Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Premier Christy Clark and Pacific NorthWest LNG president Michael Culbert in Vancouver May 20, 2015 during a signing ceremony. (John Lehmann/The Globe and Mail)
Premier Christy Clark and Pacific NorthWest LNG president Michael Culbert in Vancouver May 20, 2015 during a signing ceremony. (John Lehmann/The Globe and Mail)

B.C. signs LNG deal with Petronas-led group, but tax promises criticized Add to ...

The B.C. government has signed a development deal with Pacific NorthWest LNG in an aggressive move to spur the Malaysian-led project to become the first major Canadian exporter of liquefied natural gas.

The pact spells out the tax regime and LNG rules for the long term, aiming to reduce the risks for the project’s Asian backers.

B.C. Premier Christy Clark and Pacific NorthWest LNG president Michael Culbert signed a memorandum of understanding Wednesday, clearing the way for the project development agreement’s ratification later this year from the B.C. legislature.

“There has been a lot of work getting here in obtaining and securing a $36-billion investment and there’s still a lot of work ahead of us,” Ms. Clark said during a news conference in Vancouver. “We’ve worked hard to build strong partnerships with First Nations and that work is still under way, as is the federal government’s regulatory process for environmental approvals.”

Members of the Lax Kw’alaams recently overwhelmingly rejected a $1-billion cash offer over 40 years from the LNG venture, declining to give aboriginal consent to plans to build an export terminal on Lelu Island, located next to Flora Bank in northwestern British Columbia. Flora Bank, a sandy reef-like area visible at low tide, contains eelgrass beds crucial to the survival of juvenile salmon in the estuary of the Skeena River, according to the Lax Kw’alaams band. Lelu Island and Flora Bank are part of the traditional territory of the Lax Kw’alaams.

The terminal is forecast to cost $11.4-billion, part of the overall $36-billion in planned investment.

Pacific NorthWest LNG, led by Malaysia’s state-owned Petronas, could be in a position to make a final investment decision this fall. Last September, Petronas threatened to cancel the massive venture, complaining about regulatory delays and pushing the B.C. government to move faster in drafting stable and predictable tax and LNG rules.

Ms. Clark campaigned hard in touting LNG’s prospects in the general election two years ago, boasting that her Liberals would guide the fledgling B.C. industry and transform the provincial economy.

Wednesday’s signing is important because it provides certainty to investors, Mr. Culbert said.

Still, a breakthrough with the Lax Kw’alaams has been elusive. The Lax Kw’alaams are one of five Tsimshian First Nations consulted by Pacific NorthWest LNG as part of the environmental review process. Two groups, the Metlakatla and the Kitselas, signed impact benefit agreements with the Petronas-led LNG joint venture in December. Two others, the Kitsumkalum and Gitxaala, have not yet announced their decisions.

“There is heavy lifting remaining on this project,” said Mr. Culbert, who noted that a recent Pacific NorthWest LNG-commissioned study argues there would be little to no environmental impact on Flora Bank.

The project development agreement with Pacific NorthWest LNG promises compensation if a future government seeks to raise tax rates in a way that targets the LNG industry. That template will apply to other firms, as well.

While future governments could still change the carbon tax or corporate income tax rates across the board, for example, LNG proponents could be entitled to compensation if the industry is singled out for tax changes or if costs rise due to tougher environmental requirements.

“The devil is in the details, but risk is definitely being allocated to taxpayers,” said David Austin, an energy lawyer with Clark Wilson LLP in Vancouver.

There will be a separate royalty agreement from 2016 through 2038 on natural gas production in the North Montney region in northeastern British Columbia, where a Petronas-led joint venture operates. Provincial officials forecast $8-billion from the LNG project in royalty revenue to government coffers over the 23-year period. In addition to royalties, an income-tax framework will start with a minimum 1.5-per-cent rate, applying to net operating profit.

The province says long-term royalty agreements will ensure that royalties flow based on minimum production requirements, and will protect taxpayers if natural gas prices fall. However, companies involved in the production of natural gas for LNG would gain protection against a spike in prices.

B.C. Opposition NDP Leader John Horgan said the provincial government has put too much on the table for industry.

“My biggest concern is that we are tying the hands of future governments because a desperate government made commitments that they overpromised on,” he said in Victoria. “And now they want to get a deal at any cost.”

Investors have cited examples of other governments moving the goal posts after their capital was firmly planted. But Mr. Horgan said the B.C. agreements are too one-sided and do not provide sufficient certainty for the owners of the resource – the public.

The Canadian Environmental Assessment Agency recently restarted its review of the Pacific NorthWest LNG project near Prince Rupert. Federal Environment Minister Leona Aglukkaq could render a final decision on the controversial project some time between mid-September and early October, depending on whether there are further delays in the lengthy regulatory process.

Pacific NorthWest LNG wants to construct a 1.6-kilometre-long suspension bridge to carry a pipeline over the northwest flank of Flora Bank, and then connect with a 1.1-kilometre-long trestle-supported jetty that would start on the edge of Flora Bank and extend in a southwesterly direction beyond Agnew Bank to a marine terminal for ocean-going LNG tankers.

Report Typo/Error

Follow us on Twitter: @brentcjang, @justine_hunter

Next story


In the know

The Globe Recommends


Most popular videos »


More from The Globe and Mail

Most popular