British Columbia offers conditional LNG project incentives

April 2, 2018
The government of British Columbia has proposed conditional incentives for LNG projects in a move that tests a governing coalition of the New Democratic and Green parties.

The government of British Columbia has proposed conditional incentives for LNG projects in a move that tests a governing coalition of the New Democratic and Green parties.

It said new conditions and incentives provide a framework for "other industries in British Columbia in similar circumstances" but targeted details to the delayed LNG Canada proposal for a liquefaction plant near Kitimat. The plant would have two trains able to yield at least 6.5 million tonnes/year.

LNG Canada, a joint venture led by Shell, postponed a final investment decision on the project in 2016 (OGJ Online, July 12, 2016).

The incentives

The BC government said these incentives will apply to LNG Canada if the venture decides by Nov. 30, 2018, to proceed with the project:

• Performance payments in lieu of the provincial sales tax. LNG projects do not now receive the exemption applicable to input costs, which other manufacturing facilities do. To receive the exemption during construction of the initially proposed facility, LNG Canada would need to agree to pay the province annual operating performance payments for 20 years equivalent to what it would have paid in the sales tax during the initial construction period.

• Tailored application of climate-mitigation regulations. The government said it recognizes that "energy-intensive, trade-exposed industries, including the natural gas sector, face unfair competition when competing globally with jurisdictions that do not impose carbon taxes." LNG Canada would be subject to a new "clean growth incentive program" instead of requirements under the Greenhouse Gas Industrial Reporting and Control Act.

• Industrial electricity rates. The LNG project would pay the general industrial electricity rate charged by BC Hydro for other industrial customers in the province.

• Removal of the LNG income tax. The government said it will introduce legislation to repeal a tax, imposed by a former Liberal government, that it called cumbersome and will use instead "a number of other tax and royalty measures under its new fiscal framework to ensure that British Columbia gets a fair return for its natural gas resource."

The government also said it would introduce legislation to repeal the Project Development Agreement Act, which contains measures it said "effectively indemnified proponents against changes" and will make other changes to "improve the transparency and consistency with which it assesses industrial development opportunities."

'Competitive issue'

Three LNG export proposals have been canceled in BC.

The government said it and LNG Canada conducted a joint financial analysis of the project.

"This analysis corroborated evidence and information from internationally recognized LNG analysts that BC has a competitiveness issue and formed the basis of a mutual understanding upon which the province is prepared to commit measures that will increase the competitiveness of British Columbia's LNG industry," the government said in a statement.

Premier John Horgan said the province will assess LNG projects against four conditions: a "fair return" for BC's natural resources, jobs and training, respect for and partnership with First Nations, and environmental protection.

Andrew Weaver, Green Party leader, in January threatened to break from the coalition with the New Democrats over what he called the "LNG folly," which he said would make achievement of provincial climate goals impossible.

The government seeks to reduce greenhouse gas emissions against 2007 levels by 40% by 2030 and 80% by 2050.

He now says the Greens will wait until autumn and assess progress toward the climate targets.

LNG Canada partners are Shell Canada Energy, 50%; PetroChina, 20%; and Korea Gas Corp. and Mitsubishi Corp., 15% each.

Last month the joint venture notified two of its four potential engineering, procurement, and construction contractors that they had been short-listed for selection.

The finalists are a partnership of TechnipFMC PLC and KBR Inc. and a partnership of JGC Corp. and Fluor Corp.