Steel duty removal would create level LNG playing field

Now that a nascent LNG industry has been placed on an even footing with other industries in B.C. – and with other countries – one major hurdle remains before final investment decisions are likely to be made on the $40 billion LNG Canada project in Kitimat and $1.4 billion Woodfibre LNG project in Squamish. 

Those projects still need the federal government to exempt large LNG modules from a 45% anti-dumping duty placed last year on fabricated steel products from China and South Korea.

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If the exemptions are granted, LNG projects in B.C. not only might be on a more even footing with competitors in other countries, but also might even have a slight advantage over U.S. LNG projects, which now face escalating capital costs, thanks to American steel tariffs.

“If protectionism grows in the U.S., it’s to the advantage of Canadian LNG,” said Jihad Traya, a natural gas analyst for Solomon Associates.

On March 22, the BC NDP government announced it was scrapping a suite of special taxes that the previous Liberal government had placed on the LNG industry. One would have taxed income from LNG production at 1.5%, then 3.5% after the initial capital investment was paid for and, finally, 5% after 2037.

The Liberals also planned to charge LNG plants a higher rate for electricity. The government will now charge LNG producers the standard industrial rate.

It will also defer PST on capital investments and offer a break on carbon taxes, if LNG projects can stick within certain benchmarks for carbon intensity. If they meet these benchmarks, they will pay a carbon tax of only $30 per tonne, not $50 per tonne, in 2021.

Byng Giraud, vice-president of corporate affairs for Pacific Oil and Gas’ Woodfibre LNG, said none of the measures announced March 22 amount to special tax breaks.

The carbon tax credit, for example, is offered to all energy-intensive, trade-exposed industries, in acknowledgement of the competition certain industries in B.C. – cement manufacturing and greenhouses, for example – face from imports from countries that have no carbon taxes.

“There was a lot of additional costs that were layered on that don’t exist anywhere else in the world,” Giraud said. “There’s no special treatment here. We’re now being treated like any other industry in this province.

“Almost every other industrial activity in this province had an exemption [to PST on capital costs], except for LNG.”

In total, the LNG Canada project is estimated at $40 billion, about $7 billion of which would be spent on the LNG plant itself in Kitimat, and about $5 billion for a new pipeline. LNG Canada will now be able to defer the PST on the capital costs of the LNG plant.

“Capital costs of these projects are huge, so PST is very important,” said Susannah Pierce, director of external relations for LNG Canada. “Addressing the capital cost for construction is fundamentally the most important thing you can do to drive large investment.”

Nelson Bennett/Businesss in Vancouver

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