From: brewnoser2@gmail.com   
      
   Path to Prosperity?   
      
   A Closer Look at British Columbia's Natural Gas Royalties and Proposed LNG   
   Income Tax   
      
      
   This brief takes a closer look at potential public revenues from planned   
   liquefied natural gas (LNG) development in BC, with a focus on BC's natural   
   gas royalty regime and the proposed LNG income tax.   
      
   The BC government has made bold claims of a $100 billion Prosperity Fund   
   arising from LNG over 30 years, but this figure is premised on large export   
   volumes and high prices in Asia that may not be realistic:   
      
   *  Japan and South Korea account for more than half of global LNG   
   imports,  yet  both  may  reduce  LNG  imports  as  they  reinstate   
   nuclear power after shutdowns in recent years.   
      
   *  China aims to shift away from coal use, but it has many domestic   
   and international options for new energy supplies in addition to   
   BC-based LNG.   
      
   *  On the supply side, substantial LNG capacity in other countries is   
   coming on stream in the next five years.   
      
   *  A "buyer's club" of Asian importers comprising 70 per cent of the   
   market is seeking to negotiate lower prices.   
      
   BC's  proposed  LNG  income  tax  is  particularly  sensitive  to  lower    
   Asian  prices for LNG:   
      
   *  Expensive  new  infrastructure  requirements  greatly  eat  into  the   
   gap  between  Asian  and  North  American  gas  prices.  Because  of   
   this, small drops in the Asian price have a large impact on profit margins,   
   and therefore, on government revenues.   
      
   *  Because companies can fully deduct all capital costs before paying the full   
   7 per cent, LNG income tax, any cost overruns will be paid for by reduced   
   taxes.   
      
      
   Based on a more realistic expectation of LNG export volumes and prices, this   
   analysis estimates the fully-implemented LNG income tax is likely to raise   
   between $0.2 and $0.6 billion per year.   
      
   For comparison, consider that the total annual BC Budget is $45 billion per   
   year.  BC's current royalty regime has not achieved a good return for the   
   development of this finite public resource, and places more emphasis on   
   encouraging high levels of    
   production:   
      
   *  Natural gas production in BC has increased by one-third over the past   
   five years, even in the face of extremely low North American prices.   
      
   *  Yet royalty revenues have dropped significantly during this time due to low   
   market prices and large credits for deep drilling and gas infrastructure.   
      
      
   At more plausible Asian prices and production levels, combined royalties and   
   LNG income taxes would likely be much smaller than the best-of-a   
   l-possible-worlds projection from the BC government.     
      
   LNG  development  also  poses  costs  to  the  public  sector for  regulatory    
   oversight,  infrastructure and additional public services, for example -- as   
   well as environmental costs that should be considered alongside revenues.   
      
   The BC government should go back to the drawing board and develop a   
   tax/royalty regime that puts more emphasis on achieving public benefits before   
   signing   
   away rights to this non-renewable public resource.   
      
   --- SoupGate-Win32 v1.05   
    * Origin: you cannot sedate... all the things you hate (1:229/2)