Commodity downturn continues to put divide in B.C.’s robust economy

August 20, 2016

By: Vancouver Sun

LNG Canada’s decision to delay deciding to build its $40-billion liquefied natural gas export project hit Ellis Ross, the Haisla First Nation’s chief councillor, in the middle of a summer of more buoyant news for the B.C. economy.

While the province’s urban centres were experiencing hiring in the tech sector and record tourism, Ross has been bracing for layoffs in his community, which has been a beneficiary of preparation work for major LNG developments.

“If people haven’t been laid off yet, they’ve been notified of either a cutback in hours or a potential termination of employment,” Ross said in an interview.

“We felt it when Chevron started to wind down their (site preparation) activities,” Ross said. “In the last week to two weeks, we’re starting to feel the decline from the LNG Canada site.”

Kitimat had been a boom town because of the $4-billion modernization of Rio Tinto Canada’s aluminum smelter and preparation work for the Chevron-led Kitimat LNG and Shell Canada-led LNG Canada proposals.

But the Rio Tinto modernization wrapped up last year and a glut of LNG on world markets has slowed preparation work for proposed LNG plants on the Coast and natural gas drilling in northeastern B.C.

“The project is delayed, not cancelled,” said Susannah Pierce, LNG Canada’s director of external relations in an emailed statement. “We will be working hard to ensure the project remains as economically viable as possible.”

In the meantime, the company won’t be ramping up site preparation work as previously expected.

“There has been a big change in terms of the growth divide (in B.C.’s economy) than was previously the case,” said Bryan Yu, senior economist with Central 1 Credit Union.

Yu estimates B.C. will experience Canada-leading growth this year, 3.2 per cent, and will continue at over three per cent for the next two years.

The growth, however, is focused in urban areas, Yu said.

In Metro Vancouver, tourism is booming, film and television production are at high levels and housing growth is spurring a buoyant retail sector.

“Those are all (creating) those jobs,” Yu said, “and that’s one of the reasons you’re seeing the Lower Mainland at five-per-cent employment growth, year over year.”

Cities outside of Metro Vancouver, such as Victoria and Kelowna, are benefiting from the trend toward urbanization, Yu said, helped along perhaps by some migration caused by the Lower Mainland’s high housing costs.

Yu’s forecast is tempered by weakness in commodity sectors, particularly in mining and energy, which “will remain B.C.’s sore points.”

The resource sectors in B.C.’s North and Southeast were bastions of growth while the province’s urban centres were stagnant during the commodity boom a few years ago. Now they are flagging in the midst of an extended commodity downturn.

The Northeast, for example, had B.C.’s highest unemployment rate at 8.8 per cent at the end of July, compared with 5.5 per cent for the Lower Mainland.

In July of 2013, it was the Northeast that had the lowest unemployment rate, 4.5 per cent.

The forestry industry is still doing well, Yu said, but mining has suffered output cuts and mine closures, and uncertainty around the LNG sector has added to the overall collapse of development in Canada’s energy industry.

“It’s definitely taken a lot of wind out of their sails,” Yu said.

The halt to development in Alberta’s oilsands adds to B.C.’s woes, Yu said, because it cuts off what had been a solid source of employment for British Columbians who commute to jobs in the oilpatch.

Experiences vary within outlying regions, said Joel McKay, incoming CEO of the Northern Development Initiative Trust.

“The region we serve is the size of France,” McKay said. Within it, “while there are pockets where things are not going well, there are pockets where things are going very well.”

However, B.C.’s Northeast is definitely a region where there are communities that are struggling, said Evan Saugstad, chairman of the Northern Development Initiative Trust.

Saugstad characterized the region’s major population centres, Fort St. John and Dawson Creek, as being in a “steady state.”

As service centres for the region’s more diverse industries, they are also hubs for ongoing production at the energy sector’s key natural gas processing plants, which “employ mostly local people who go to work every day,” Saugstad said.

However, the rise in residential construction in the two cities related to the boom-time ramp-up in gas drilling has ended and those cities are now “probably over built,” Saugstad said.

Construction of B.C. Hydro’s $9-billion Site C dam is a saving grace for the area now, Saugstad said, as it experiences a precipitous decline in natural gas drilling.

Energy companies drilled 198 wells as of mid August, according to B.C. Oil & Gas Commission statistics, a 35-per-cent decline from last year.

Saugstad said many of the jobs involved in drilling go to out-of-province workers, but the decline does hurt companies that provide services to those workers.

“Fort Nelson is the place that is hit the hardest right now,” Saugstad said.

To get a sense of how deeply the downturn has taken hold in the community of 5,400, someone has to just look at its light industrial area, said Kim Eglinski, a local business owner and president of the Fort Nelson and Area Chamber of Commerce.

Fort Nelson is the hub for drilling in the Laird and Horn River Basins in B.C.’s far Northeast, but most of the businesses that set up shop or opened branch offices to serve the gas exploration work have left, Eglinski said, leaving “40 commercial properties on the market.”

“If you take a drive through our industrial section, it’s brutal,” Eglinski said. “There’s abandoned building after abandoned building.”

Retail businesses, like her home decor and gifts store, are hanging on, Eglinski said, but business owners have experienced a decline in sales of between 40 and 60 per cent and are dipping deeply into savings to pay bills.

“I couldn’t tell you tomorrow whether I’ll be open in six months,” Eglinski said.

Compounding the downturn in Fort Nelson, Eglinski said, is the loss of the forestry sector with the closure of mills during a round of industry consolidation earlier in the decade, which she said highlights the need for smaller communities to diversify.

She said the community still has confidence that LNG will be developed, though the industry might not get as big as was hoped, and she has hope for some revitalization in the forest sector.

“We can’t rely just on natural gas, we can’t rely just on forestry, just on tourism,” Eglinski said. “And let that be a lesson for every community out there.”

The province is working to diversify smaller communities, said Donna Barnett, MLA for Cariboo-Chilcotin and parliamentary for rural development to Forests Minister Steve Thomson.

Thomson’s ministry has been put in charge of an effort called the rural dividend program, which was given $75 million over three years in the 2016-17 provincial budget to help business in small communities.

So far, Barnett said, the program has handed out $464,000 to communities, First Nations and non-profit groups to help businesses do planning. A next round will be aimed at supporting projects that can create employment.

“There are things (communities) can do, with a little bit of extra help, that may create two jobs or five jobs or 10 jobs,” Barnett said, which are just as important to small communities “as 100 jobs in an urban setting.”

Ultimately, however, resource-dependent communities will “end up riding out the (economic) cycle as they’ve done in the past,” said economist Yu.

Diversification, he said, “is very difficult when the (community’s) reason for being is the commodity.”

By: Vancouver Sun

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