Canadian LNG project sponsors seeking tax breaks

Comments: 0

The sponsors of four of Canada’s most credible proposed LNG export projects are lobbying Ottawa for tax breaks, arguing that it is in the national interest to launch LNG sales into Asia and reduce Canada’s dependence on energy exports to the United States, according to a report in Canada’s Globe and Mail newspaper.

The British Columbia LNG Developers Alliance – formed by Kitimat LNG, the Petronas-led Pacific NorthWest LNG project, the Shell Canada-led LNG Canada project and BG Group’s Prince Rupert LNG project – is asking for LNG production to be treated as a manufacturing operation. According to the Globe and Mail, “Being classified as manufacturers would allow BC LNG projects to take advantage of juicier tax breaks pegged to asset depreciation rates. LNG plants are viewed under Canadian rules as distribution businesses with less favourable tax treatment than manufacturers.”

Accelerated depreciation: The Canadian Association of Petroleum Producers (CAPP) is also lobbying for the tax classification of LNG plants to be changed. According to CAPP, an LNG project in the so-called Class 47 tax category would take 27 years to depreciate the bulk of its asset, compared with only seven years for a manufacturing operation in Class 43. “LNG liquefaction facilities manufacture and process natural gas into LNG,” says CAPP. “These facilities process and treat natural gas to effect a physical and chemical change.”

However, some commentators have pointed that that the politics of making this change could be troublesome, if the government was seen to be making special concessions to foreign oil and gas companies.

Sponsors of prospective projects to export LNG from Canada continue to submit licence applications, despite the plethora of projects already proposed. The National Energy Board (NEB) has now received a total of 26 applications, of which five have submitted by Steelhead LNG, two by Pieridae Energy and three by Cedar LNG Export Development. All the others are single applications.

To date, 11 applications have been approved, of which seven have had licences issued. Three applications, including the two from Pieridae – which are for the proposed Goldboro project on the east coast  – have been deemed “incomplete” and 12 remain “under review”. Interestingly, no applications have yet been turned down.

Awaiting fiscal terms: This autumn will be a critical time for Canada’s nascent LNG industry, as it awaits finalisation of the fiscal terms that will contribute to providing the certainty needed for these multi-billion dollar projects to go ahead.

In May, at an LNG conference in Vancouver, British Columbia premier, Christy Clark, gave a progress report on agreements that had been reached with Malaysia’s Petronas and with Woodfibre, during an international trade mission to Asia:

“Petronas is scheduled, as you may know, to be the first major project to reach FID,” she said. “Woodfibre is expected to be the first LNG plant in operation in BC. And with both companies we agreed to finalise our project development agreements by November 30th at the latest. That is the last step before getting to FID.”