On March 5, 2013, the British Columbia provincial budget passed second reading in the provincial legislature. In connection with the budget, Premier Christy Clark has recently announced more than $100 billion worth of new royalties and taxes for British Columbia’s nascent liquefied natural gas industry. In the short term, the provincial budget is relying on new royalties and rising gas prices to increase revenue by $138 million in 2013-14, this at a time when low North American gas prices have producers decreasing production. Longer term, the government plans to implement a new Liquefied Natural Gas (“LNG”) export tax. The government has yet to explain how the LNG export tax will be implemented, but overall, it is anticipated to generate $100 billion over 30 years for a provincial “prosperity fund” similar to Alberta’s Heritage Savings Fund. This estimate is based on five LNG plants being built in the province.
Unfortunately, the announcement of the proposed LNG export tax is adding significant near-term uncertainty to the industry’s plan to develop LNG export capacity on the west coast of British Columbia. For example, Chevron, which recently took a lead role in the Kitimat LNG project, has expressed concerns about the economics of LNG in northern British Columbia and CEO John Watson has warned “some projects will go and some will not”. The announcement also comes at a time when industry is seeking certainty from the federal government in relation to federal taxation of LNG exports. In a submission to the standing committee on finance for the next federal budget, the Canadian Association of Petroleum Producers is asking the federal government to tax LNG as a manufactured good rather than a raw material since it is changed from gas to liquid for transport.