LNG tax break aimed at sparking FIDs

In another strike of the match across the yet unlit liquefied natural gas (LNG) export industry in British Columbia, Prime Minister Stephen Harper was in Surrey this past Thursday to announce tax incentives for the sector.

A capital cost allowance rate for equipment used to liquefy natural gas was set at 30 per cent, and 10 per cent for infrastructure at export facilities. According to the government, this will allow developers to deduct a higher share of capital costs, something that would benefit companies. Previously, those rates were at eight and six per cent, respectively.

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The new rates are in line with those for Canada's manufacturing sector, and are similar Australia and the United States — two of B.C.'s biggest competitors. 

RELATED STORY: Amid falling energy prices, NewTimes Energy joins LNG race in B.C.

“[The break will] allow investors in facilities that liquefy natural gas anywhere in Canada to recover their startup capital costs more quickly,” said Harper, and compared them to other measures introduced to spur the manufacturing and processing sectors. “Likewise, these initiatives will provide the LNG industry with even greater incentive to invest in Canada’s future,” he said.

Premier Christy Clark said she hoped the new rates will help spark a final investment decision.

“With oil prices where they are, and all the global uncertainty, 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,” said Clark, adding that the need to be competitive is greater now than it was half a year ago.

Bob Zimmer, MP for Prince George-Peace River, was present with Harper for the announcement.

He said it was two years in the making.

“What it allows developers to do is recoup the taxes paid a lot sooner on their investment,” explained Zimmer in a phone interview on Friday. “In an investment-heavy industry it’s an absolute blessing to them.”

Zimmer said that when he talked to the CFO of Petronas, the Malaysian energy giant considering an LNG plant on Lelu Island, in December, the tax break was something the company was asking about. Shortly after that conversation they put off making a final investment decision that is now expected sometime this year.

“It was not a major issue but it was something that they wanted, if we could achieve it,” said Zimmer, adding that they were now just waiting for a positive FID.

“We’ve made the best environment to make that decision as possible,” he added.

Michael Culbert, the president of the Patronas-led Pacific NorthWest LNG project, said in an email statement to Alaska Highway News that he welcomed the announcement.

“The Government of Canada is delivering on its goal to diversify and grow Canada’s energy exports,” it read.

The new rate will be in effect for just under 10 years, until 2025, and is expected to benefit industry to the tune of approximately $50 million in the first five years, going up “substantially” after that, said the government.

Clark said Thursday that she still hopes to see three of the proposed 19 LNG plants liquefying and exporting natural gas by 2020, though industry analysts have called that projection optimistic.


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