Canada aims to boost LNG investment with 40-year gas licenses

By GREG QUINN
Bloomberg

Canada will extend natural gas export licenses to 40 years while cutting taxes for small businesses and the manufacturing industry in a budget designed to boost flagging business investment.

The extension of natural gas export licenses from 25 years comes amid a global race for liquefied natural gas (LNG) projects. The extension is in addition to recently announced measures to allow faster write-offs of LNG equipment, according to budget documents presented Tuesday in Ottawa by Finance Minister Joe Oliver.

There are 19 proposals to export chilled gas by tanker from Canada’s Pacific Coast. Final decisions on some of the British Columbia projects, including one involving UK’s BG Group, have been delayed as energy prices slump. In a report this month, Moody’s Investors Service said Canadian LNG terminals are unlikely to move ahead amid lower oil prices.

“Any change that provides for increased certainty to the LNG industry in Canada is a positive move for our investors,” said Spencer Sproule, a Vancouver-based spokesman for Pacific NorthWest LNG. The group, led by Malaysia’s Petronas, plans to develop a C$36 billion LNG project in British Columbia.

The drop in crude oil, Canada’s top export, led Oliver to delay his budget after the new fiscal year began on April 1. Lower crude prices will trigger a 30% drop in oil and gas investments this year, the Bank of Canada says, and Governor Stephen Poloz is counting on investment and exports to feed an economic recovery through next year.

Small-Business Tax

Oliver also said Tuesday the small-business tax rate will fall to 9% by 2019 from 11% in what the government calls the biggest cut for small firms in 25 years, while write-offs for machinery and equipment will be extended for the manufacturing industry for 10 years. Canadian companies still scarred from the recession and hamstrung amid weak global growth, are carrying record cash on their balance sheets.

“We must give manufacturers the tools they need to create the products -- and the jobs-- of the future,” Oliver said in the text of his budget speech.

The government is basing its budget projections on West Texas Intermediate crude oil at $54/bbl this year and $67/bbl next year, down from $95 in September.

In the oil industry, companies from Suncor Energy to Strad Energy Services have cut thousands of jobs, with the Alberta government predicting 31,800 oil-related workers will lose their jobs this year. Manufacturing and business investment had already been been curtailed by weak global demand since the 2008 global financial crisis.

‘Definitely Helps’

The investment measure “definitely helps” and “allows companies to make longer-term investment decisions,” said Walter Pela, a tax partner at KPMG.

Budget measures for small business will cost C$5 billion ($4.1 billion) over five years while the cost for manufacturing write-offs amounts to C$1.1 billion over the five years, budget documents show.

Today’s budget also “affirms” an earlier announcement for tax breaks on investment in LNG facilities that will be worth C$45 million by the 2019-20 fiscal year.

Some of the business tax cuts are being offset by curbing tax breaks for shareholders on small company dividends, a tightening that will bring in C$2.27 billion over five years.

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