CCPA Policy Note

More twists and turns in the dubious economics of LNGs

February 8th, 2013 · · No Comments · Climate change, Economy, Environment, resources & sustainability, Taxes

This morning the newspapers bring news that the natural gas industry is seeking tax breaks for developing liquified natural gas (LNG) plants. Apparently the Canadian Association of Petroleum Producers is asking for increased capital cost allowances , which would cost the federal government as much as $2 billion over seven years in foregone revenues. The BC government has apparently supported their call to the federal finance minister (even though such a change would also cost the BC government some forgone revenues as well). The industry claims this tax subsidy is needed to make the BC LNG plants more competitive in an international “race” to get these plants built.

But the industry is already highly subsidized, as the CCPA has noted in previous reports. It pays electricity rates that are below cost, benefits from publicly-provided infrastructure, pays ridiculously low water fees, and the fracking industry (from which the LNGs will get their fuel) benefit from numerous royalty credits.

All of this has been justified on the grounds that LNG will get us access to a higher Asian price for natural gas, which in turn would boost BC revenues. But as reported last month, the first contracts that BC LNG has signed have only managed to secure long-term purchase deals based on North American prices. As the Globe and Mail reported:

…the agreement by BC LNG Export Co-operative LLC to sell roughly 700,000 metric tonnes of natural gas a year also comes as a warning that Asian buyers may not make Canadian gas producers rich. In fact, the sales contract, which will see some gas go to one of the world’s largest LNG ship owners, values gas according to depressed U.S. and Canadian prices, rather than the far more lucrative international prices that are tied to oil. “What we’re seeing is that the Asian marketplace is now beginning to embrace the North American gas indices as the pricing forum,” said Tom Tatham, managing director of BC LNG.”

So much for that enticing Asian price. Do we really want to pile on with more subsidies and tax breaks for an industry that may not delivery higher royalties (which are tied to the price), will create only 800 permanent jobs, and will blow our GHG reduction targets out of the water?

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