B.C. forecasts upswing for natural gas and tough times in forestry as deficit soars

The B.C. government is forecasting that the natural gas industry will play a larger role as the top driver of provincial resource revenue, while warning about tough times in the former economic powerhouse of forestry.

Natural gas royalties are expected to ring in at nearly $1.3-billion for the 12 months ending March 31, 2027, up 38 per cent from the current fiscal year, according to the B.C. budget tabled on Tuesday, which forecast a record provincial deficit of $13.3-billion.

The B.C. government is anticipating $521-million in forestry revenue for the 2026-27 fiscal year, up 3 per cent from the current period, but still down sharply when compared with several years ago.

That’s when B.C.’s economic structure was about to shift. In the 2020-21 fiscal year, forestry revenue surpassed $1.3-billion and natural gas royalties reached $196-million.

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The challenges facing the forestry sector date back to the early 1980s, when the U.S. government criticized the Canadian system in which forests are mostly on Crown land and buyers pay “stumpage fees” to provincial governments for the right to log, saying it unfairly subsidizes producers.

Tuesday’s budget introduces a temporary Stumpage Payment Deferral Program in an effort to ease the cash crunch for companies. The voluntary program covers the first 11 months of 2026.

U.S. import taxes on softwood lumber currently total 45.16 per cent on most Canadian producers, including anti-dumping and countervailing duties of 35.16 per cent and tariffs of 10 per cent.

“B.C. disagrees with the views that the lumber industry is subsidized or that it sells into the U.S. at below cost,” according to the budget documents.

The B.C. government anticipates that the trend of depressed annual volumes of tree harvesting will continue over the next several years, restricting the production of softwood lumber.

B.C. Finance Minister Brenda Bailey predicts a record $13.3-billion provincial deficit in the next fiscal year, widening when compared with the $9.6-billion deficit in the current fiscal year.

While the province faces financial pressures, Ms. Bailey has an optimistic outlook for liquefied natural gas.

Originating from geological formations such as the prolific Montney basin in northeast B.C., natural gas is already being piped to the LNG Canada export terminal on the traditional territory of the Haisla Nation in Kitimat.

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Shell PLC-led LNG Canada began exports last June from the Kitimat facility, where the fuel is supercooled into liquid form for shipments to Asia.

There have been numerous delays in Canada’s fledgling LNG industry over the past decade. Two B.C. projects are under construction: Woodfibre LNG near Squamish and Cedar LNG in Kitimat.

Prime Minister Mark Carney, as part of his quest to make Canada an energy superpower and reduce economic dependence on the United States, announced last September that LNG Canada’s Phase 2 expansion plan made the list of major projects of national interest to be considered for fast-tracking.

Mr. Carney subsequently said Ksi Lisims LNG near Pearse Island in northwest B.C. has been added by Ottawa to the growing roster of plans submitted to the Major Projects Office, which was announced in August to expedite a wide range of developments in sectors such as energy, mining and infrastructure across Canada.

B.C. Premier David Eby has thrown the provincial government’s support behind LNG, while opposing the concept of a new oil pipeline to the northwest coast from Alberta.

More than $1.57-billion in natural gas royalties are expected in the 2028-29 fiscal year, compared with $556-million in forestry revenue.

The 13-member B.C. Economic Forecast Council (EFC), which consults with Ms. Bailey, said uncertainty surrounding global trade policies will constrain business investment.

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But a bright spot for the economy could be LNG.

“The EFC discussed B.C.’s abundant natural resources and the potential boost from LNG exports to Asian markets and future mining and LNG projects,” the budget documents stated. “Council members said that U.S. tariffs and restrictive trade policy have added to ongoing challenges in the forestry sector, which have significant implications for rural communities.”

A review released last fall, commissioned by the B.C. government, said expanded fracking for natural gas in northeast B.C. is at odds with the province’s climate goals.

EFC members said lower immigration targets will have impacts on B.C. “While the council generally expects muted job growth to reduce domestic demand in the near term, members said that lower population growth may also ease some pressure on demand for public services, infrastructure and housing.”

B.C.’s population is almost 5.7 million, recent estimates show.

The B.C. government’s long-term economic aspirations cover a wide range of areas, including hopes that companies will tap into growth prospects such as critical minerals, life sciences, aerospace and defence.

First Nations play an important role in several projects.

The Haisla Nation owns 50.1 per cent of Cedar LNG, while Calgary-based Pembina Pipeline Corp. holds 49.9 per cent.

Ksi Lisims is expected to make a final investment decision in 2026 whether to forge ahead with Pearse Island development. The Nisga’a Nation, Houston-based Western LNG and a group of Western Canadian natural gas producers called Rockies LNG are already partners in the project being developed near Gitlaxt’aamiks, B.C.

Indigenous hereditary chiefs belonging to the nearby Gitanyow Nation oppose Ksi Lisims and the associated Prince Rupert Gas Transmission (PRGT) pipeline project. Construction of the proposed 750-kilometre PRGT project, which is co-owned equally by the Nisga’a and Western LNG, would be across northern B.C.

“Partnerships with First Nations are central to delivering major projects that support reconciliation, economic development and shared prosperity,” according to the budget documents.