Canada’s Conservative government has deflected a first stab at obtaining special corporate tax breaks for liquefied natural gas (LNG) export projects, but supporters vow to keep on trying.
British Columbia’s (BC) Liberal provincial government backed the unsuccessful request by the Canadian Association of Petroleum Producers (CAPP). On behalf of members proposing LNG terminals on BC’s northern Pacific Coast, CAPP sought a capital cost allowance forecast to generate up to C$2 billion in tax savings over eight to 10 years.
The request ran counter to the dominant theme of the 2013-2014 budget that Canada Finance Minister Jim Flaherty presented Thursday to the House of Commons in Ottawa. The main focus was on deficit reduction and included plans for an aggressive campaign against tax avoidance by wealthy Canadian corporate and personal taxpayers.
CAPP delivered the request during pre-budget consultations by a parliamentary finance committee in Ottawa last fall, which calls for accelerating write-offs of LNG export terminal construction costs by reclassifying them for tax purposes as manufacturing plants rather than resource development projects (see NGI, Feb. 18). CAPP said the special provision would put Canadian LNG export projects on an even fiscal footing with rival projects in the United States, Australia and the Caribbean. Federal officials said only that the national government could not afford to grant the break, at least not “right now.”
Parliamentary pre-budget consultations are an annual event in Ottawa, and the LNG tax break proposal is expected to occupy a prominent spot on wish lists that industry presents to federal finance authorities every year. No overseas sales contracts have been landed and no terminal construction dates have been set yet by any entries in the lineup to build LNG tanker export facilities on the Pacific Coast.
So far, the Canadian LNG lineup’s target sales volumes add up to 7 Bcf/d. The BC Liberal administration is an enthusiastic supporter of all the projects and has partly built its spring re-election platform on hopes of big growth in royalties and taxes from northern shale gas development to fill export orders.
In the industry’s Calgary capital the Canadian Energy Research Institute (CERI) rates the “realistic potential” at 5 Bcf/d eventually, but only if northern BC gas supply and construction costs turn out to be competitive with other international suppliers.
LNG export projects on the U.S. Gulf Coast alone are proposing terminals for 16 Bcf/d as often low-cost brownfield conversions of existing facilities, CERI President Peter Howard reminded a recent Calgary industry conference held by CI Energy Group. And all LNG merchants face competition in one of their biggest target markets, China, from a Russian pipeline scheme, he added (see NGI, March 18). BC’s hopes are not yet a sure bet to come true and could be pushed out of an increasingly crowded international gas market, in CERI’s view.
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