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Douglas Channel is pictured in an aerial view in Kitimat, B.C., on January 10, 2012. (DARRYL DYCK/THE CANADIAN PRESS)
Douglas Channel is pictured in an aerial view in Kitimat, B.C., on January 10, 2012. (DARRYL DYCK/THE CANADIAN PRESS)

Kitimat LNG plans hinge on B.C. taxes and affordable Asian contracts, Chevron says Add to ...

Chevron’s plans for a Kitimat liquefied natural gas terminal will only be finalized if the company finds tax certainty in B.C., and workable Asian contracts for the $4.5-billion project, Chevron Canada Ltd. president Jeff Lehrmann said Wednesday.

Speaking in Calgary, Mr. Lehrmann said not only are Canadian projects as a group competing with other projects around the world, but the company’s Canadian project is competing with other Chevron projects.

“There are only a handful of companies that have the financial and operating capacity to take on such large scale projects, but they need certainty of fair return on investment before committing to do so,” Mr. Lehrmann said in respect to his company’s project, which would eventually have an export capacity of up to 10 million tonnes per year, if built.

Mr. Lehrmann noted the American multinational oil company has more than $36-billion in capital spending planned for 2013 alone. But Chevron, he said, “has many more investment opportunities globally than we can currently fund.”

In Canada, Chevron Canada and Apache Canada each own 50 per cent of the proposed Kitimat LNG plant. The plan is Chevron will market the LNG, and operate the plant and pipeline. Apache will be in charge of upstream development in B.C.’s giant Horn River and Liard shale gas plays.

But for the Canadian project to actually get the green light – possibly in the next 12 to 18 months – Mr. Lehrmann said finalizing large and long-term contractual agreements at an “appropriate price” with Asian customers is crucial. Natural gas prices in import-reliant Asian markets are many times higher than in North America, but what price Canadian exporters will be able to get for B.C. natural gas remains an open question.

Critical is “finding customers of the chilled natural gas at a price that works for both us, and the customer.”

Also key is the eventual B.C. fiscal regime for LNG, he said.

There are signs Chevron and other LNG proponents could soon get their answer on that front. Earlier this month, B.C. Premier Christy Clark said her province is on the verge of a landmark agreement governing the taxation of LNG exported from B.C., a deal that would pave the way for billions of dollars in new investment from the sector.

The Premier told The Globe the agreement could come as early as the next month or two and would be enshrined in legislation in the spring. The pact will make clear out how much energy companies must pay the government for the right to export the province’s natural gas.

Mr. Lehrmann told reporters he believes the government understands “that the economics of the project and the royalties and the taxes are one key component for the return on investment.”

He added while he hopes to find Canadian workers to build his company’s LNG terminal, temporary foreign workers will also be a part of the mix. “It is going to be a significant project in a greenfield area. So sourcing infrastructure, materials, supplies and talent is going to be critical.”

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