New tax measure will support BC’s LNG industry Commentary

By David Keane

Recently Prime Minister Harper announced changes to the capital cost allowance rate for the LNG industry. Specifically, the federal government intends to establish a capital cost allowance rate of 30% for equipment used in natural gas liquefaction and 10% for building at LNG facilities. This is good news for the LNG industry. We’re pleased the federal government has recognized and is supporting, the economic potential of our industry. This new tax measure will support the growth of BC’s LNG industry.
Critics of the industry have called the policy change a tax break. It is a misrepresentation of the facts.   It is not a tax break or corporate welfare. The industry’s tax liability does not change. What changes is the speed with which the industry is allowed to recoup its capital investment. This tax change will improve our competitive position globally and encourage the development of LNG in Canada.
To help build BC’s nascent LNG industry we have to get it right because our competition is global. From Australia, the US gulf coast, to east Africa there is a race to service the Asian market. It means the LNG industry, along with all levels of government, must ensure there are policies in place that will enable our industry to reach its full potential. With falling energy prices, fiscal and regulatory certainty for the LNG industry is even more important today than when the BC LNG Alliance was launched in October. Our members need certainty that the overall cost structure they intend to operate in British Columbia is globally competitive.
The federal government’s announcement encourages the development of a robust LNG industry in British Columbia. Developing BC’s LNG industry will create thousands of new jobs for Canadians, jobs that will last for generation to come and guarantee the investment of tens of billions of dollars into Canada’s economy. If one large scale LNG plant reaches a final investment decision (FID) it will be the largest private sector investment in the history of British Columbia.
For LNG projects to move ahead they must have a strong business case and meet stringent economic tests before they proceed. Our members today are working towards that goal through diligent project management that ensures projects are properly sited, designed, and constructed.
With planning work underway and the companies moving towards FID, many communities and First Nations are seeing the benefits associated with LNG. Once companies reach FID, these benefits will be felt across the province, western Canada and across the entire country. For example, on average there will be 3000 to 4000 construction workers required for each of the large-scale LNG plants. That number doesn’t include the thousands of long-term jobs required to operate the plants and support the industry. Support for the industry would come from across the country from various manufactures to service providers, all of whom could benefit from the development of BC’s LNG industry. Finally, when the plants are operational they could provide new revenue to all levels of government that may well run into the billions, each and every year. Fundamentally what we are talking about is an opportunity for nation building.
Canada has a world-class natural resource base, close proximity to the large Asian markets, robust environmental protection, incredibly talented people, a great educational and health care system and a stable political environment.
Given this potential it’s critical that the LNG industry, along with all levels of government, ensure there are policies that will enable our industry to reach its full potential. Today’s global investment climate offers many jurisdictions to invest capital, making the CCA announcement all the more timely and needed. The federal government’s balanced decision ensures Canada will be a player in the global LNG market.

David Keane is the President of the BC LNG Alliance.

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