Oil and gas companies hoping to win big on Canada’s nascent liquefied natural gas (LNG) export industry are balking at a new gas tax proposed for British Columbia that is great for the province but tough on the industry wallet.
Profits from LNG projects will be taxed at an initial rate of 1.5%, under the proposal, British Columbia Finance Minister Michael de Jong told reporters on 26 February. The rate will rise to as much as 7% after companies recover the costs of building the shipping terminals.
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Shell Canada and other supermajors in this game say the proposed tax could hinder the province’s competitiveness.
“We need something that’s globally competitive if we, in British Columbia, are going to build an LNG industry,” said Shell Canada spokesman David Williams.
Shell Canada has proposed a $12-billion plant in Kitimat, with partners PetroChina, Korea Gas and Mitsubishi. The project already has federal export approval and is now awaiting environmental assessment. A final investment decision (FDI) could hinge on the new tax policy.
Exxon Mobil and Chevron are also eyeing British Columbia LNG projects—and all were looking for clarifications of pending tax policies, which has now arrived however unwelcome.
But provincial officials see a chance here to bring in up to $1 trillion by 2046 through the LNG sector alone.
The attraction, despite the tax proposal, is clear: there is plenty of money to be made shipping low-cost Canadian gas to LNG-starved Asian markets, where it fetches a much higher price.
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And, as provincial officials have been quick to point out: British Columbia tax and royalty rates as proposed will still be lower than in Australia and the US—at least in the five states competing with LNG projects in the sector.
BC Finance Minister Jong’s response to the supermajor balking is to take it in stride.
“Of course they want zero,” he said, but the proposed tax regime still puts British Columbia ahead of its potential competitors.
The province of British Columbia is promising tax legislation this fall, and is expected to reveal more details about environmental regulation and benefit-sharing plans for First Nations this spring.
By Joao Peixe of Oilprice.com