Vaughn Palmer: NDP drive to change B.C. natural gas royalties faces industry pushback

Energy Minister Adrian Dix. Photo by NICK PROCAYLO /PNG

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VICTORIA — The New Democrats are meeting significant opposition from the natural gas sector over the higher royalties they propose to introduce Jan. 1 of next year.

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This year’s provincial budget set a target of increasing natural gas royalties by about two thirds, from $942 million last year to $1.572 billion three years from now.

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The details are complicated. But one example I’ve seen shows the royalty rate would go from five per cent to as high as 35 per cent, once drilling and other development costs are paid off.

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Industry sources warn that the royalty increases on that scale could discourage long-term investment by making the province less competitive.

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B.C. is already burdened with more expensive regulation and greater obligations for Indigenous consultation. Higher royalties would add to the disincentives.

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There have been warnings, too, about the implications for LNG. If royalty increases drive up the cost of delivering B.C. natural gas, LNG producers could take more product from Alberta and Saskatchewan.

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The NDP government says the royalty increase will “ensure British Columbians receive a fair value for public resources.” The modernized regime is said to “be simpler, more transparent and aligned with today’s market.”

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The royalty grab is also part of a drive to improve the government’s bottom line, given projections of a record $13.3 billion deficit in the current year.

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So far industry objections to the royalty scheme have been delivered in confidential meetings with provincial officials. The government says non-disclosure agreements were necessary because each proposed change affects different producers differently.

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Still, some details have leaked out.

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“British Columbia Sparks Angst over Gas Tax Change Amid LNG Race,” was the headline from Bloomberg News on April 24.

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“Premier David Eby’s government is finalizing a new royalty regime on gas extraction that has caused jitters in the energy industry, with major new liquefied natural gas investments hanging in the balance,” said the report by Thomas Seal.

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“A government presentation about a month ago alarmed businesses when it appeared to show they’d pay a larger royalty that would kick in at higher gas prices.

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“The updated proposals also came as a surprise because the province has been reviewing its oil and gas royalty system for several years and companies have already made drilling plans for the next year.”

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The article went on to note the irony of the Canadian and B.C. governments promoting LNG development while the province toyed with a royalty regime that would discourage investment.

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Another negative comment came from Gary Mar, president and chief executive of the Canada West Foundation.

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“Natural gas development in northeastern British Columbia is not a short-cycle business,” Mar wrote last month in the National Post.