Canada Gives Tax Breaks to LNG Projects to Spur Investments

Canada is giving tax breaks to liquefied natural gas projects in an effort to spur multibillion-dollar investments that so far haven’t gone past proposals.

Over the next decade, under the draft regulations, companies making capital spending in LNG megaprojects will be able to deduct costs more quickly, allowing them to defer some tax payments and recover their investments sooner.

The new capital cost allowance rate would be 30 percent for equipment used in gas liquefaction, up from 8 percent, and 10 percent for buildings, from 6 percent previously, Prime Minister Stephen Harper said in Surrey, British Columbia, on Thursday.

Harper’s Conservative Party faces a scheduled election later this year and has long pushed to develop the nation’s natural resources, particularly oil and gas projects.

“We have not booked large natural gas developments,” Harper said. “This is obviously going to encourage that. This will create investment that otherwise would not occur.”

Proponents of LNG megaprojects off Canada’s Pacific Coast including Royal Dutch Shell Plc, BG Group Plc and Chevron Corp., as well as the British Columbia government, have pushed for the change since at least 2012. They argue the more favorable tax treatment for LNG would level the playing field with competitors proposing similar projects in the U.S and Australia.

‘Big Help’

Speaking in Richmond, B.C. after Harper’s announcement, Premier Christy Clark welcomed the proposal and said she still expects three LNG projects to go ahead in her province before 2020.

“With oil prices where they are and all the global uncertainty, the change that the federal government has made is going to be a big help in making sure that LNG companies get to that final investment decision,” Clark said.

The federal government’s tax break puts Canadian LNG proposals on the same competitive footing with projects in countries including Australia, said Ben Brunnen, manager of fiscal and economic policy at the Canadian Association of Petroleum Producers.

“We think this goes a long way to addressing some of the key challenges the industry was facing from a competitive perspective, Brunnen said. ‘‘Overall, we view it as a good change for western Canadian gas producers.’’

‘Quite Modest’

Development of LNG exports from Canada has the potential to boost gas production by one-third by 2030 as it would open new markets, Brunnen said.

The government proposal applies to facilities that liquefy gas for export, supply domestic markets and store the fuel in periods of low demand. The move is projected to reduce federal corporate tax revenue by ‘‘less than $50-million’’ over the next five years, a written government statement said.

‘‘The actual cost in our fiscal framework is actually quite modest,’’ Harper said at the announcement.

Canada has large gas reserves ‘‘but has limited capacity to supply it to emerging international and domestic markets where demand is growing,’’ according to the written statement.

It would take seven years to depreciate an LNG facility if it were classified as a manufacturer using a 30 percent rate, rather than 27 years under the current policy, the Canadian Association of Petroleum Producers said in an August submission to the federal government. In Australia, an LNG terminal takes 13 years to depreciate, the group said.

Harper made the announcement alongside four fellow Conservative lawmakers from Canada’s western-most province.

The government is inviting comments on the draft regulations until March 27.

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