Tax talk worries players
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Industry pressures BC to remove tax uncertainty related to LNG export proposals
Gary Park For Petroleum News
British Columbia Premier Christy Clark got another dose of warnings from Canada’s LNG proponents — don’t start banking billions of dollars when the first LNG ship is unlikely to set sail for Asia until 2017.
In staking her May 14 re-election chances to projections of C$1 trillion in cumulative gross domestic product over 30 years, she carried her campaign message that British Columbia could become a world leader in LNG exports to a government-sponsored conference in Vancouver at the end of February.
“I’m here to tell you that British Columbia is open for business,” she said. “We know there is tremendous competition all around the world. We know that the window of opportunity to export LNG from British Columbia will not be open forever, so we’re moving decisively.”
In the process, she wants to “make sure that the people of this province share in the benefits” of their vast natural gas resources that would fuel LNG exports.
To that end, Clark has opened discussions with the industry on a possible new LNG tax and royalty regime by asking LNG companies for detailed financial models of their intended investments, partly to determine whether projects could stand up to new taxes.
“We have to make sure that, first of all, we are getting maximum benefit for the people of our province, and at the same time that we aren’t imperiling the business case,” she said.
World market the goal Clark and Energy Minister Rich Coleman have their sights fixed on the increased value of British Columbia’s natural gas once it is liquefied and sold on world markets.
They have suggested that new LNG taxes would be little different from the province’s current oil and natural gas regime.
Coleman assured those at the Vancouver conference that “you need to know we’re your partners in this. You need to know that we’re going to make this a win for you. Profit means that everyone wins — and you need to win large enough for your large investments.”
Company representatives at the Vancouver conference added their doubts to those of the Canadian Association of Petroleum Producers, which said earlier in February that it “understands the government’s desire to look at maximizing benefits for the public. But we also caution that LNG is a competitive industry and competitiveness on the global scale is tight.”
Anders Ekvall, Shell’s vice president of LNG Americas who is attached to the LNG Canada project, which has Korea Gas, Mitsubishi and PetroChina as partners, noted there are a “multitude of LNG projects here in British Columbia (but) only a small subset are expected to prevail.”
Fiscal certainty needed Mike Culbert, CEO of Progress Energy, which has been taken over by Malaysia’s Petronas and is working on an LNG project, said that as those plans move towards regulatory filings they need certainty on the fiscal front.
“We’ll need the government to continue to work with the industry to ensure that we come up with a fiscal regime, whether that be royalties, taxes, or the LNG taxes that have been mentioned,” he said.
“We need to get all of those items in place well in advance. These decisions are being made as we move forward towards our final investment decision date, and that clarity is utmost,” Culbert said.
Betsy Spomer, senior vice president of global business development at BG Group, said her company has been attracted to British Columbia because of the province’s “stable and predictable fiscal regime.”
“B.C. has done a lot to encourage the development of B.C. gas resources by virtue of a reasonable royalty regime and deep well credits .... and that has attracted a lot of activity. I would hate to see that change dramatically,” she said.
Industry highly competitive Jim Prentice, a former Canadian government cabinet minister and now vice chairman of the Canadian Imperial Bank of Commerce, told the conference that “in a highly competitive global industry it doesn’t take much to marginalize returns to the point that other jurisdictions begin to look more attractive.”
“The imperative in LNG must be to ensure that the taxes we place on this important burgeoning industry don’t have the effect of stymieing or undermining its creation and its growth,” he said.
Following the conference, David Harris, president of power and gas at AltaGas, said the tax uncertainty could affect the Calgary company’s LNG joint venture with Japan’s Idemitsu Kosan.
“There are lots of challenges facing the export of LNG and this is just another one that needs to be clarified before a final investment decision is made,” he told analysts.
AltaGas Chairman David Cornhill called on British Columbia to make its decision as soon as possible to prevent delays in investment decisions and allow companies to start making long-term construction commitments.
AltaGas has indicated it might spent up to C$5 billion over 10 years through the 50-50 partnership to start exporting 2 million metric tons a year of LNG in 2017 and 700,000 metric tons of liquefied petroleum gas in 2016.
British Columbia’s New Democratic Party, which is strongly placed to topple Clark’s Liberal administration, has been scorning the government’s forecast of an economic windfall from LNG, suggesting the province will be lucky to have even one project in operation by 2020, far from Clark’s goal of two large- and three small-sized ventures.
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