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A taxing time for BC Province delays release of LNG fiscal regime; details likely in budget in February Gary Park For Petroleum News
British Columbia’s Natural Gas Development Minister Rich Coleman has built a reputation during 12 years in the provincial government’s cabinet as a cool head in pressure situations.
But even he, in a rare moment of candor, has conceded that his role as ringmaster in the LNG circus is the most complex of his political career.
During a conference call on Nov. 19, Coleman offered an insight into just how complex as he backed down from his goal of presenting the basic parameters of an LNG tax by the end of November.
He said the objective now is for the government to have its “internal decision completed by the end of December,” and even then the details won’t be made public.
“The intention is to get to a position where we can actually tell the industry, whether it be in a confidential way or not, what we think the formula is,” he said.
Formalization confidential “The formalization of tax law ... is highly confidential. We’re not in a position to disclose that until it’s either presented in a budget or presented by legislation.
“We were asked by different (LNG) proponents, because we got into pretty detailed conversations about all the technical aspects that affect the cost of competitiveness worldwide, to take another month or so to have an opportunity to look at the combined cost with regards to other things that could affect the cost, relative to an investment decision.
“We said to them we’d give them another 30 days at the end of October, which we’ve done, so the end of (November) we will then set down and look at their competitive matrix,” Coleman added.
“I have always said that I would ... circle back to the companies as we go through the process. This has proven to take a little longer than I thought it would because of the availability of people and technical teams to sit down with my folks.”
The message to emerge from that explanation is simple: The tax is unlikely to be revealed until British Columbia introduces its 2014-15 budget in February.
Would tax be a tariff? Coleman said the tax will be imposed on LNG output at the plant level, meaning it will also apply to any gas making its way from Alberta and Saskatchewan to Pacific Coast liquefaction facilities.
Left unanswered is whether such a tax would be interpreted as tariff.
If that is British Columbia’s intention it could put the province at odds with the Canadian government which has the sole right to impose such export levies.
Driven by its hunger for fresh sources of revenue from royalties and taxes, British Columbia may also find itself in a fresh tangle with Alberta over the source of natural gas supplies for LNG, with a lot at stake.
Both provinces have taken severe punishment from Canada’s declining export markets in the United States on top of prolonged weak commodity prices and the rapid expansion of shale gas development in the U.S.
Alberta’s gas royalties have nosedived to a projected C$1 billion in the current fiscal year from C$8.4 billion in 2005-06, while British Columbia has slumped over the same period to C$228 million from C$2.9 billion.
Coleman insisted that Alberta and Saskatchewan are aware of British Columbia’s objectives and have delivered no negative feedback.
Alberta wants its gas to play But Alberta Energy Minister Ken Hughes said his government is doing all it can to ensure its gas plays a role in the LNG market, including a trip he made to Korea, China and Japan in October to assure potential LNG buyers that Alberta wants their business.
“My focus with respect to LNG and the West Coast is that we will be keeping a very close eye on all the projects as they proceed and we will be working to ensure that whatever happens on the West Coast that there is a clear link into the Alberta natural gas industry, so that we are part of the success story,” he said.
Hughes suggested that LNG operators may see an advantage to exploiting Alberta’s large and well-developed supplies as a way to reduce risk, echoing the view of industry leaders that Alberta gas — although more distant from LNG terminals than British Columbia’s vast shale gas deposits — is richer in high-priced liquids than those in British Columbia.
Ed Kallio, director of gas consulting at Ziff Energy, a division of HSB Solomon Associates, said gas from the Duvernay and Montney plays in Alberta are the region’s lowest cost supplies at the moment, convincing him that “Alberta gas will do just fine.”
While British Columbia and Alberta engage in some quiet jostling, there is an even larger concern.
Ziff Energy has estimated that over the next seven years, the incremental growth in Asia’s LNG market will be equivalent to gas production of 20 billion cubic feet per day.
Without even factoring in the global competition from Australia and East Africa, LNG projects currently on the table would consume about 15 bcf per day in Canada and 35 bcf per day in the U.S., Ziff projected.
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