https://w.soundcloud.com/player/?url=https%3A//api.soundcloud.com/tracks/206442163&color=ff5500&auto_play=false&hide_related=false&show_comments=true&show_user=true&show_reposts=false

VANCOUVER - Agreements reached between the government of B.C. and Pacific NorthWest LNG establish the path to a final investment decision on the project and set the stage for a potential US$36-billion investment in Northern B.C. that will be a key driver of jobs and economic activity in the province.

B.C. Premier Christy Clark and Michael Culbert, president of Pacific NorthWest LNG, signed a memorandum of understanding that sets out the steps leading toward ratification of a project development agreement between government and the company. Michael de Jong, Minister of Finance, signed the project development agreement on behalf of government, which initiates a ratification process by both the company and the British Columbia Legislature. Rich Coleman, Deputy Premier and Minister of Natural Gas Development, signed the Province’s long-term royalty agreement with the company.

“Today reflects the beginning of the company’s final decision path toward an investment decision,” said B.C. Premier Christy Clark. “Today’s agreement is the product of tremendous effort right across government and among many partners to recognize a generational opportunity and ensure that we are ready to seize it, for the benefit of British Columbians today and those who are to come.”

Pacific NorthWest LNG plans to build an LNG facility on Lelu Island, located in the District of Port Edward on land administered by the Prince Rupert Port Authority. The first phase of the project would consist of two liquefaction trains, two LNG storage tanks, marine infrastructure with two berths for LNG carriers, a material offloading facility, as well as administration and auxiliary buildings. The facility would liquefy and export natural gas produced by Progress Energy Canada Ltd. in Northeast B.C. for transport to Lelu Island by the Prince Rupert Gas Transmission project.

“The substantial progress experienced by Pacific NorthWest LNG over the past two years is a product of hard work, compromise and co-operation,” said Culbert. “Today’s commitment by the government of B.C. to legislate our Project Development Agreement provides the certainty that our investors need as we approach a decision whether to proceed with the project.”

These LNG facilities will be some of the largest capital infrastructure projects in British Columbia. The projects require a significant initial investment by the companies, and project development agreements provide proponents with long-term cost certainty regarding certain provincial taxation and environmental laws and regulations applicable to LNG facilities.

(flickr.com)

“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 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 B.C.”

Another way the province is paving the way for LNG investment is through changes to the Petroleum and Natural Gas Act under Bill 23, the Miscellaneous Statutes Amendment Act, 2015. A new section in the act will allow the Province to enter into long-term royalty agreements with natural gas producers specifying the royalty rates owed to the Province by a producer. With this certainty, industry can plan their operations over a longer period of time and commit capital to jobs and production needs, while the Province has a guaranteed royalty revenue each year.

“We are starting a new chapter in British Columbia’s long history as a resource economy,” said Coleman. “Today’s agreement provides Pacific NorthWest LNG with certainty and the potential to become the first export facility in our province.”

The province continues to consult with Tsimshian Nations - Lax Kw'alaams, Metlakatla, Gitxaala, Kitsumkalum, Kitselas and Gitga'at First Nations - regarding the Pacific Northwest LNG project. B.C. has also engaged with 19 First Nations along the proposed Prince Rupert Gas Transmission Pipeline route. Fourteen agreements related to the facility and pipeline have been achieved to date.

Over the coming weeks, the agreement will be subject to internal approvals by Pacific NorthWest LNG and partners. If approved by the proponent and its partners, the government of B.C. intends to recall the legislature as soon as practicable to introduce legislation that enables the agreement, where it will be debated publicly and be subject to approval.

Quick Facts:

• Between 2015 and 2020, Asian economic growth and the switch to a cleaner fuel will almost double the demand for liquefied natural gas.
• B.C. has a natural gas supply estimated at 2,933 trillion cubic feet. This could support domestic and export markets for the next 150 years.
• Natural gas is the cleanest-burning of all fossil fuels and results in lower greenhouse gas emissions and pollution when it replaces coal-fired generation.

Learn More:

For more information on Liquid Natural Gas in British Columbia, check out LNG in BC: http://engage.gov.bc.ca/lnginbc/

A copy of the MOU is available online: http://ow.ly/NcFPY

Backgrounders follow:

• Summary of Project Development Agreement
• Further key measures in the Project Development Agreement
• Summary and recap of LNGITA tax measures and cost of natural gas tax credit.
• Summary of clean LNG measures, including emissions benchmarks and offsets
• Long-term royalty agreement

Media Contacts:

Sam Oliphant
Press Secretary
Office of the Premier
250 952-7252

Jamie Edwardson
Ministry of Finance
250 356-2821

Sandra Steilo
Media Relations
Ministry of Natural Gas Development
250 952-0617

Spencer Sproule
Senior Advisor, Corporate Affairs
Pacific NorthWest LNG
604 828-7680

BACKGROUNDER 1

Strong framework for a new industry benefits B.C.

Project development agreements (PDAs), signed between the Province and Liquefied Natural Gas (LNG) proponents, will provide certainty for government and for the proponents’ long-term costs regarding certain provincial taxation and environmental laws and regulations applicable to LNG facilities.

Purpose of agreements

LNG facilities are major long-term investments and at values that significantly surpass any other single private-sector capital investment in the province. Proponents want long-term certainty that these investments will be treated equitably and consistently over the term of the investment.

The PDA provides that assurance by providing provincial commitments with respect to a range of matters, including infrastructure, skills and training, municipal and local government and First Nations and also by confirming, through legislation to be proposed and debated in the legislature, measures that ensure they will not face significant increases in certain specific taxes and discriminatory environmental charges for the specified term of the agreement. The PDA requires the Province to indemnify the proponent and partners under certain circumstances against adverse changes to the following:

• The LNG Income Tax.
• The Natural Gas Tax Credit.
• The Carbon Tax (specific to liquefying natural gas at an LNG facility).
• The key features of greenhouse gas emissions at an LNG facility.

This provides the proponent and partners with stability and certainty.

In addition to measures identified under the PDA, government has already introduced and passed much of the legislative framework under which LNG proponents would operate, including:

• LNG taxation framework.
• Long-term royalty agreements.
• Measures permitting local government tax agreements with proponents.
• The Greenhouse Gas Industrial Reporting and Control act.

Ratification and operation

The signing of the PDA begins a path to decision by the company and a legislative process for ratification by government:

• The proponent and its partners begin the steps leading to a final investment decision to proceed with the project subject only to external conditions, such as environmental certification by the Canadian Environmental Assessment Agency.
• After the proponent has confirmed its decision, government intends to introduce enabling legislation.

Effective date

Following ratification, the PDA will take effect when the final set of items related to project certainty as defined in the PDA are completed, including:

• The Proponent reaches a positive final investment decision, including obtaining all necessary internal and shareholder or investor approvals required to proceed with the LNG Facility.
• The issuance to the Proponent of the following approvals for the LNG Facility: (i) an Environmental Assessment Certificate by the Provincial Minister of Environment under section 17(3) of the Environmental Assessment Act, S.B.C. 2012, c. 43, and (ii) a decision statement by the federal Minister of Environment under section 54 of the Canadian Environmental Assessment Act, 2012 (CEAA 2012);

Equity and transparency between Project Development Agreements

The PDA has provisions that guarantee that, should the Province negotiate a more beneficial agreement with a proponent in a future PDA, that more beneficial element may also apply to any PDAs that were signed and agreed earlier. This ensures no proponent is penalized for reaching an agreement earlier than others.

Long term certainty - compensation for adverse changes

A right to compensation under the PDA is triggered by any of these events:

• Change in LNG Tax: If the Province increases the LNG Tax or enacts a new income or capital tax that applies exclusively to the processing in British Columbia of natural gas by liquefaction into LNG.
• Change in Natural Gas Tax Credit: If the Province decreases the amount of the Natural Gas Tax Credit (which is currently set at the value of 3% discount from the standard corporate income tax rate down to a base rate of 8%).
• Discriminatory Carbon Tax increase: If the Province increases the tax on the emission of greenhouse gases or carbon that applies exclusively to the processing in British Columbia of natural gas by liquefaction into LNG.
• Discriminatory GGIRC event: If the Province changes the key features of the GGIRC Act and related regulations and policy in a manner which increase the cost of compliance for proponents.

The Proponent will have no right to compensation unless the cost caused by the change exceeds a threshold contained in the PDA, which is a defined dollar amount (the amount will vary by proponent and project size). 

The Province and the proponent will then discuss what compensation measures the Province can implement to place the proponent in the same position it would have been in if the change in law had not occurred. The PDA expressly excludes Provincial liability for direct or indirect common law damages, specifically excluding damages for lost profits or opportunity.

Media Contacts:

Sam Oliphant
Press Secretary
Office of the Premier
250 952-7252

Jamie Edwardson
Ministry of Finance
250 356-2821

Sandra Steilo
Media Relations
Ministry of Natural Gas Development
250 952-0617

BACKGROUNDER 2

Further key measures in Project Development Agreement

First Nations

The Province continues to consult with Tsimshian Nations - Lax Kw'alaams, Metlakatla, Gitxaala, Kitsumkalum, Kitselas and Gitga'at First Nations - regarding the Pacific Northwest LNG project. B.C. has also engaged with 19 First Nations along the proposed Prince Rupert Gas Transmission Pipeline route. Fourteen agreements related to the facility and pipeline have been achieved to date.

The Province has entered into Framework Agreements with a number of First Nations related to all proposed natural gas pipelines in B.C. Benefit sharing negotiations are being conducted with approximately 31 First Nation and Aboriginal groups impacted by the proposed pipelines, with additional mandates sought for new ongoing benefit payments and funding for the Environmental Stewardship Initiative. Facility-related negotiations are ongoing with coastal First Nations.

Consultation agreements, pipeline benefit agreement negotiations and other discussions are also ongoing between with Treaty 8 First Nations, the Province and other parties.

Regulatory process

The Province and the proponent will also work together, under this PDA, on authorizations and permitting. The B.C. government is committed to a timely efficient regulatory process with opportunities to deepen co-operation between regulatory agencies [Environmental Assessment Office (EAO), Canadian Environmental Assessment Agency (CEAA) and the Oil and Gas Commission (OGC)] and to streamline the regulatory regime.

That’s why the EAO has created a single team dedicated to LNG projects to provide consistency to reviews. They are also are working with CEAA to co-ordinate environmental assessments for a streamlined approach where projects trigger both federal and provincial requirements.

The EAO and OGC have signed a memorandum of understanding to provide a seamless approach to permitting if an Environmental Assessment Certificate were to be issued. This includes:

• Eliminating duplication between environmental assessment and permitting.
• Providing opportunity for Proponents to apply for permits while in the environmental assessment process.
• Co-ordinating consultation with First Nations.
• Bolstering compliance and enforcement.

Ambient Air Quality Objectives/Greenhouse Gas Emissions Guidelines

The PDA also includes provisions to have the Province work with the Proponent to ensure adherence to or compliance with ambient air quality objectives and greenhouse gas emissions guidelines applicable to the project.

The Province updated its air quality objectives (non-statutory limits) for sulphur and nitrogen oxides (SO2 and NO2). The government intends to use these objectives to inform air management decisions, including those related to environmental assessments and authorization, on major new or modified sources of NO2 and SO2 across the province for all industries. When applying the interim objectives in air management decisions, the adoption of the best available control technology will not be required unless warranted by local ambient air quality. As part of the environmental assessment process Proponents are required to provide their analysis of the impacts of their facility based on a limited number of existing and foreseeable emissions. These objectives are currently being used for predictive air modelling by LNG Proponents in the environmental assessment process to predict their potential impacts.

Skills and training

The Province established the Premier’s LNG Working Group with representation from organized labour, industry, First Nations and the federal and provincial governments. The mandate of the working group is to address skills training and workforce planning issues related to the LNG sector to support personnel demands, including those related to associated pipeline and upstream development. 

In addition, the Province is re-calibrating its apprentice system and re-engineering its education and training model to be more responsive to the labour market demand. The Skills for Jobs Blueprint: Re-engineering Education and Training provides a plan for reorienting training resources to jobs in demand including those in the LNG sector. To ensure the focus is on the right jobs, the Province will work with industry and labour to update occupational forecasts for the LNG sector.

The Province is also working closely with the federal government and has signed the Canada - BC MOU on a Strong Resource Economy, an agreement to work jointly on labour market information and programming to ensure British Columbians are first in line for jobs in resource industries. Government will also work with the Proponent, during the construction phase of the project, to facilitate trades and occupational trades training in Prince Rupert and surrounding First Nations communities.

The federal government

The Province will also support the Proponent in their engagement with the federal government on matters relevant to the project, including (without limitation) labour supply and skills training, First Nations and regulatory impacts.  

B.C. and the federal government have established a Federal-Provincial Working Group of Assistant Deputy Ministers (ADM)on joint planning and early implementation of priority areas that support the timely development of an LNG industry in B.C.  The ADM working group facilitates the involvement and input of appropriate federal and provincial departments and agencies in a number of areas relating to LNG including regulatory alignment, labour supply and skills training, infrastructure and First Nations.

Infrastructure

The Province will also work with the Proponent on the development of roads, public services and utilities infrastructure relevant to the project.

The B.C. government has initiated the Northwest Community Readiness Study to ensure communities and provincial service providers are prepared to meet infrastructure, health, safety and social service demands stemming from major industrial development in the Northwest, such as LNG.

The Province is working with communities to move from identification of infrastructure and service impacts to planning and response co-ordination. Focus is on provincial infrastructure (roads, airports, bridges, hospitals, policing and schools); municipal infrastructure (roads, water, sewers); and essential service levels (police, critical doctors and nurses and social services).

Media Contacts:

Jamie Edwardson
Ministry of Finance
250 356-2821

BACKGROUNDER 3

Long-term royalty agreement for Pacific NorthWest LNG

Long-term royalty agreements

A long-term royalty agreement (LTRA) specifies the royalty rate owed to the Province by a producer as well as a minimum amount of production that must occur each year.

A “royalty” is the price an owner of a natural resource charges for the right to develop it. In Canada, natural resources are owned by the provinces, and industry pays the government for the rights to produce it.

A new section in the Petroleum and Natural Gas Act was introduced with the Miscellaneous Statutes Amendment Act, 2015, allowing the Province to enter into long-term royalty agreements with natural gas producers.

These agreements could be advantageous for any producer who has a long-term arrangement to supply natural gas to an LNG export facility or other value-added facilities.

Signatories

The first LTRA reached in British Columbia has been completed by the Province and the North Montney Joint Venture (NMJV).

The NMJV is similar to the ownership structure of Pacific NorthWest LNG, with Progress Energy leading exploration and production activities on behalf of PETRONAS. The breakdown of the group is:

• Progress Energy Canada Limited (PETRONAS) (62%)
• JAPEX (10%)
• Sinopec/Huadian (15%)
• Indian Oil Corporation (10%)
• PetroleumBRUNEI (3%)

Timeframe

Once ratified by all parties, the LTRA between British Columbia and the NMJV will run from Jan. 1, 2016, to Dec. 31, 2038, for a total of 23 years once Pacific NorthWest LNG makes a Final Investment Decision.

Natural gas production

As part of the agreement, the NMJV must produce a minimum amount of natural gas per year.

The minimum production level is 159.46 billion cubic feet (bcf) of natural gas in the first year of the agreement and climbs to 373.31 bcf in 2038.

If the NMJV does not produce to these agreed-to levels of natural gas, they must still pay royalties up to the minimum amount. If the group produces more, they will pay royalties on the total amount of natural gas.

This provides the Province with revenue stability because a minimum amount of royalties will be collected from the producer each year.

Royalty rates

The royalty rate is pre-set each year, starting from 6.06% in the first year of the agreement and climbing to 13.36% in the final year. These rates are all inclusive and account for all of B.C.’s existing royalty deductions and program. As a result, they are not subject to further deductions.

This provides the NMJV with certainty because the royalty rate applied to their production is known in advance. Customarily, royalty rates are subject to fluctuation in the marketplace and resulting changes in the commodity price of natural gas.

Government revenue

Government revenue from the production of natural gas is stabilized for the duration of the agreement.

Using the agreement in the year 2020 as an example, with production levels reaching 1.85 billion cubic feet per day (bcf/d), and a royalty rate of 6.36%, the Province of British Columbia would collect $185.7 million. If production exceeds the minimum amount, or the price of gas increases, the Province would collect more revenue.

Using current-day natural gas forecasts, the Province would collect almost $7.7 billion in royalty revenue if the NMJP reaches full expected production over all 23 years of the agreement.

Investment

As part of the agreement, the NMJV also commits to minimum levels of commercial investments in British Columbia.

The required investments are:

• A total of $3 billion on infrastructure between 2014 and 2020.
• A total of $1 billion per year on infrastructure and development, including drilling activities, from the commencement of the agreement (2016) until production reaches 1.85 bcf/pd.

These investments will create jobs and expedite economic growth across Northern British Columbia.

Media Contacts:

Sandra Steilo
Media Relations
Ministry of Natural Gas Development
250 952-0617

BACKGROUNDER 4

The cleanest LNG facilities in the world

British Columbia has committed to developing the cleanest liquefied natural gas facilities in the world. This commitment will be met through the introduction of an emissions benchmark with flexible options - including purchasing offsets and a technology fund. This is the most effective way to meet the Province’s climate goals while ensuring industry competitiveness.

Emissions benchmark

Through the Greenhouse Gas Industrial Reporting and Control Act, British Columbia has established a greenhouse gas emissions intensity benchmark of 0.16 carbon dioxide equivalent (CO2e) tonnes per tonne of LNG produced. This will include all facility GHG emissions (i.e., combustion, electricity generation, venting and fugitives) from the point when gas enters a facility to where it is loaded onto a ship or rail car to go to market.

Facilities must achieve an average greenhouse gas intensity at or below the benchmark each calendar year, either through the design of their facility, or through the purchase of offsets or technology fund units.

If a facility is above the benchmark it can:

• Purchase offsets from within British Columbia, or
• Purchase a technology fund unit from the Ministry of Environment at a rate of $25/t CO2e. These funds will be allocated towards technology investment to reduce greenhouse gas emissions.

If a facility is below the benchmark it will receive a performance credit that can be sold or banked.

Offsets

Through the introduction of the Greenhouse Gas Industrial Reporting and Control Act, B.C. is repealing the Cap and Trade Act so that there is a single standard for B.C.’s offsets.

Offsets will be purchased from B.C.-based businesses, through business-to-business transactions among LNG proponents and offset sellers. Government will provide oversight of the system but will not directly participate in these transactions.

Independent research has demonstrated that B.C. has sufficient low-cost (i.e., less than $25 per tonne) offsets to supply currently proposed LNG facilities through the year 2035. Available offsets are both related to the natural gas industry and within other industries. For example, offsets are available in forest management, natural gas vehicles, community energy systems, industrial energy efficiency and waste management projects.

Technology fund

In addition to the option of purchasing offsets, Proponents who have determined that reducing facility emissions is not immediately economically favourable may contribute to a technology fund at a rate of $25 per tonne of carbon dioxide equivalent.  

The money raised through this fund will go towards the development of clean technologies with significant potential to reduce B.C.’s emissions in the long term, getting the Province closer to our legislated goal of 80 % emission reductions by 2050 from 2007 levels. For example, in the natural gas sector, furthering research and field studies in carbon capture and storage could eventually lead to significant emissions reductions in upstream activities. Other examples of projects that could be supported through the technology fund include:

• Energy-efficient measures such as waste-heat recovery and fuel-gas efficiency from compressor drivers have the potential to improve the energy efficiency of the industry and reduce GHG emissions.
• As carbon capture and storage projects are not economically viable without supplemental funding, the technology fund could potentially provide financial resources to support CCS projects advancing.
• New technologies that have not yet been demonstrated to be practicable or economic are becoming viable technologies every day, and a B.C. technology fund could accelerate this process.

LNG Environmental Incentive Program

The LNG Environmental Incentive Program will reward facilities investing in cleaner technology by providing an escalating incentive based on their compliance costs between 0.23 and 0.16 tonnes CO2e per tonne of LNG produced. The program will be open to LNG facilities producing LNG in the prior calendar year with eligible offset or technology fund expenses.

Facilities that have achieved annual greenhouse gas intensity, not including the entrained CO2 and emissions from emergency events, below 0.23 tonnes CO2e per tonne of LNG produced are eligible to participate in the LNG Environmental Incentive Program. Based on the facility’s total annual facility greenhouse gas intensity, below 0.23 and above 0.16, a facility will receive a pro-rated incentive between 50% and 100% of their actual compliance costs. Below 0.16 a facility will earn a performance credit that can be sold to other LNG facilities.

Payments will be based on actual compliance costs for offsets or technology fund contributions. Evidence of expenses will be submitted to the Ministry of Environment for review and payment of the appropriate incentive amount.

Media Contacts:

Media Relations
Ministry of Environment
250 953-3834

BACKGROUNDER 5

LNG Income Tax framework

The Liquefied Natural Gas Income Tax applies to the net income from liquefaction activities at LNG facilities in B.C. British Columbia has taken a phased approach to LNG taxation, in order to ensure proponents have time to build a strong foundation in the communities in which they operate before the full extent of the tax is applied. This also ensures guaranteed revenue flow for the next generation of British Columbians.

Construction phase

Operating losses and capital investment costs may be accumulated during construction of an LNG facility. Costs incurred during this phase are deductible against future liabilities if incurred in order to earn income from liquefaction activities

LNG start-up phase

A minimum tax rate of 1.5 % applies to net operating income (revenue less expenses less investment deduction allowance) during the period when net operating losses and capital investment costs are being recovered.

Initial investment deducted

Once operating losses and capital investment costs have been fully deducted, the LNG Income Tax rate on net income will be 3.5 %, effective for taxation years beginning on or after Jan. 1, 2017. The minimum tax paid at the rate of 1.5 % during the start-up phase is creditable against the 3.5 % tax. In 2037, the LNG Income Tax rate will increase to 5 %.

Reducing taxes owed

A Natural Gas Tax Credit is available to reduce B.C. corporate income taxes for any LNG Income Tax payer that has a permanent establishment in B.C. Currently, the tax credit amount is 0.5 % of the cost of natural gas owed by an LNG Income Tax payer at an LNG facility. However, the credit may be adjusted through regulation. This credit will be calculated based on the natural gas acquired for an LNG facility. The credit will have the effect of reducing the provincial corporate income tax rate from 11 % to as low as 8 % for that company, encouraging Proponents to allocate income to B.C. for corporate income tax purposes. Unused tax credits may be carried forward to future years.

Other revenue streams from LNG

The LNG income tax is separate from the federal income tax [imposed under the Income Tax Act (Canada)] and provincial income tax (imposed under the British Columbia Income Tax Act). Some LNG income tax taxpayers will be subject to the federal, provincial and LNG income taxes, while others will be subject to the LNG income tax only.

Provincial revenue streams from LNG Facilities will include:

• Provincial Sales Tax.
• Corporate and Personal Income Taxes.
• Carbon and Motor Fuel Taxes.
• LNG Income Taxes.

The need for gas on the LNG facilities will also increase B.C. royalties to the extent that B.C. sourced gas is used at the LNG Facilities. The Province and municipalities will also receive increased property taxes.

Media Contacts:

Jamie Edwardson
Ministry of Finance
250 356-2821