B.C. approves $3 billion Cedar LNG project

Nelson Bennett
Western Investor

Floating liquefied national gas export terminal at Kitimat will be the first LNG plant to be built and owned by a First Nation

Artist’s rendering of the floating LNG project in Kitimat. | Cedar LNG

A $3 billion floating liquefied natural gas plant that the Haisla First Nation and Pembina Pipelines plan to build in Kitimat got the green light from the provincial government Tuesday, March 14.

The project completed an environmental review in mid-November under a provincial-federal substitution process, with the BC Environmental Assessment Office conducting the review. The project will still need the federal Environment minister’s approval.

The Cedar LNG project will be the first LNG plant to be built and owned by a First Nation. The Haisla’s industry partner is Pembina Pipelines.

“Today is not just about the approval of an LNG facility,” said Haisla Chief Crystal Smith. “Today is about changing the course of history for my nation and indigenous peoples everywhere.”

“While it took longer than expected, we are pleased to see the B.C. government move forward on this project,” said John Desjarlais, chairman of the Indigenous Resources Network. “Cedar LNG is a first of its kind with an Indigenous proponent driving the project forward.”
The project’s approval was announced Tuesday in conjunction with a new “energy action framework” that the province unveiled to try to fit energy into B.C.’s climate change plan.

It includes an emissions cap for B.C.’s oil and gas sector and requirements for new LNG projects to have “a credible plan to achieve net-zero emissions by 2030 in order to proceed through the environmental assessment process.”

The project is being designed as a floating LNG terminal, which has a relatively small land footprint, and as it will be largely powered by clean hydro electricity, it will also have a comparatively small carbon footprint.

“All of this means that the project will be among the lowest emitting and most environmentally conscious LNG facilities in the world,” said B.C. Environment Minister George Heyman.

An initial project description estimated the project will require 169 megawatts (MW) to 179 MW of power.

For perspective, BC Hydro’s  Site C project will provide 1,100 MW and generate about 5,100 gigawatt hours of energy each year when it goes online in 2024.

Cedar LNG will  export three million tonnes per annum (MPTA) of liquefied natural gas, requiring one LNG carrier moving up and down Douglas Channel every seven to 10 days.

By contrast, the larger, neighbouring LNG Canada project would produce 13 MPTA in its first phase, and up to 26 MPTA, if a second phase expansion is approved and sanctioned by the LNG partners.

 ARC Resources announced March 14  that it will provide the natural gas and liquefaction of half of Cedar LNG’s total production — 1.5 million tonnes annually.

When the Haisla negotiated a benefits agreement with LNG Canada, it secured a natural gas offtake agreement with the associated Coastal GasLink pipeline, so all that is needed in terms of a pipeline is a connector line.

Following a green light from both the provincial and federal governments, Pembina Pipelines has said it expects to make a final investment decision in 2023, with a four-year construction period and a seven- to nine-month commissioning to begin in mid-2027. 

Construction was expected to start in the second half of this year, with peak activity in the spring of 2024 through 2025. The project is expected to employ up to 500 workers during peak construction.

 

© 2023 Western Investor

B.C. Premier David Eby approves $479-million TransLink bailout

David Carrigg
The Vancouver Sun

Mobility pricing next, say B.C. Liberals

Premier David Eby announces a bailout for TransLink on Wednesday, March 15, 2023, in Vancouver. Photo by Herman Thind /jpg

The provincial government will give TransLink almost half a billion dollars to prevent service cuts, keep fares stable and fund the purchase of electric buses.

The announcement came two weeks after a similar amount was promised to B.C. Ferries to also prevent service cuts, keep fares stable and buy electric ferries.

B.C. Premier David Eby said the $479 million TransLink grant was needed to address the bus, SeaBus and West Coast Express provider’s “urgent financial needs.”

Last month, the TransLink Mayors Council on Regional Transportation called on the federal and provincial governments to give TransLink $500 million in “emergency relief transit funding” to offset the financial impacts of reduced demand due to COVID-19 and to help cover TransLink’s $20 billion 10-year expansion plan.

The $20 billion plan includes doubling bus service, adding nine new Rapid Bus Transit lines and expanding transportation infrastructure — including extending SkyTrain to the University of B.C. and building a gondola to Simon Fraser University.

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TransLink’s operating budget is being hammered by reduced ridership thanks to COVID-19, inflation and reduced gas tax revenue as people work from home or switch to electric cars.

The transit provider believes it will recover completely and that demand will grow over the next decade due to population growth.

“Hundreds of thousands of people rely on TransLink’s service every day to get to work, travel to school, and access all parts of the region,” said Eby. “Failing to act now would lead to higher fares, fewer buses on the road and reduced service across the board. We won’t let that happen.”

The money will be used to “stabilize the transportation authority’s finances,” help pay for 115 new electric buses and increase service on existing routes.

 

This is latest in a series of big spending announcements by Eby.

Since last November, Eby has spent around $2.1 billion of a $5.7 billion unexpected surplus that must be apportioned by the end of March. Anything left over will be applied to provincial debt.

Most of the surplus was due to a one-time federal government adjustment to the provincial share of personal income and corporate tax revenues from prior years.

The spending announcements include a $1 billion municipal infrastructure fund, $500 million for B.C. Ferries, $500 million in affordability tax credits, B.C. Hydro and ICBC rebates and a $500 million rental protection fund.

Canadian Taxpayers Association B.C. director Carson Binda said federal and provincial governments had now given TransLink more than $1.3 billion in pandemic-related relief.

 

Trevor Halford, B.C. Liberal party Opposition critic for transit, said the TransLink payout was for operational uses and that it was not sustainable.

“This is for operational costs. What about next year?”

He believes the B.C. NDP are moving toward a mobility pricing model that would penalize car drivers because they would pay more.

“I am very concerned that the premier was asked to clarify their position on mobility pricing and they wouldn’t,” Halford said.

He said TransLink should be able to cut costs internally.

TransLink’s net direct debt was $4 billion last year, so at an average interest rate of five per cent the annual interest payment was $200 million.

The transit provider said it needed to borrow an additional $300 million in 2023. It’s not known if any of the $479 million announced on Wednesday will go toward covering that $300 million requirement.

 

© 2022 Vancouver Sun

Poll: Canadian consumer sentiment registering marked improvements

Ephraim Vecina
CMP

Canadians are becoming more optimistic towards home price prospects

Canadians’ expectations surrounding their economic and financial situations have steadily improved in recent weeks, according to polling by Bloomberg and Nanos Research.

The Bloomberg-Nanos Canadian Confidence Index, a weekly measure of economic expectations and financial health, registered at 48.38 during the week ending March 10. This contrasted with the 45.56 reading seen four weeks prior, although it still remained markedly lower than the 12-month high of 58.36.

“Over the last number of weeks of tracking in the BNCCI, sentiment has been improving and is nearing 50 which would be a neutral score on the 100-point diffusion index,” said Nik Nanos, chief data scientist at Nanos Research.

Optimism is being shored up by increasingly positive sentiments towards home prices. The share of Canadians expecting an increase in housing prices in their neighbourhoods over the next six months stood at 31.22%, a significant improvement from 29.18% the week prior and 19.72% four weeks prior.

“The positive trend has been largely driven by more positive views of real estate values which are up about 11 points in four weeks,” Nanos said.

The share of Canadians expecting a stronger national economy in the next half-year also improved from 14.75% to 15.75% last week, although nearly half (47.59%) are still anticipating weaker performance and 30.01% believe that the economy will remain stagnant during this period.

 

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SVB collapse: Could it lead to Bank of Canada rate cuts?

Ephraim Vecina
CMP

Might the BoC change its approach?

The Bank of Canada is among the institutions that could be reconsidering their future rate strategies in the wake of Silicon Valley Bank’s collapse and federal bailout.

The state-chartered bank failed on March 10, in the second largest collapse of a US-based financial institution and the largest since the 2008 financial crisis.

Prior to the collapse, markets were pricing in at decent odds of a 0.25% cut by the central bank’s next policy announcement on April 12, and then at least another 0.5% cut by the summer.

However, at the beginning of this week, markets were pricing at a 40% chance of a BoC cut next month, with a “near certainty” of a cut by August. Indicators also pointed to the US Federal Reserve similarly reassessing its rate trajectory, The Globe and Mail reported.

OSFI steps in

After unsuccessfully raising capital and proving itself unable to pay back clients who withdrew their deposits, SVB was placed under control of the US Federal Deposit Insurance Corporation.

In a similar move, the Office of the Superintendent of Financial Institutions took over SVB’s Canadian arm on March 12. Superintendent Peter Routledge said that the regulator is planning to wind down SVB’s Canadian operations.

“By taking temporary control of the Canadian branch of Silicon Valley Bank, we are acting to protect the rights and interests of the branch’s creditors,” Routledge said. “I want to be clear: The Silicon Valley Bank branch in Canada does not take deposits from Canadians, and this situation is the result of circumstances particular to Silicon Valley Bank in the United States.”

“Consistent with globally accepted international Basel III standards, OSFI continues to undertake diligent supervision of federally regulated banks in Canada, including robust requirements for capital and liquidity adequacy,” the regulator added.

 

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Bank of Canada reveals current extent of consumers’ financial risk

Ephraim Vecina
CMP

The central bank has engaged in an unprecedented campaign of rate jumps over the past year

The spate of interest rate hikes over the past year and the resulting increases in borrowing costs have led to greater financial vulnerabilities in Canadian households, according to new data from the Bank of Canada.

In Q4 2022 alone, 28.75% of new mortgage originations had debt service ratios greater than 25%, a share that was 12% higher compared to the same period in 2021, the central bank said.

“All else being equal, a household that spends a large portion of its income on mortgage payments may be more vulnerable to financial stress – it may be more likely to fall behind on debt payments if a negative income shock or a rise in mortgage interest rates were to occur,” the BoC said. “The bank uses the share of new mortgages with a mortgage DSR greater than 25% to identify the most vulnerable households.”

The same period also registered a drastic decline in the number of mortgage originations, with Q4 tallying 148,835 originations – significantly lower than the pandemic-era peak of 279,682 originations seen in Q1 2021.

At the same time, the share of indebted Canadian households that were behind on their repayments for at least 60 days spiked from 1.92% at the end of 2021 to 2.16% in Q4 2022.

“Because mortgages are typically the last product to go into arrears, missed payments on other types of debt can be early signs of financial distress,” the BoC said.

Royce Mendes, head of macro strategy at Desjardins Securities, said in a recent investor report that these increases in vulnerabilities are a key reason for the BoC’s rate freeze decision earlier this month.

“The question is whether the economy and inflation will cooperate soon enough to allow central bankers to remain on hold,” Mendes said.

 

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Affordability, supply remain big challenges in 2023: report

Fergal McAlinden
CMP

Commercial real estate analysis highlights the strain being put on the multifamily sector by lack of inventory

While green shoots are appearing in commercial real estate prospects for 2023, steep housing affordability challenges are likely to continue pushing Canadians into the multifamily rental sector and highlight lack of supply in that space, according to a new report.

Commercial real estate services firm CBRE said in its Canada real estate market outlook for the year that with affordability plummeting to an over-30-year-low, renting had become the only option for scores of families, meaning demand looks set to continue outstripping supply on the multifamily front.

Marc Meehan (pictured top), CBRE’s divisional research director, told Canadian Mortgage Professional that the sky-high cost of housing in Canada represented a “very serious” problem that showed little signs of improvement.

“I think it comes down to: What are the types of cities we want to be?” he said. “Do we want to emulate the San Franciscos and Hong Kongs of the world where essentially, housing is not affordable to nurses, firemen, construction and tradespeople?

“I think that as demand continues to outstrip supply, that causes a real issue from a social point of view And we also need to reconsider the ways that we try to solve this issue – I don’t think that policies and changes that affect the demand side are really going to fix the supply side of the equation, because the supply side of the equation is really where we’re lacking.”

 Immigration targets for the coming years, which will see Canada welcome upwards of 400,000 newcomers a year until 2025, could also put those supply issues into sharper focus, Meehan said – particularly with the national housing agency, Canada Mortgage and Housing Corporation (CMHC), having indicated a rapid pace of homebuying across the country is needed by 2030 to meet red-hot current and future demand.

How can Canada’s housing supply crisis be solved?

There are no quick fixes to the current crisis. Support is particularly essential within the purpose-built segment, according to Meehan, who also emphasized the importance of distinguishing between various types of housing structures and differentiating low-density single-family homes from condo development and purpose-built rental.

“I think purpose-built rental should be a large part of the solution in this housing affordability crisis,” he said. “But it does need more support to meet that demand, and what support could look like would be an elimination of HST; it could mean elimination of development charges specifically for purpose-built rentals.

“And so until we find ways to support the supply side of the equation, housing affordability is going to continue to be an issue.”

The challenge of decarbonization

Another prominent challenge for commercial real estate identified in CBRE’s report is decarbonization. Supporting carbon retrofits will require creative financing solutions in the years ahead, CBRE said, with “very significant” amounts of commercial real estate inventory required to decarbonize.

That will present both an opportunity and a risk, according to Meehan, with 2023 likely to see big developments where decarbonization is concerned.

“That’s one area of commercial real estate we’re expecting 2023 to see a lot more change [in],” he told CMP, noting that a Canada Green Building Council study had found that many carbon retrofits in the office segment across the country had proven financially viable and profitable.

CMHC’s MLI Select scheme, a multi-unit mortgage loan insurance product that allows successful applicants to access reduced premiums and longer amortization periods in return for meeting affordability, accessibility and climate compatibility goals, has been a successful one, Meehan added.

“I think that MLI Select comes at a really good point and it hits at a really crucial time, especially given that financing is a challenge in this elevated-interest-rate environment,” he said. “I think the other thing that’s really interesting about the MLI Select program is that it doesn’t just cater to the E in ESG [environmental, social and governance].

“The first one is on production of electricity or energy usage, but the other levers within that program around accessibility of units and affordability of units [are] a really thoughtful approach by CMHC that really aligns well with the spectrum of ESG. I think it’s a very interesting program that couldn’t come at a better time.”

 

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The Bank of Canada has hit pause on rate hikes. What’s next?

Fergal McAlinden
CMP

Further hikes in 2023 can’t be ruled out, says chief economist

The Bank of Canada’s decision to leave its benchmark rate untouched in its March announcement signals a “conditional” pause that will see rates remain as they are unless economic trends change unexpectedly, according to BMO’s chief economist.

Doug Porter (pictured) told Canadian Mortgage Professional that the central bank’s policy rate statement on Wednesday, which was its first for over a year not to include a rate hike, featured an “absolutely non-controversial” description of the economy that gave it breathing space either to keep the rate unchanged or increase it further in the months ahead.  

“I think the key takeaway here is it’s a conditional pause,” he said. “If the economy continues to operate largely as they expected, the Bank won’t move on rates, but they’ve definitely left themselves with the ability to hike rates.”

Fed’s pull-no-punches approach could prove significant for Canada

The aggressiveness of the US Federal Reserve, whose chair Jerome Powell has indicated that it’s ready to raise rates even further, could present complications for the Bank of Canada down the road, Porter said, especially in the event that the loonie continues to plummet as the possibility of deviation between the Canadian and US approaches.

Variable interest rates in Canada remain high despite the Bank’s decision to hit pause on hikes – and upward pressure on longer-term rates via the bond market has also recently been a feature of recent weeks.

“The fact that US inflation and growth have been stronger than expected has spilled over into Canadian bonds and has tended to put a bit of upward pressure on some of the longer-term rates,” Porter said. “I think that’s something we’re going to be dealing with at least through the first half of the year: a Fed that’s still breathing fire, still pushing rates higher.

“As Powell said, there’s a lot more to do in the US, though he might just be talking very tough and in reality might not live up to [that] rhetoric. But he’s talking very tough indeed, and so I don’t think there’s going to be any relief for Canadian borrowers, and there still is a pretty significant risk that the Bank of Canada will also decide they need to lift rates a little bit further.”

What happens if inflation stays high?

The Bank still expects CPI (consumer price index) inflation to sit around 3% by the middle of this year, marking no change from its January announcement. While Porter said that headline figure is likely to decrease in the coming months, so-called core inflation – price changes in goods and services excluding the price of food and energy – cold prove more resilient.

“Provided energy prices don’t do anything too dramatic in the next three to six months, we should just by the arithmetic of these things see the headline inflation come down a fair bit,” he said. “Now, the debate is whether it comes down enough to satisfy the Bank or not.

“And we still believe that some of the underlying price measures might be a little bit sticky in the months ahead, and there might be a little bit of disappointment on so-called core inflation in the next six months.”

All in all, the Bank’s announcement should be taken as one with upsides and downsides, Porter said. It has reached a possible endpoint on rate hikes more quickly than its international counterparts – but the uncompromising language of the Fed means further increases later in the year can’t be ruled out.

“That is an important step by the Bank of Canada. The last major central bank outside of the Bank of Japan that did not increase interest rates at a decision was the European Central Bank, way back last June,” he said.

“Since the middle of last year, every single central bank has used every single opportunity to raise interest rates. So it is a pretty important step that the Bank has taken here by moving to the sidelines – that’s the good news. The bad news is we’re not necessarily done, and some of that pressure is definitely emanating from the US.”

What was your reaction to the Bank of Canada’s latest policy rate announcement? Let us know in the comments section below.

 

Copyright © 1996-2023 KM Business Information Canada Ltd.

 

How serious is the risk of a recession in 2023?

Ephraim Vecina
CMP

TD Economics breaks down the factors that could trigger a slowdown

By most indications, the current risk of recession is elevated, with TD Economics anticipating a “sizeable” slowdown in consumer spending and job losses in the US and Canada, coupled with an extended period of sub-trend economic growth.

Such a downturn is not likely to arise naturally based on the trends seen in the last few months, but the Bank of Canada’s benchmark interest rate remaining frozen at 4.5% for a prolonged duration would be the most likely catalyst of such a deceleration.

This is despite the marked divergence in the BoC’s language from its counterpart in the United States.

“The central banks’ fastest tightening cycle in the history of inflation targeting will take many months to affect the economy and prices,” TD said in a new analysis. “Unfortunately, there is considerable uncertainty about how these policy lags will play out, so we won’t know if central banks went too far with the policy rate until … well, they do.”

However, a 2023 deceleration could also shape up to be a more modest episode compared to previous full-fledged recessionary periods, TD said.

“Consumers on both side of the border still have sizeable savings that should support consumption,” TD said. “The labour market is also coming from a period of remarkable strength. Even, with some cooling, we think the job market should remain resilient relatively to past economic slowdowns.”

At the same time, even a “gentler” downturn will not be a walk in the park for Canadian households.

“In Canada, a big portion of [consumer savings] will be directed towards covering a rising cost of debt servicing – the reason we have a much softer growth outlook for the Great White North,” TD said.

 

Copyright © 1996-2023 KM Business Information Canada Ltd.

Further evidence required to keep rate unchanged: BoC deputy governor

Ephraim Vecina
CMP

Carolyn Rogers noted that productivity “isn’t trending in the right direction so far”

Despite the Bank of Canada’s latest decision to keep its benchmark interest rate frozen at 4.5%, the institution has not yet ruled our further rate hikes, according to the bank’s senior deputy governor Carolyn Rogers.

In the meantime, the central bank will continue to seek more proof of the economy cooling and inflation decelerating in response to the rate hikes, Rogers said.

“We’ll need to see more evidence to fully assess whether monetary policy is restrictive enough to return inflation to 2%,” Rogers said in a Thursday speech to the Manitoba Chambers of Commerce.

Rogers added that the current freeze is a “conditional pause” that is subject to revision if future economic trends don’t go as planned.

“If strong wage growth isn’t accompanied by strong productivity growth, it will be hard to get to 2% inflation,” Rogers said. “Well, we noted that data last week showed labour productivity in Canada fell for a third straight quarter, so productivity isn’t trending in the right direction so far.”

For Scotiabank economist Simone Arel, an extended hike pause would be easier said than done.

“While the BoC left the door open to further rate hikes, if necessary, its communique sounded much more dovish,” Arel said. “The BoC indicated that price pressures are expected to ease due to ‘weak economic growth in the next couple of quarters,’ ‘making it more difficult for businesses to pass on higher costs to consumers.’”

However, a complete disconnect from the US Federal Reserve’s trajectory will place significant downward pressure on an already weaker Canadian dollar, Arel warned.

“If the BoC persists, we could see the CAD moving toward the low-end of its 8-yr range (US$0.69 to US$0.82),” Arel said. “In addition, we note that core CPI still hovers above 5%, which is well above its target.”

Scotiabank is anticipating the BoC benchmark rate to reach a terminal level of around 4.75% by fall 2023.

 

Copyright © 1996-2023 KM Business Information Canada Ltd.

Nanaimo 27-suite multi-family sells for $6.2 million

Western Investor Staff
Western Investor

Sale price was $100,000 over list for property close to downtown, with all rentals as one-bedroom units. It sold at a 5.09 per cent cap rate, agents say.

 

Macdonald Commercial, Vancouver, for Western Investor

 

Property type: Multi-family rental building

Location: 116 Prideaux Street, Nanaimo, B.C.

Number of units: 27

List price: $6.1 million

Sale price: $6.2 million

Brokerage: Macdonald Commercial, Vancouver

Brokers: Chris Shulz and Chris Winckers

 

© 2023 Western Investor