Legislation to establish a tax regime for an LNG industry in the Canadian province of British Columbia is unlikely to be introduced until the fall, a year behind the original goal, Finance Minister Mike de Jong said, although industry leaders and analysts doubt the delay will drive away prospective investors.
In a surprise disclosure Thursday that the details will not be included, as expected, in the British Columbia budget February 18, de Jong told reporters a broad framework on specific tax rates could be announced this spring, but it won't become law until "around the fall."
"We do feel a certain urgency to, at some point during the course of the (2014-15 fiscal year), to introduce legislation," he said. "The sooner we lay out for the pubic what the LNG tax would look like, the better, in my view."
However, de Jong said, "There has been extensive consultation (with the industry) and enough information has been provided to indicate what direction the government is taking on the part of those contemplating investments in the C$34 billion ($30.85 billion) range."
The legislation is also expected to lay out environmental regulations for LNG projects and what is expected of proponents in accommodating First Nations and other communities.
A spokeswoman for Natural Gas Development Minister Rich Coleman who asked not to be identified said Friday the government is "on track and progressing towards a final LNG income tax framework and supporting legislation."
She said some information about the "basic structure" of the tax could be included in the budget, "recognizing that proponents are interested in information to support their investment decisions."
The legislation should be ready for introduction later this year, with regulations and additional legislation expected to follow in 2015, she said. Coleman, the cabinet minister managing the LNG portfolio, had previously said the government expected to have a fiscal regime in place by late 2013 to enable British Columbia to compete for LNG investments and markets on equal footing with Australia and the US, who are seen as its most comparable rivals.
LNG INDUSTRY WILL FACE EXISTING TAX
British Columbia Premier Christy Clark told the California Senate in Sacramento, California, on Thursday that the LNG industry will face the government's existing tax of C$30/metric ton of carbon dioxide equivalent.
Although she decided last year to freeze the tax for five years, she said it is one of the highest of its kind in the world and has not prevented the British Columbia economy from growing faster than the Canadian average.
But Clark has said her government is willing to postpone its goal of reducing greenhouse gases by one-third by 2020 if that target threatens to hinder the development of an LNG industry she hopes will establish a government Prosperity Fund of C$100 billion.
British Columbia has 13 LNG proposals in various stages of development, with seven holding National Energy Board export permits.
The front-runners among major companies are rated as Chevron's Kitimat LNG, Shell's LNG Canada and Petronas' Pacific NorthWest LNG. Those companies have said they will not comment on the status of discussions over a fiscal regime.
'TRANSPARENCY AND CLARITY' NEEDED
Geoff Morrison, British Columbia manager for the Canadian Association of Petroleum Producers, said gas producers and LNG exporters need "transparency and clarity before making large investment decisions. It is also important for the government to get that fiscal framework right."
He said it is "not a bad thing" if the government takes more time to draft a framework if the regime ends up among the most competitive in the world.
"But, given that we are in a competitive environment, it is important to get it done in a timely fashion," Morrison said. "We have an enormous natural gas resource and there is a tremendous world demand for that gas. The ingredients are there for a great success story and British Columbia is doing all of the right things to be as competitive as possible."
Jock Finlayson, chief economist for the Business Council of British Columbia, told reporters that de Jong's new timeline could push the first investment decision from this year to early 2015.
"What matters most to the proponents is the all-in cost they face," he said. "We remain optimistic that the industry is going to take root here in some form over the next couple of years."
Zoher Meratla, an LNG Consultant in British Columbia, said that given discussions are still taking place between the government and the companies that is a positive sign no projects will be abandoned.
