Just how the B.C. government intends to extract a trillion dollars in economic activity from a new liquefied natural gas industry won’t be set in legislation until the fall, Finance Minister Mike de Jong says.
That means that final investment decisions from any of the proponents are not expected now until late in 2014 – at the earliest.
The Liberal government cancelled the fall sitting of the legislature last September, saying more time was needed to draft a complex tax regime for LNG. But at that time, Mr. de Jong said both the public and LNG proponents would see the framework for the tax by the end of 2013.
The consultations with industry, however, have proven more difficult than the government originally anticipated. The province wants to offer a more attractive tax regime than Australia, which it has identified as its prime competitor for LNG investment. But LNG suitors were not persuaded last fall that the province was offering a workable system.
Mr. de Jong told reporters on Wednesday that he expects the government’s framework for the LNG industry will be made public this spring, but it won’t be introduced in the legislature until much later.
“We do feel a certain urgency to at some point in the course of the fiscal year, introduce legislation around that, so the sooner we can lay out for the public what the LNG tax looks like, the better,” Mr. de Jong said. “It’s my expectation we’ll see the legislation around the fall.”
He said he may announce the LNG framework when he presents the provincial budget on Feb. 18. But the coming budget will not be based on any revenue expected from the LNG tax.
“It [revenue] doesn’t begin to flow until plants are constructed and the LNG conversion process begins.”
The taxes that will apply to LNG are only a part of the equation that investors are weighing. The framework is also expected to include environmental regulation and accommodation of First Nations and other communities.
B.C. law requires steep reductions in greenhouse-gas emissions in the coming years – a matter that conflicts with the establishment of an LNG industry.
As well, an environmental study of the Kitimat airshed is due this spring that will determine how much industry that community can safely absorb. Kitimat is a key hub in the province’s LNG plans.
The B.C. Liberal government has said the LNG industry in the province will be the cleanest in the world, but how it intends to reach that target will be critical to final investment decisions.
As well, the province will have to map out a process for providing a share of the benefits to First Nations and other affected communities, from the upstream extraction of natural gas, along the pipeline routes, and at the LNG terminals.
“I’m not surprised by the delay,” said Jock Finlayson, chief economist for the Business Council of B.C. “It’s a new industry and it needs a whole fiscal and regulatory framework. What matters to the proponents is the all-in cost of siting a facility in B.C.”
The Business Council’s latest economic forecast predicted that at least one final investment decision would be made on LNG this year. With the new timeline Mr. de Jong has set out, Mr. Finlayson now says that could be pushed into early 2015. “We remain optimistic that the industry is going to take root here in some form over the next couple of years.”
Geoff Morrison, a spokesman for the Canadian Association of Petroleum Producers, said the delay won’t drive away investment opportunities.
“It’s important for industry to have clarity and transparency before making large investment decisions,” he said. “But it’s also important for government to get that fiscal framework right.”
Mr. de Jong added that the industry has been given enough information to understand the direction of his government. “There has been extensive consultation taking place and I believe there is genuine interest in the direction that the government intends to take, on the part of proponents who are contemplating investments in the $30-to-$34-billion range.”