British Columbia targets LNG export tax amid industry pushback
The western Canadian province of British Columbia (BC) has introduced an LNG royalty tax programme, hoping to bank on the future revenues of up to five planned export project to help fund government coffers.
The province's Ministry of Energy, Mines and Natural Gas announced on 12 February the creation of the British Columbia Prosperity Fund, projecting that total revenues to BC could reach Canadian dollars (C$) 130bn-260bn ($128bn-255bn) over 30 years. The fund would receive a portion of LNG revenues at the start of first liquefaction production, with province officials estimating full production to commence between 2018-2020.
The ministry identified Australia as its main competitor, and asserted that the country's LNG tax and royalty scheme was up to one-third higher than BC's. However, exact details have not yet been disclosed on how the royalty would be levied.
"By introducing a new revenue framework for LNG in BC, we can maximise the benefits to British Columbians while still remaining competitive," said a ministry spokeswoman.
"The exact means of how the BC government will collect new revenue from LNG profits has yet to be finalised."
The province's ministry has said engagement with the industry and LNG proponents is ongoing.
However, the proposal has drawn the ire of the energy industry, as trade groups say a proposed tax imposed before the final investment decisions have been made could drive away investment.
"You cannot look at the competitiveness from jetty point to well head - it just cannot be rolled up. The LNG investment decision is discrete and unique from the upstream. We think it needs to be compared competitively," said Geoff Morrison, manager of BC operations for the Canadian Association of Petroleum Producers (CAPP).
The province, which is on the brink of developing LNG as exports, has existing oil and tax royalty programmes. For the 2012-2013 fiscal year, the province is slated to generate C$144m in natural gas royalty revenues alone, according to the ministry spokeswoman.
The planned 10m tonne per annum (mtpa) Kitimat LNG project is the only one in the front-end engineering and design phase. The next major project in line is the proposed 12mpta Shell Canada project in Kitimat, jointly developed by China's PetroChina, Japanese trading house Mitsubishi, South Korean state-owned KOGAS. Malaysian state-owned PETRONAS is proposing an export facility in Prince Rupert, and UK-headquartered oil and gas firm BG Group has also indicated interest in the Prince Rupert area.
A study by the consultancy Grant Thornton released by the energy ministry showed cumulative province revenues were calculated to earn C$130bn-180bn over a 20-year period between 2011 and 2038, assuming a base-case scenario of 82mtpa for five liquefaction projects, and as high as C$160bn-270bn over a high-capacity scenario of 120mpta for five plants.
However, a separate report by consultant Ernst & Young showed projected government revenue of C$79bn-162bn between 2013 and 2037, with an average annual operating revenue between C$4bn-8bn during a 20-year operating period. A high-capacity modelling would show projected revenue between C$112bn-224bn.
Both studies relied on analysis provided by the province, gathered as aggregated data from potential private-sector proponents and unspecified industry data. None of the assumptions contained any project-specific inputs.
"The government has made clear that they want to remain competitive, but we still have that slight difference of viewpoint on what goes into that competitive decision," said Morrison of CAPP.
"We want them to look into that investment discreetly and have a separate value chain. They are encouraged to promote the industry; we will take them at their word for that."
He expects much of the discussions on the royalty scheme will take place when the British Columbian province hosts its first LNG conference with project stakeholders and prospective customers on 25-26 February in Vancouver.
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