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These Closed-Door Discussions Will Change Global Natgas

Critical talks got underway last week, in one of the most important areas on the planet for natural gas development.

British Columbia, Canada.

The province has been the epicentre of a lot of planning recently for mega-projects in liquefied natural gas (LNG). With the big driver here being the ease of shipping natgas from Canada's west coast to key markets in Asia.

But up until now project plans here have remained purely theoretical. With no developer yet taking a final investment decision on the billions in capex required to build an LNG terminal and associated infrastructure.

And the big reason is taxes.

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That's an issue the provincial government is now trying to address. By kicking off discussions on a bill that will define tax terms for LNG developers.

Government spokespeople told the press last Friday that a draft version of the tax bill is expected to be finalized by the week of October 20. The terms will then be open for debate, ahead of finalization of the tax regime expected late in the month.

No details have been given on the numbers the government is looking at in terms of tax rates. But these figures could be key in determining how many LNG projects will go ahead--if any at all.

That's because project developers lately have been voicing their discontent with government policy. After officials earlier this year proposed an initial 1.5% tax rate on LNG production, escalating to 7% after capital costs have been recovered.

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High-profile project backers like Malaysia's Petronas have recently said those rates are too high. Threatening to shelve their proposed $10 billion development if the government doesn't lower taxes to a more competitive level.

This could of course simply be posturing from the major. Leaving the government to a challenging decision on whether to heed the warning and drop tax rates--or go ahead with the fiscal regime as planned.

Watch for the final numbers later this month--and the knock-on effects on project planning from big firms.

Here's to putting up the numbers,

Dave Forest

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