CALGARY – A consortium led by Malaysian energy giant Petronas says it’s not yet clear what British Columbia’s new tax on liquefied natural gas will mean for the economics of its proposed multibillion-dollar project near Prince Rupert, B.C.
“It’s important to take time to gain a wholesome understanding of taxation matters before commenting in detail,” Spencer Sproule, senior adviser of corporate affairs for Pacific Northwest LNG, said in an emailed statement.
The new tax starts in 2017 at a rate of 1.5 per cent and later rises to 3.5 per cent, with another increase to five per cent in 2037 once the industry plants roots in the province, Finance Minister Mike De Jong said Tuesday. A corporate income-tax credit is also available to LNG companies that establish permanent bases in B.C.
Last February, de Jong said the preliminary version of the LNG income tax would be 1.5 per cent at the start of production, and the second tier would rise to seven per cent once plants were running and capital costs were deducted. But he also indicated seven per cent was at the top of the tax range.
Pacific Northwest LNG has believed all along that British Columbians deserve to benefit from resource extraction, said Sproule.
“At the same time, it is imperative that all levels of government recognize the need to remain competitive with other jurisdictions around the world that currently, or plan to, export LNG,” he said.
Those include proposed projects on the U.S. Gulf Coast, Africa and Australia — many of which are further along in development than Canada’s nascent industry.
The CEO of Petronas had said previously that the earlier proposed tax scheme, along with a sluggish regulatory process, put the economics of the multibillion-dollar LNG export facility into question. Shamsul Abbas had warned that if Petronas wasn’t assured by month’s end that the economics of the LNG project would work, it might have to delay it by as many as 15 years.
It’s expected to cost between $10 billion and $12 billion to build a plant on the West Coast to chill natural gas into a liquid state, enabling it to be shipped abroad by tanker. Petronas’ Canadian unit plans to spend tens of billions more developing natural gas in northeastern B.C. that would feed the terminal.
CIBC World Markets analyst Jon Morrison said B.C.’s announcement should be helpful to the Canadian LNG industry.
“While we view this new tax incentive as introducing a layer of complexity into the province’s fiscal framework that wasn’t necessary, in our view, it is a clever way to reduce the effective LNG tax rate and address industry needs while remaining within its original proposed framework,” he wrote in a report.
“Overall, we view the announcement as modestly positive for the Canadian LNG industry and should provide additional clarity for the Petronas-led Pacific Northwest LNG project to move forward with its final investment decision (FID) over the coming months. Although there have been several reports about the project being delayed and/or cancelled in the past few months, we believe the consortium is likely to reach a positive FID before year-end.”
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