Graph shows all provincial taxes as they would apply to a medium-sized facility producing 12 million tonnes of LNG per year

LNG tax drops in softer gas market

B.C. government scales down tax plan as Asian gas market slows down, Russia sells to China and oil prices decline

VICTORIA – Liquefied natural gas producers are being asked to pay a new tax of 3.5 per cent on their profits for the first 20 years of operation in B.C., after deducting their startup costs.

Finance Minister Mike de Jong unveiled the LNG tax system Tuesday, describing it as lower in total taxes and royalties than existing and proposed LNG export facilities in Australia, Alaska, Oregon and other U.S. states that are B.C.’s main competitors.

De Jong said B.C. scaled back its plan to charge up to seven per cent in the face of declining gas market conditions, including slower growth in China and its new long-term deal to buy pipeline gas from Russia. Japan is also considering restarting its nuclear power program after the 2011 Fukushima earthquake, and oil prices have declined in recent months.

Under the B.C. plan, a single medium-sized LNG plant on the B.C. coast would pay about $800 million a year in total provincial taxes after a three-year construction period. That includes the new LNG tax, royalties on gas produced in B.C., carbon tax, provincial sales tax and corporate income tax.

“That’s more than we got from the whole forest sector this year,” de Jong said.

There are currently 18 proposals for LNG plants in B.C., ranging from small to those twice the size of the finance ministry’s medium-plant example. One of the largest is LNG Canada, a consortium of Shell, PetroChina, Mitsubishi and Korea Gas to build a pipeline and export terminal at Kitimat.

LNG Canada issued a statement Tuesday saying it will continue to work on its B.C. plan.

“There is much more work to do prior to a final investment decision for LNG Canada and we will continue working with First Nations and local communities, as well as municipal, provincial and federal governments,” it said.

De Jong said the B.C. Liberal election promise to pay off the province’s debt with LNG revenues remains possible, but it will take longer than earlier estimates. A single medium-sized is worth $8 billion in revenues over a 10-year period of full operation.

NDP natural gas critic Bruce Ralston said the government had to slash its tax plan after it hyped the LNG revenue windfall to voters in the 2013 election campaign. That put B.C. in a weaker negotiating position with international investors, Ralston said.

The new tax takes effect in 2017, with an effective rate of 1.5 per cent for three years as companies construct LNG plants. Only one or two small facilities are expected to be ready by then. The rate rises to 3.5 per cent on net income after capital costs are deducted, and to five per cent effective 2037.

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