VICTORIA—The Liberal government’s plan to charge oil and gas companies a liquefied natural gas (LNG) tax of up to seven per cent is the subject of ongoing negotiations, Finance Minister Mike de Jong said this week.
Discussions about cost are included in a letter of intent Premier Christy Clark signed in Malaysia with energy giant Petronas to secure long-term investments in LNG in British Columbia.
“Petronas has requested the province provide certainty about costs that are under the control of the province and that are applicable only to LNG investments,” said the letter, also signed by Petronas president Tan Sri Dato’ Shamsul Azhar Abbas.
Petronas and its affiliates Pacific Northwest LNG and Progress Energy Canada propose to build a multi-billion dollar LNG export facility near Prince Rupert, B.C.
The letter of intent includes the government’s request to Petronas that it work towards reaching a final investment decision on its proposal.
Terms of reference for a project development agreement between the company and the government are due June 30 and an agreement deadline is Nov. 30, but the letter of intent is not legally binding.
De Jong said talks about adjusting the government’s LNG tax structure have been ongoing since last February when he introduced a proposed tax structure as part of his budget.
At the time, de Jong joked that the companies would prefer a tax structure of zero per cent.
The government’s proposed plan calls for a two-tiered LNG tax.
The first tier of 1.5 per cent is to be introduced at the start of production.
The second tier, when introduced, could rise to seven per cent once the plant is running and capital costs have been deducted, de Jong said.
The plan includes no forecasts of LNG revenues because there are currently no LNG plants in operation.
Of the major LNG projects being proposed for northern B.C., the earliest production timeline is 2018.
“The proponents would like to see the cost structure as low as possible,” de Jong said. “In the aftermath of the budget, as I predicted on budget day, there have been suggestions of adjustments. What the premier and the folks in Malaysia have agreed to at the highest level is to continue to work and set a pretty aggressive timeline to deal with the next steps towards a final investment decision.”
The Canadian Association of Petroleum Producers (CAPP), which represents major oil and gas companies, said earlier that it was lukewarm towards the proposed LNG tax regime.
B.C. spokesperson Geoff Morrison said the plan provides a framework but more work needs to be done on the rates.
Pacific Northwest LNG spokesperson Greg Kist also has said the company is looking for clarity from the government on the tax regime before making a final investment decision by the end of the year.
Kist is currently in Malaysia as part of Clark’s LNG visit.
De Jong suggested the seven per cent number may not be the final figure when the government introduces its LNG legislation in the fall.
“Remember what I said. I said ‘up to’ and was clearer in February we were working with the proponents to arrive at final figures that we intend to enshrine legislatively this fall,” de Jong said. “When I said ‘up to,’ that suggested we were going to work through to finalize the numbers.”
Clark has frequently touted B.C.’s plans to develop LNG export terminals as a generational opportunity worth up to a trillion dollars, with the potential to create up to 100,000 jobs.
NDP Leader John Horgan said he’s concerned the Liberals are prepared to make huge potential economic sacrifices to coax oil companies to sign LNG deals.
“What I want to see is a clear business plan and an absolute guarantee from Ms. Clark that she’s not going to sell the farm just to get a signed agreement,” he said.
A report released last week by the Centre for Canadian Policy Alternatives suggested the B.C. government must lower its LNG revenue expectations.
Economist Mark Lee said the government’s touted returns of $100 billion are “a little more than wishful thinking.”
The report analyzed forecasts for Asian energy markets, the time and cost associated with developing the LNG industry, plans to earn royalties from gas extraction, and LNG income tax.
It concluded that India, Japan, Korea, China and Taiwan, which account for 70 per cent of LNG imports, are forming a “buyer’s club” on price, making it far less likely that they will continue to pay top dollar for imported LNG.