Hang Tough, Premier Eby, on Gas Royalties

The B.C. government has been trying for years to reform its ramshackle system of royalties on natural gas production. That tortuous process is now nearing conclusion, with new royalties supposed to take effect on Jan. 1. The problem is no one yet knows what those royalties will be.

The government is still locked in combative (but confidential) consultations with the gas industry, First Nations and other stakeholders over the new regime. A hodgepodge transitional system (already extended two years beyond its original timetable) expires at the end of the year.

B.C. is notorious for undercharging petroleum companies for the right to extract and sell natural gas — a resource owned by the people of B.C., not the industry. An independent review of gas royalties in 2021 showed it was effectively subsidizing gas production and called for a complete restructuring of the system.

Royalty revenue has declined dramatically over the last two decades (with the exception of 2022, when gas prices soared after the Russian invasion of Ukraine). Despite record gas production , the government collected a measly net total of $672 million in gas royalties in the 2024-25 fiscal year. And most of that came from propane and other liquid condensates: byproducts of gas that fetch much higher prices than the gas itself.

In 2008-09, in contrast, the government collected twice as much royalties , from less than half the production. Gas royalties accounted for 3.4 per cent of the government’s total revenue that year. That fell to 0.8 per cent last year.

The collapse in revenues partly reflects low natural gas prices, but that should have been offset by huge growth in production. The problem is that generous loopholes, credits and cost allowances have allowed gas companies to largely avoid royalties, even as they doubled their take of B.C.’s gas. Oft-repeated promises by successive governments (of all stripes) that gas royalties would lead the province to fiscal prosperity have never materialized.

Now, even with an imminent boom in gas production and exports, those royalty riches will still be illusory — unless the government draws a line in the sand and ensures the public gets fair value for its own resource in the future.

In 2022, the government scrapped some of the biggest loopholes and launched a consultation process around a new royalty system. It set a goal of capturing 50 per cent of gas profits (after capital and production costs), deemed a fair return for the citizens who own the gas.

But from the start the government faced severe pushback from industry lobbyists wanting to preserve their sweet deal. A letter from Energy Minister Adrian Dix to the industry in April signalled the government was abandoning more ambitious royalty formulas. Who knows how far the bar has been lowered since then?

Industry lobbyists regurgitate age-old threats that changes to royalties will cause capital to flee willy-nilly from the province to more “competitive” jurisdictions. These threats are as hollow as they are tired.

Where natural gas is concerned, B.C. has two unbeatable “competitive” assets. First, the gas is here. Second, so is the ocean.

B.C.