LNG secrecy stirs legislators
Petronas said to be on verge of final approval for Pacific NorthWest LNG project
For Petroleum News
British Columbia’s Natural Gas Development Minister Rich Coleman is trumpeting the chances that Malaysia’s Petronas will formally sanction its Pacific NorthWest LNG project just as his government is coming under fire for shielding more of its negotiations with LNG proponents from public scrutiny.
On his return from a visit earlier in April to Petronas headquarters, Coleman told the Globe and Mail that he is “as optimistic, if not more optimistic, than I’ve ever been” that the Pacific NorthWest joint venture by Petronas and three Asian junior partners is poised for a final investment decision.
Despite a series of delays, including an on-going federal environment review of the Pacific NorthWest plans, Coleman left his meeting with newly installed Petronas Chief Executive Officer Wan Zulkiflee Wan Ariffin in a buoyant mood, noting that the CEO and his predecessor Shamsul Azhar Abbas are scheduled to be in Vancouver by the end of June to meet with him and Premier Christy Clark.
The project already has a British Columbia environmental certificate but a Canadian government environmental assessment must still be “completed and signed off” before a federal certificate can be issued, he said.
Issues around negotiationsBut these signs of progress are colliding with amendments to the province’s LNG Income Tax Act that will reduce tax revenues and has the opposition New Democratic Party accusing the Clark government of negotiating with LNG players in private and keeping the details secret.
Bruce Ralston, the NDP’s LNG spokesman, said the government is attempting to give itself greater taxation flexibility to attract LNG investments.
He said the change now contemplated involves offering a “further sweetener” to entice offshore LNG companies by lowering the tax on natural gas feedstock to 8 percent from 11 percent.
Ralston said the government has decided it will “give you 8 percent right off the bat, no matter what volume you start off at and what fluctuations there are in supply.”
NDP leader John Horgan said that instead of developing its natural resources in the “public interest,” the province shows signs of using LNG as a “partisan tool.”
Questions about amendment billAlong with the NDP, Andrew Weaver, the Green Party’s lone member of the provincial legislature, noted that the amendment bill covers 109 pages, compared with the 87-page original bill, which he said was “full of loopholes so big you could drive a bus through.”
Weaver said the proposed changes come at a time when Clark’s earlier talk of an LNG industry - one she said would create 100,000 jobs, a C$100 billion Prosperity Fund, a C$1 trillion boost to the gross domestic product and the elimination of British Columbia’s debt - is starting to falter.
He said the economics of global LNG markets did not support those forecasts when they were made in fall 2012 and what has happened since was “entirely predictable.”
Weaver said British Columbia’s shale gas reserves pale in comparison to Australia, Russia, China, the United States, Iran and Qatar.
“There is shale gas all over the world,” he said. “Yet somehow B.C. thinks that it and it alone is going to fill Asian markets with natural gas.”
He also noted that LNG prices are falling along with crude, with the consulting firm of Wood Mackenzie forecasting that Brent crude prices averaging US$80 a barrel would result in LNG prices of US$12.60 per million British thermal units; Brent at US$70 would drag LNG down to US$10.50.
Weaver said that Russia has negotiated 30-year LNG contracts with China below US$10.50, “yet British Columbia thinks that somehow companies will invest tens of billions of dollars to transport LNG from our coast (to Asia) when it costs US$7-$8 per million Btu to do that.”
He questioned whether Petronas will have any reason make a long-term investment decision on Pacific NorthWest before the mid-2020s.
Education tooling ‘irresponsible’Against those odds he said it is “irresponsible” of the government to talk about retooling its education system to train people for an industry that “doesn’t exist now, but we hope maybe someday will exist” and tell LNG proponents that “we’ll do whatever you want,” including revised its natural gas tax credit.
Under the proposed new credit, which was not mentioned last fall, LNG taxpayers can decrease their corporate income tax from 11 percent to 8 percent and could end up paying 8 percent “ìn perpetuity,” he said.
Weaver asked what might be next on the government’s list of gifts to attract an LNG industry - “Are we going to promise them a free workforce? Are we going to promise them that they pay no tax?”
Access to agreementsFinance Minister Mike de Jong insisted the amount of the credit can’t reduce an LNG corporation’s effective income tax below 8 percent, but, in a concession to opposition legislators who are challenging the transparency of LNG deals, he said it would be the government’s intention to allow the legislature to “examine in detail” at least the first of those agreements.
Ralston warned the government is positioning itself to negotiate LNG-related royalties for up to 40 years “in the privacy of the cabinet room,” noting that Coleman had previously declared that “under no circumstances could project development agreements be disclosed.”
Although de Jong disagreed with Coleman’s statement, Ralston said an NDP request through freedom of information to see any project development agreements that have been signed came back with “blank pieces of paper.”
“If the deals that are being struck are good deals for British Columbia, surely the government should be proclaiming from the rooftops the details of the return for the citizens of the province,” he said.
Ralston said that any evaluation of returns to the public from the export of a natural resource from British Columbia “ought to be done in public.”
“One does not know what assurances have been given in a project development agreement,” he said. “Are there penalties if the agreement is broken that would make it financially impossible for another government to vary in any way?”
Ralston said it is clear that in its “desperation to get a deal, the government is prepared to go to any measure, including secret agreements that they’re not prepared to disclose publicly, in order to get a deal.”