The British Columbia government has stretched by more than a year its original target date for issuing a new LNG tax regime without causing any of the big players — Chevron, Apache, Shell, Petronas, BG Group, China National Offshore Oil Corp., Woodside, ExxonMobil/Imperial Oil — to cut and run.
All of the proponents have made it clear that the fiscal terms will be a key part of their final investment decisions, which they had hoped to start making this year, but most have invested millions of dollars already and show no signs of abandoning their hopes.
What might have been a bombshell announcement met with a noncommittal response from the proponents when Finance Minister Mike de Jong disclosed Feb. 6 that the fiscal details would not be included in the government’s budget on Feb. 18.
He did say a broad framework on tax rates could be issued this spring, but it won’t become law until “around the fall.”
“We do feel a certain urgency to, at some point during the course of the (2014-15 fiscal year), to introduce legislation,” he said. “The sooner we lay out for the pubic what the LNG tax would look like, the better, in my view.”
‘Extensive consultation’However, de Jong said “there has been extensive consultation (with the industry) and enough information has been provided to indicate what direction the government is taking on the part of those contemplating investments in the C$34 billion range.”
The legislation will also lay out environmental regulations for LNG projects and what action is expected of proponents to accommodate First Nations and other communities.
A spokeswoman for Natural Gas Development Minister Rich Coleman said the government is “on track and progressing towards a final LNG income tax framework and supporting legislation.”
She said some information about the “basic structure” of the tax could be included in the budget, “recognizing that proponents are interested in information to support their investment decisions.”
The legislation should be ready for introduction later this year, with regulations and additional legislation expected to follow in 2015, she said.
Original plan for late 2013Coleman, the cabinet minister managing the LNG portfolio, had originally said the government aimed to have a fiscal regime in place by late 2013 to underpin British Columbia’s goal to compete for LNG investment and markets on a equal footing with Australia and the U.S., who are seen as its most comparable rivals.
Premier Christy Clark told the California Senate in Sacramento, Calif., Feb. 6 that the LNG industry will not be exempt from the government’s existing tax of C$30-per-metric-ton of carbon dioxide equivalent.
Although she decided last year to freeze further increases in the tax for five years, she said it is one of the highest of its kind in the world and has not prevented British Columbia from growing its economy faster than the Canadian average.
But Clark has said her government is willing to postpone its goal of reducing GHGs by one-third by 2020 if that target threatens to hinder the development of an LNG industry she hopes will establish a government Prosperity Fund of C$100 billion.
British Columbia has 13 LNG proposals in various stages of development, with seven holding National Energy Board export permits.
The most advanced operators — Chevron, Shell and Petronas — made it clear that they will not comment on the status of discussions over a fiscal regime.
CAPP calls for transparencyGeoff Morrison, British Columbia manager for the Canadian Association of Petroleum Producers, said the gas producers and LNG exporters need “transparency and clarity before making large investment decisions. It is also important for the government to get that fiscal framework right.”
He said it is “not a bad thing” if the government takes more time to draft a framework if the regime ends up among the most competitive in the world.
“But, given that we are in a competitive environment, it is important to get it done in a timely fashion,” Morrison said. “We have an enormous natural gas resource and there is a tremendous world demand for that gas. The ingredients are there for a great success story and British Columbia is doing all of the right things to be as competitive as possible.”
Jock Finlayson, chief economist for the Business Council of British Columbia, told reporters that de Jong’s new timeline could push the first investment decision from this year to early 2015.
He said “what matters most to the proponents is the all-in cost they face. We remain optimistic that the industry is going to take root here in some form over the next couple of years.”
Concerns about competitionThe Canadian Chamber of Commerce and Canada’s Natural Resources Minister Joe Oliver have warned that unless Canada advances its LNG projects it risks losing competitive ground to the big global suppliers, notably Australia.
Zoher Meratla, an LNG consultant with British Columbia-based CDS Research, said he is concerned about the length of time being taken to develop the fiscal regime, but doubts any of the major players will abandon their plans simply because a tax is not in place.
He suggested that if any of the big proponents applied pressure the government would respond.
Meratla said he does not expect more than two of the large-scale operations will be completed by 2020, suggesting the two most likely to achieve that goal are the Chevron-operated Kitimat venture and Pacific Northwest LNG led by Malaysia’s Petronas, which he said “understands the game.”