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BC, Pacific NorthWest LNG Sponsors Set Royalty Terms

The British Columbia (BC) government pledged Wednesday to hold provincial royalties and taxes at low levels for the lifespan of Pacific NorthWest LNG if the liquefied natural gas (LNG) export terminal is built.

Under a memorandum of understanding (MOU) announced by BC Premier Christy Clark and Pacific NorthWest president Michael Culbert, gas royalties would start at 6.06% and a provincial terminal profits tax would begin at 1.5%. Phased increases would be gradual and limited, with ceilings of 13.36% set on the royalty rate and 3.5% on the terminal tax until the project nears the end of its commercial life and starts paying 5% in 2037.

Despite the concessions the Pacific NorthWest sponsors still held back from committing to when they plan to begin construction. Co-sponsors are Malaysian state conglomerate Petronas's Progress Energy (62%), Sinopec (15%), Japex (10%) and PetroleumBRUNEI (3%).

In a guarded, carefully crafted statement, Culbert said only that the MOU provides clarity on provincial government policy that the consortium needs in order to make an investment decision. More than two-dozen LNG export projects are under consideration across Canada, with most proposed for the West Coast (see Daily GPI,Feb. 27).

The "commitment by the government of BC to legislate our project development agreement provides the certainty that our investors need as we approach a decision whether to proceed with the project," Culbert said.

No target date was set. The decision has been postponed since December, when the consortium said the decline in global oil prices and the value of LNG to which they are indexed made market conditions too "challenging" for the mammoth commitments required by the project. Pacific NorthWest highlighted the costs and obstacles faced by all 19 LNG export terminal schemes proposed to use BC gas because they have to start from scratch.

The gas processing and tanker-loading site proposed for the northern Pacific Coast near Prince Rupert alone is forecast to cost about C$10 billion ($8.2 billion). Total costs -- including inland northern shale gas supply development and more than 1,000 kilometers (620 miles) of pipelines -- are currently estimated at C$36 billion ($29.5 billion).

After years of consultations, five of 19 aboriginal groups along the pipeline rights-of-way still have not reached benefits agreements with the project. Further discussions are also pledged with the Prince Rupert terminal site's resident native community, where a plebiscite last week turned down a C$1.2 billion ($980 million) benefits proposal (see Daily GPI, May 15).

A lengthy federal review also continues before the Canadian Environmental Assessment Agency. A pipeline tolling decision this month by the National Energy Board (NEB) increased the forecast gas shipping costs.

The new MOU calls for the Pacific NorthWest group to achieve minimum gas production of 437 MMcf/d during the export project's first year in operation. The minimum rises gradually to 1 Bcf/d in 2038. The project has an NEB export license for 1.85 Bcf/d.

Clark, who made supporting LNG export development a central plank in her Liberal government's successful 2013 reelection platform, renewed vows to advance the gas supply scheme as a cornerstone of provincial economic policy.

The agreement Wednesday "reflects the beginning of the company’s final decision path toward an investment decision," Clark said during a televised signing ceremony. The "agreement is the product of tremendous effort right across government and among many partners to recognize a generational opportunity and ensure that we are ready to seize it."

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