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The British Columbia legislature passed late Tuesday evening the Liquefied Natural Gas Project Agreements Act, removing one of two final conditions to the start-up of the first LNG plant in the province.
The bill means that the Pacific NorthWest LNG project can now count on a 25-year fiscal deal that protects it from targeted tax increases.
In this age of energy-infrastructure bashing, aboriginal unrest, high environmental expectations, low oil and gas prices, the B.C. government’s ratification of the first LNG project agreement is historic.
“We believe we have arrived at a balanced approach that ensures we represent a competitive jurisdiction where proponents can invest and derive a fair rate of return, while at the same time ensuring that British Columbians who own the resource that lies at the heart of this industry receive a fair return for granting access to that resource,” B.C. Finance Minister Michael de Jong said in an interview.
Today we are able to say with confidence that an international consortia of companies, including companies from Malaysia, China, Japan and India and others, agreed with us.”
The Petronas-led group that is proposing the project near Prince Rupert plans to invest US$36-billion, create 4,500 construction jobs, generate $9 billion in revenues in its first decade of operation by shipping B.C. gas to Asia in liquid form from a liquefaction plant on Lelu Island.
It will also provide a new market for the struggling natural gas industry in Western Canada.
B.C. premier Christy Clark’s government recalled the legislature for an extraordinary summer session to pass the law. After a week of debate, the bill passed with 43 Liberals voting yes, and with 27 New Democrats and Green Party member Andrew Weaver opposing the bill. The NDP wanted the province to drive a harder bargain, and Weaver believes that the LNG industry “cannot coexist” with B.C.’s greenhouse gas reduction targets.
“People will look back on this debate … and see who stood where on what,” Clark said. “Who had the long sight, the foresight, the vision to build something, to undertake something people said wouldn’t be possible.”
De Jong said proponents wanted long term assurance over fiscal terms based on experiences elsewhere. The agreement provides four areas of protection: the LNG income tax, the natural gas tax credit, the carbon tax, and on key features of greenhouse gas emissions regulations.
Proponents “wanted to know that at some point in the future, after making this unprecedented levels of investment, they and their industry wouldn’t be singled out for discriminatory tax policy and in a couple of very specific areas, we provided in the agreement a mechanism to ensure that that wouldn’t happen,” he said.
The agreement will be a template for the other LNG projects planned for the B.C. coast, he said.
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The BC LNG Alliance, a lobby group that represents major multinationals and state-controlled companies that are proposing as many as 20 LNG plants, has been lobbying for more breaks, including on the province’s sales tax.
Mr. De Jong said the government is not prepared to consider such relief. And it shouldn’t.
The province has already reduced its fiscal expectations considerably to promote the sector’s startup, and the federal government has pitched in by accelerating the capital cost allowance.
If Petronas is able to make the math work at today’s painfully low oil and gas prices, other proponents can, too.
Indeed, an analysis by the independent Canadian Energy Research Institute has found British Columbia LNG is cost-competitive with other jurisdictions, including projects in the U.S., Australia, and Russia, thanks in particular to lower transportation costs because of its proximity to Asia.
Michael Culbert, president of Pacific NorthWest LNG, said the bill recognizes “the globally competitive nature of the LNG industry while simultaneously ensuring that the people of British Columbia receive their fair share of LNG benefits.”
People will look back on this debate … and see who stood where on what
“Pacific NorthWest LNG, and our shareholders, outlined two crucial conditions when a final investment decision was announced last month,” Culbert said in a statement Wednesday.
“The successful passage of Bill 30 is the penultimate step in the effort to build Canada’s first world-scale LNG facility. The final condition, environmental approval from the Government of Canada, is being worked on diligently with First Nations, stakeholders and government representatives.”
Once that happens, the province will start collecting almost $1-billion in provincial sales tax through the construction phase, De Jong said.
The B.C. government remains optimistic that the final hurdle, which hinges on aboriginal approval, will be successfully crossed. The trouble spot is the Lax Kw’alaams First Nation near Prince Rupert, which in May rejected a $1.15-billion cash offer over 40 years from Pacific NorthWest LNG.
That issue will test everyone that wants LNG to move forward.