British Columbia Premier Christy Clark says her province is on the verge of a landmark agreement governing the taxation of liquefied natural gas exported from B.C., a deal that would pave the way for billions of dollars in new investment from the sector.
Ms. Clark said an agreement could come as early as the next month or two and would be enshrined in legislation in the spring. The pact will lay out how much energy companies must pay the government for the right to export the province’s natural gas.
“We hope we’ll have it done in the fall,” Ms. Clark said during a meeting with The Globe and Mail editorial board in Toronto on Tuesday.
“It’s some of the most complex tax legislation that our drafters have ever done, so they say. So it’s going to be very time consuming to write it up. But we want to entrench it in legislation so that there is absolute certainty for the proponents.”
Ms. Clark is heading to Washington this week to discuss B.C.’s vast natural gas reserves with U.S. policy makers.
The province’s tax regime has been a point of intense negotiations between the province, which wants to build a financial war chest from its natural gas reserves, and the energy sector, which has warned that high taxation would stifle appetite for investment.
In addition to paying down the provincial debt once the revenue taps begin flowing, the B.C. government also wants to create a prosperity fund, similar to that of Alberta and Norway, where energy-related revenue is banked for future investment.
In the throne speech in February, Ms. Clark’s government revealed plans for an LNG export tax that could generate $100-billion over 30 years for a provincial prosperity fund. But the B.C. government didn’t provide details about how it would work. At the time, officials said it would take another year to finalize details of its proposed tax.
Since then, Japanese players – including Japan Oil, Gas and Metals National Corp. and Tokyo Electric Power Co. Inc. – have warned that a new tax on gas exports could slow the development of the industry.
A number of B.C. LNG projects are in the works. They include Apache Corp. and Chevron Canada Ltd.’s proposed Kitimat LNG terminal, the Douglas Channel LNG project, of which the Haisla First Nation is a joint partner, and LNG Canada – a planned joint venture that includes Shell Canada Ltd., Korea Gas Corp., Mitsubishi Corp. and PetroChina Co. Ltd.
Tom Valentine, a senior partner with Norton Rose Fulbright in Calgary, said it’s a positive step if B.C. is able to provide details about the export tax in short order. “It just makes it easier for Asian investors to look at these opportunities with certainty. And it makes it much easier for the project proponents to work their numbers with certainty.”
Canada is competing with the United States and Australia in the race to build facilities to get natural gas to markets such as South Korea, China, and Japan – the world’s top importer of natural gas. Until the details of the export scheme are released by Ms. Clark’s government, Mr. Valentine said questions will remain about whether the tax structure allows projects planned for Kitimat or Prince Rupert, B.C., to compete on a global scale.
Striking a balance between the need to maximize revenue, while also making the province an attractive place to develop natural gas projects, has been at the heart of the discussions with gas producers, Ms. Clark said.
“It’s a negotiation, we sit across the table from them and we want the best deal for the owners of the resource and that’s the people of British Columbia. And they sit across the table and they say they want the best deal for their shareholders. And so at some point you come to an agreement,” Ms. Clark said.
“Until you do, everybody complains that the other person isn’t giving them enough. That’s how negotiations work I recognize that … but I think in our discussions that we’ve had with proponents so far, the response has been pretty positive. People have accepted that the total burden that the B.C. government intends to put on natural gas producers is reasonable.”
Geoff Hill, the national oil and gas sector leader for Deloitte, said certainty on the export tax is critical, and details on the Clark government plan will be welcomed by the industry.
“In order for any company to do the calculation to determine the return on investment, they need to know with absolute certainty what the financial implications are of doing business in B.C. – whether that’s royalties or a tax,” Mr. Hill said.