By REBECCA PENTY
British Columbias proposed tax on natural gas exports
provides long-awaited financial clarity to energy companies
deciding whether to spend as much as $240 billion to start
shipping the fuel from Canadas Pacific Coast.
Profits from liquefied natural gas, or LNG, projects will be
taxed at an initial rate of 1.5%, Michael de Jong, finance
minister for the nations westernmost province, said as
the government released its budget for the fiscal year
beginning in April. The rate will rise to as much as 7% after
companies recover the costs of building the shipping
The province plans to erase its debt with revenues from the
LNG sector, which may add C$1 trillion ($913 billion) to its
economy by 2046. ExxonMobil, Chevron and Royal Dutch Shell
are among companies seeking to liquefy low-cost Canadian gas
so it can be shipped to Asian markets that pay as much as
five times more than North America.
The tax-rate framework as laid out brings some needed
clarity to the industry, so thats positive, said
Geoff Morrison, a Victoria-based manager with the Canadian
Association of Petroleum Producers. The tax is one
component of the all-in costs that a proponent would face.
Are these the right rates? I cant say for sure.
The province said its tax and royalty rates will be lower
than in Australia and five US states, where competing project
s are being built.
The government plans to seek approval of the rates from the
legislature before the end of the year. Additional
regulations related to gas exports are expected in 2015. The
tax wont be collected until plants are running, after
2017, de Jong said.
Wed like investment decisions to be made as soon
as possible, construction
to start as soon as
possible, de Jong told reporters before introducing the
budget in the legislature, in the provincial capital of
Victoria. Once that happens, we derive the benefits
related to construction
and ultimately the
revenue stream that flows in part from the LNG income
More than a dozen LNG projects have been proposed in British
Columbia as producers seek to capitalize on Canadian fields
including the Montney Shale, estimated to contain 449
trillion cubic feet of gas. No companies have yet made a
final decision to proceed.
British Columbia has the chance to reap a cash
windfall with LNG, as its neighbor Alberta has done
with oil sands producers, Brian Kristjansen, Geoff Ready and
Maxim Sytchev, analysts with Dundee Capital Markets, wrote in
a report last month. The analysts said companies could spend
as much as C$262 billion on gas drilling, pipelines and
terminals if three plants proceed.
Even if only one large project
moves ahead, the industry
may spend C$100 billion on drilling, pipelines and export
plants, the analysts wrote.
The provincial government continues to plan on three plants
being built in British Columbia by 2020, de Jong said.
We think thats achievable. I dont
underestimate the complications and challenges of getting
A single plant could generate as much as C$1.4 billion of LNG
income taxes after 10 years in operation, de Jong said
yesterday in the British Columbia legislature. The
governments tax plan and competitiveness with other
regions was assessed by Ernst & Young.
Yesterdays tax proposal emerged after months of talks
between the government and industry representatives.
Governments need to have effective fiscal frameworks
and regulatory approval processes in place that can balance
industry requirements for certainty, timeliness and a
reasonable return on investment with other stakeholder
concerns of environment
al impacts and social
benefits, Jeff Lehrmann, president of Chevrons
Canadian subsidiary, said at an October energy conference in
In addition to the LNG tax, companies must consider other
project costs of building in British Columbia, including
taxes on carbon emissions
and corporate income,
the price of laying pipelines across mountains, a shortage of
skilled labor and potential conflicts with aboriginal groups
over land access.
British Columbia plans to collect C$1.23 billion from its
carbon tax in the fiscal year starting in April and C$441
million from gas royalties, according to budget documents.
The province taxes carbon emitted within its boundaries at a
level of C$30 a metric ton.
The absence in the budget of an estimate for total government
revenues from LNG and when theyll be collected makes it
tough to weigh whether the industry is worth the environment
al costs, including
water use in gas drilling and carbon emissions
from shipping terminals,
said Matt Horne, a Vancouver-based director of the Pembina
Institute, a nonprofit environment
al research group.
Canadian projects already face higher construction
costs compared with
US proposals to build export facilities
at existing import
terminals, said Ed Kallio, a Calgary-based director at Ziff
Energy, a division of HSB Soloman Associates. Australian
project costs may decline if Prime Minister Tony Abbott is
able to fulfill a promise to repeal the nations carbon
The industry wants to make sure that when you add all
of that up, you dont kill that golden goose,
Kallio said. These are big companies and they have a
portfolio of project
s around the world that are
all competing for capital.