Liquefied Natural Gas facilities are major long-term investments, and their proponents want long-term certainty that these investments will be treated fairly and consistently over the term of the investment.
“The benefits from LNG activity will be significant for British Columbia’s economy, and we want to help companies and communities make that happen,” said Minister of Finance, Michael de Jong. “These agreements will help provide LNG companies with the kind of certainty they need to make long-term plans to do business in communities across BC.”
The PDA provides, through legislation, measures to ensure that Pacific NorthWest LNG will not face significant increases in certain specific taxes for the specified term of the agreement. It will be protected from adverse changes to LNG income tax, the natural gas tax credit, the carbon tax and key features of greenhouse gas emissions at an LNG facility. In addition, the government has already passed a long-term LNG taxation framework, long-term royalty agreements and measures allowing local government tax agreements with Pacific NorthWest LNG.
The agreement has provisions which guarantee that if the Province negotiates a more beneficial agreement with a proponent in a future PDA, the better element can apply to any PDAs which were signed and agreed upon earlier. This is ensure that no proponent is penalised for reaching an earlier agreement. It has also included compensation provisions in the event that the Province increases or changes the LNG tax, the natural gas tax credit, or the tax on greenhouse gas emissions.
A new section in the Petroleum and Natural Gas Act was introduced in 2015, which allows the Province to enter into long-term royalty agreements with natural gas producers. The first of these is with the North Montney Joint Venture, which is providing the natural gas to Pacific NorthWest LNG. Once ratified, this agreement will run from Jan 1, 2016 to Dec 31, 2038. As part of this agreement, NMJV must produce a minimum amount of gas per year, starting at 159.46 bcf in the first year, and climbing to 373.31bcf in 2038.
The royalty rate is preset each year, starting at 6.06 per cent the first year, and rising to 13.36 by 2038. This provides the company with certainty, as their production and royalty rates are known in advance.