be the largest investments ever made in BC … and among the largest ever made in Canada.

However, it won’t surprise you when I say that because our projects are in British Columbia, there are a few naysayers in the province.

Indeed, since the year began doomsayers, a few political pundits and others supposedly in the know, have been declaring the death of BC’s nascent LNG industry.

Falling energy prices have inspired critics to play into those fears.

As President of the BC LNG Alliance, I can tell you without hesitation that these critics rush to judgement too quickly, based on false assumptions and a lack of knowledge about BC’s LNG industry.

To paraphrase Mark Twain, reports of BC’s LNG death have been greatly exaggerated!

To the contrary, we are not alarmed by the present volatility in the energy market.  However, this doesn’t mean that the Alliance and our members are not focusing more on capital discipline and looking for ways to reduce costs.

As I mentioned at the beginning of my remarks, if our industry is to be successful we must ensure that we are globally competitive.  And there’s still work to be done!!

Nevertheless, volatility in the energy markets does in fact mask a tremendous opportunity for LNG in British Columbia.

This is due to the fact that the fundamentals in British Columbia are solid.

The province is well-positioned for LNG growth.

That’s why companies have already made considerable investments as part of their pre-final investment decision work.

Residents of northern BC and Squamish have already witnessed a significant amount of that investment.   

. . . Investment valued in the tens of millions of dollars.

These investments have created jobs and spinoffs in BC for First Nations communities and for the communities of Prince Rupert, Terrace, Kitimat, Port Edward, and Squamish.

I also think it important that everyone understand the magnitude and scope of the LNG industry.

The projects that make up the Alliance together represent a total potential investment that will run in the tens of billions of dollars, just for the plants.

Even with all these positive developments, we do acknowledge that the impact of low energy prices have been significant and far-reaching.

It has prompted tighter capital discipline within companies, and re-affirms the need for certainty with respects to the fiscal, legal, and regulatory framework in British Columbia.

Reducing costs will ensure our industry is able to compete globally and attract the necessary capital to build these multi-billion dollar projects.

It’s also important to recognize that given the size and scope of the proposed projects, LNG proponents will make investment decisions on a longer-term pricing horizon.

A pricing horizon that goes well beyond any impact that the spot price of crude oil may have.  As I just mentioned, LNG projects are large, complex undertakings that require tens of billions of dollars of capital investment.

Projects therefore must have a strong business case and meet stringent economic tests before they proceed.

Our members are working toward that goal through diligent management that ensures projects are properly sited, designed, and constructed.

From financing, to engineering, to skills training, there are many moving parts when it comes to building a new LNG industry.

It’s a multifaceted endeavour requiring cooperation on many fronts among federal, provincial, First Nations, and municipal governments, as well as labour and educational institutions.

We know that our competitors know this and that’s why we’re working to get it right because our competition is global.

From Australia, to the U.S. gulf coast, to East Africa and Russia … the race is on to serve the Asian market.

We are in the race, but we also know there is a short-term potential that LNG supply may out-pace demand.

In BC, we are not looking at LNG as a short-term 100-metre sprint, but as a long-term race; a marathon of sorts, where we are strongly positioned to cross the finish line, and win.

Keep in mind that over the longer-term, Asia’s economies will continue to grow, despite the gloom in today’s markets, over the next half century and our members are well aware of that.

In fact, when comparing supply to demand – there will be about a 100 to 120 million ton LNG deficit globally by 2030.

This means two things:

First, BC’s LNG industry may not meet the FID targets put in place by those who focus on federal and provincial political cycles.

Second, however, it does mean that over the longer-term, the industry is well positioned for growth in British Columbia.

So what are the opportunities and benefits that this new industry offers our province and the members of the Construction Labour Relations Association?

LNG holds the potential to create tens of thousands of new construction jobs and thousands of new permanent jobs for British Columbians.

For example, on average there will be 3,500 to 7,500 construction workers required for each of the large-scale liquefaction plants.

That number doesn’t include the thousands of new long-term jobs required to operate the plants and support the industry.

And it doesn’t include the jobs created to build and operate the natural gas production facilities in northeastern BC or the pipelines to get the gas from the production fields to the coast.

As I just said, together the seven projects that make up the Alliance represent a total potential investment that will run in the tens of billions of dollars, just for the plants.

That dollar amount doesn’t include the investments in pipelines or upstream production facilities, which will add billions more to the total.

Finally, when the plants are operational they could provide new revenues to all levels of government that may well run into the billions of dollars, each and every year.

What is also promising is the opportunity LNG development offers labour.

If we were to build four large and two small LNG projects in our province, at peak construction, we would require an additional 30,000 construction workers for upstream and downstream site works, an additional 6,000 engineers, and 100,000 plus off-site jobs over the next five years.

To put that in perspective, imagine if every unemployed British Columbian today had the required qualifications to work in LNG, there still would not be enough people in the Province to deliver the projects.

(pause)

…AND THAT’S WHY SKILLS TRAINING IS A MAJOR FOCUS FOR OUR INDUSTRY, FOR OUR PROVINCIAL GOVERNMENT, AND FOR LABOUR.

We can learn from international examples – as Peter Dyball with the consultancy Pit Crew has shown.

In one of Peter’s examples, he mentions that from 2010 to 2013, construction workforce numbers on major Australian LNG projects increased significantly over a relatively short period of time.

Taking into account, factors like qualifications and experience, training, availability, mobility and temporary foreign labour, the sector saw the average level of experience and skill of the collective workforce decline significantly.

Therefore, skills dilution is also a concern.

As Peter Dyball highlighted in his reports, major LNG projects in Australia saw a significant increase in both labour needs and the associated and costs, which led to a reduction in job productivity  

The reduction in job-face productivity meant that projects needed more people or more time, or both and they certainly needed more money!

The fact is that qualifications, skills and the sector-specific experience were spread thin, and continued to be spread ever more thinly as demand increased.

While skills dilution significantly impacted productivity at a blue-collar workforce level, the most negative impact was felt at the supervision, engineering and management level.

Given this potential, it is critical that the LNG industry, along with labour and all levels of government, ensure there are policies that will enable our industry to reach its full potential.   

Therefore, I want to recognize the work that Premier Christy Clark and her government, have done to advance LNG in BC.

They have done an exceptional job in bringing industry, labour, First Nations and the Province’s post-secondary institutions together under the Premier’s LNG Working Group.

The LNG Working Group has set out a number of recommendations to follow to ensure British Columbia has the skilled labour force it needs to seize this opportunity.

As Vice-Chair of the Executive Committee of the Working Group, I can tell you we are working diligently to create skills and trades training spaces so British Columbians will be first in line for new LNG related job opportunities.

I want to re-iterate that to you here today – OUR MEMBERS ARE COMMITTED TO HIRING BRITISH COLUMBIANS FIRST.

We will hire British Columbians first and then look to other Canadians.  If there is genuine need, we will then look outside Canada for workers.

Our “local first” policy is good news, but we must not be complacent.  We have to prepare now, so we are ready for tomorrow!!

As I mentioned a few moments ago, the mix of a skills shortage and fast growth in LNG related construction, had a dramatic negative impact in Australia.   

And we don’t want that to happen in BC!

However, the challenges are not insurmountable and can be met by British Columbians.  This province has some great advantages relative to that of our competitors.

For example, BC’s natural gas is a world class resource that is easily accessible.

Our natural gas pipelines are built to the highest standards and have been safely transporting natural gas for over 60 years.

There is a track record of safety and success that few can match.

Another advantage relates to the ambient air temperature at an LNG plant, which has a significant impact on the efficiency of the plant.  This translates into an increase in production capacity of about 25%.

Communities in BC, where many of the proposed LNG plants would be built, are a long ways from the equator.

This means that it requires much less energy to produce the same quantity of LNG in BC than it does in locations that are close to the equator.

At the same time, British Columbia is strategically located with convenient access to the markets of the Asia Pacific region.

This ensures that we can get our product to markets quicker, which gives us an advantage relative to that of our competitors in areas like the U.S. gulf coast.

On top of that, British Columbia like all Canadian provinces, has robust environmental standards.

It’s also important to note that individual LNG proponents continue to make progress towards agreements with First Nations.

…All of which is being done with a view to shepherding projects towards Final Investment Decisions.

For example, earlier this year Chevron Canada reached an agreement with a First Nation band in northwest BC.

This agreement ensures that the 16 First Nations whose traditional territory is located along the proposed route of the Pacific Trails Pipeline in northern BC are now part of a commercial partnership — a partnership that will provide lasting benefits to the member First Nations.

As well, several of our other members, including BG Group, Shell and Petronas have been working with their First Nations partners to create employment opportunities for unemployed Aboriginal people.

This project, called Pathways to Success has been a triumph in its own right having found jobs for 83 chronically unemployed First Nations people since its inception in the spring.   

These partnerships will help provide significant economic and social benefits to First Nations.

As I stated at the outset, with the planning work underway and the companies moving towards FID, many communities, First Nations, and contractors are seeing the benefits associated with LNG investment.

Once companies reach FID, those benefits will be felt across many industry sectors in the province

Support from the industry could come from across the country from various manufacturers to service providers, all of whom could benefit from the development of BC’s LNG industry.

And on top of that are the jobs created to build and operate the natural gas production facilities in northeast BC or the pipelines to get the gas to the coast.

Against this background, there are many reasons for getting LNG right and we are well on our way.

By getting it right, we can ensure we remain competitive.

By getting it right, we can successfully compete over the longer term for a piece of the LNG market along with the US, Australia, East Africa and Russia.

By getting it right, we can ensure BC’s LNG industry will have a bright future.

In closing, I’ve touched upon various issues this afternoon in order to give you a realistic assessment of British Columbia’s LNG sector.

Based on my knowledge and involvement with the sector, I believe we have a promising long-term future.

As I said at the outset, we have a rare opportunity to build a new industry for the benefit of First Nations, British Columbia and all of Canada.

Fundamentally what we are talking about is an opportunity for nation building.

The growth of this new sector will be welcome news for all of us involved with LNG … and indeed for all Canadians.

I want to thank all of you for being here today.  I am certainly pleased to have had this opportunity to speak to you and hope you will support our industry as we create new jobs for British Columbians.    

Thank you.