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Ottawa grants tax breaks for LNG sector in B.C.

Prime Minister Stephen Harper makes an announcement regarding tax cuts for LNG projects at Kwantlen Polytechnic University in Surrey, B.C., on Thursday February 19, 2015.

BEN NELMS/THE CANADIAN PRESS

Ottawa has agreed to grant tax relief to proposed B.C. liquefied natural gas terminals, hoping the incentive will help persuade LNG backers to make final investment decisions.

Prime Minister Stephen Harper announced the federal tax breaks for B.C.'s fledgling LNG sector during a visit to Surrey on Thursday, saying lower taxes on industry players will spur economic activity.

While there are 19 LNG proposals, none of the proponents have made the decision yet to forge ahead with investing billions of dollars needed to export natural gas in liquid form to customers in Asia.

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The pending changes to capital cost allowance rules mean that B.C. LNG projects will be able to take advantage of breaks pegged to asset depreciation rates.

"This will create investment that would obviously not occur," Mr. Harper said. He added that while the tax changes will be crucial for LNG projects, "the actual cost in our fiscal framework is quite modest" – perhaps an initial impact of less than $50-million in revenue to federal corporate tax coffers until 2020.

The B.C. LNG Alliance and the provincial government have been advocating for better fiscal rules federally for planned export terminals, saying the manufacturing sector already enjoys favourable tax treatment.

Pacific NorthWest LNG, a joint venture led by Malaysia's state-owned Petronas, praised Ottawa for the tax relief that will be in effect for nearly 10 years.

"The government of Canada is delivering on its goal to diversify and grow Canada's energy exports," Pacific NorthWest LNG president Michael Culbert said in a statement. "Pacific NorthWest LNG has the potential to generate over $1-billion in tax revenues to all levels of government each year."

Ron Loborec, an energy expert at Deloitte & Touche LLP, said the tax deductions are important. "I see this as a valuable shot in the arm and incentive that makes B.C. more competitive," he said.

Premier Christy Clark welcomed the new depreciation formula for equipment and buildings at B.C. LNG terminals.

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"The change the federal government has made is going to be a big help in making sure LNG companies get to that final investment decision," she said. "We were really persistent. The federal government was curious. You have to make your case."

The B.C. government, which unveiled its provincial LNG tax structure last October, is counting on three LNG projects operating by 2020, with hopes that one of those will be a major exporter.

"To the extent this makes it an easier environment for investment, that's really good," Ms. Clark said.

Industry analysts caution that there is only room for four B.C. LNG export terminals at most due to fierce global competition from rivals such as Australia.

B.C. LNG proponents are conducting further studies before making their final investment decisions.

"We view this as a positive step by the government of Canada and this will help increase the fiscal certainty that we've been looking for," said David Keane, president of the seven-member B.C. LNG Alliance.

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About the Authors

Brent Jang is a business reporter in The Globe and Mail’s Vancouver bureau. He joined the Globe in 1995. His former positions include transportation reporter in Toronto, energy correspondent in Calgary and Western columnist for Report on Business. He holds a Bachelor of Commerce degree from the University of Alberta, where he served as Editor-in-Chief of The Gateway student newspaper. Mr. More

B.C. reporter

Ian Bailey is a Vancouver-based reporter for The Globe and Mail.  He covers politics and general news. Prior to arriving at The Globe and Mail, he reported from Toronto and St. John’s for The Canadian Press.  He has also covered British Columbia for CP, The National Post and The Province. More

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