Proposed measures to increase CCA rates welcome news for Canadian LNG industry, says EY

Proponents continue to face cost, regulatory and other challenges

OTTAWA, Feb. 24, 2015 /CNW/ - The Department of Finance's proposal to increase the capital cost allowance (CCA) rates for property acquired for use in liquefied natural gas (LNG) facilities in Canada is welcome news for the Canadian LNG industry, says EY. Still, the firm warns that industry proponents continue to face cost, regulatory and other challenges in the development of Canadian projects, none of which have yet received final investment decision.

"The proposed measures are welcome news for the Canadian LNG industry," says Barry Munro, EY's Canadian Oil & Gas Leader. "The changes will make Canadian projects more competitive on the global stage – which is where they must compete for customers and capital – but undoubtedly there continue to be competitive challenges."

EY says the federal government support from this change is helpful to the creation of a viable Canadian export LNG business across the country, and proposed projects in BC and Atlantic Canada.

"Canadian and global energy companies want to invest in Canadian LNG," adds Munro. "Without a viable export LNG business in Canada, we will have stranded assets and sell Canadian natural gas at a discount to US and global prices."

EY notes that some of the best LNG export opportunities are in Asia, where economies are expanding quickly and countries are looking to replace more carbon intensive forms of energy, such as coal, with cleaner burning fuels. At present, Canada's only export market for natural gas is the U.S., which is moving rapidly towards an energy self-sufficiency that is certain to place greater downward pressure on the current price discounts plaguing our natural gas sales.

"It's encouraging that our government leaders are making strides to find the right fiscal formula to create the globally competitive economic conditions to establish a Canadian LNG export sector," says Gary Zed, EY's Canadian Tax Market Leader. "The economic spin-offs from this sort of development are critical to GDP for all of Canada."

EY modelling predicts that a $100 billion investment into a Canadian LNG industry would generate, by 2025, a 3.7% jump in GDP. Meanwhile, more than 200,000 new jobs would be created across all sectors of the economy, and federal and provincial governments would see an additional $455 billion in revenues over the years 2015-2035.

"Prosperity does not simply happen," agree Munro and Zed. "Leadership by both the LNG proponents and the B.C. and federal governments is critical to creating a viable and competitive Canadian LNG industry. The CCA announcement is a positive step in fostering an environment for proponents to make multi-billion dollar investment decisions that benefit all Canadians."

About EY
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SOURCE EY (Ernst & Young)

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