Well, it looks like British Columbia is finally getting serious about liquefied natural gas (LNG), at least on one front. Last week, the prickly Canadian province provided long-awaited clarity on its proposed two-tiered tax regime for LNG exporters.

It only took an ultimatum from the CEO of Petronas along with a selloff in global energy commodities to accelerate BC’s previously glacial pace of policymaking.

In early October, Petronas CEO Shamsul Abbas threatened to defer investment on the company’s LNG export project for at least another 10 years if the province failed to come to an agreement on taxation by the end of October.

The Malaysian state-owned energy giant’s Pacific NorthWest LNG is widely expected to be the first project to start exporting super-cooled natural gas to Asia from facilities it plans to construct along Canada’s west coast.

Petronas has said it will make a final investment decision by year-end, though first production from the USD11 billion project would still be at least several years away. When the energy producer last reviewed its global portfolio, it characterized the economics of this project as “marginal.”

The other major factor in compelling BC politicians to get it together was the slide in global crude prices. LNG producers in Australia, Asia and the Middle East typically operate under long-term contracts linked to oil prices.

With the price of oil hovering around USD80 per barrel, we’re not all that far away from the threshold at which exporting LNG from North America to Asia becomes uneconomic, particularly for the more marginal players.

For instance, Calgary-based FirstEnergy Capital told the Edmonton Journal that if crude prices remain at or below USD90 per barrel for the next several years, then that’s “barely enough to cover the riskier higher-cost case for a BC LNG terminal.”

But even before these latest developments, Canada hardly had the luxury of time. The country was already playing catch-up in the global LNG competition, as projects in the US have a head start on infrastructure.

Many proposed LNG export facilities south of the border involve the mere reconfiguration of existing facilities originally designed to handle LNG imports.

By contrast, Canada’s projects are of the “greenfield” variety, which adds up to multibillion dollar construction budgets.

Fortunately, BC’s proposed tax system incorporates capital costs incurred from construction into calculating the first tier of taxation. Once export projects commence, operators will pay a 1.5 percent tax on net operating income adjusted for capital costs.

The biggest concession in the new tax structure is the halving of the second tier of taxation to 3.5 percent from an earlier proposed rate of 7 percent. This tax will be levied on net income, but only comes into play after export projects have exhausted all their deductions for initial construction.

This tax will rise to 5 percent in 2037, with the rationale that by then the nascent industry will be firmly entrenched.

BC Premier Christy Clark had predicated her reelection last year on an LNG windfall, which politicians hope will spur job creation in the province while providing a robust stream of tax revenue.

But this proverbial goose that laid the golden egg could still be killed by excessive demands from policymakers, provincial stakeholders such as First Nations groups, and other key constituencies, including environmentalists.

Given the huge upfront costs of construction along with the current downturn in global energy prices, the cost of complying with onerous regulations will further erode crucial margins.

And while the province finally made progress on the tax front, almost simultaneously policymakers proposed new environmental regulations that BC Environment Minister Mary Polak crowed would make the country’s LNG industry the cleanest in the world. 

Polak estimates the industry will generate 13 million metric tons of greenhouse-gas emissions per year, increasing the province’s annual emissions by about 21 percent from current levels.

Compliance with these proposed emissions standards would be just the latest addition to an already dizzying array of government-imposed costs. 

As BC LNG Developers Alliance President David Keane put it, in an interview with the Financial Post, “In terms of looking at all of the costs that we incur, our industry is going to be paying the LNG tax, the carbon tax, purchasing carbon offsets, paying royalties, PST, GST, payroll taxes, municipal taxes and corporate income taxes at both the federal and provincial levels.”

Of course, some of the items in that litany are taxes that would be due from any company in Canada. Still, it’s instructive to understand the costs of doing business there.

In the bigger picture, LNG export terminals in BC would be well positioned to supply customers in East Asia, which accounts for most global LNG demand growth. China, for example, is trying to push its utilities and manufacturers to switch to natural gas, which burns more cleanly than oil or coal.

The LNG export opportunity could help Canada regain ground lost to the US, which was once its biggest gas customer but has emerged as its stiffest competitor in the increasingly global gas market.

“China has recently emerged as a net importer of natural gas,” the Canadian Association of Petroleum Producers noted in a January 2014 report. “With its almost insatiable demand for energy, it is expected to become a major importer of LNG.”

Meanwhile, Japan already accounts for over 35 percent of worldwide LNG consumption, in part due to the idling of the country’s fleet of nuclear power plants in the aftermath of the Fukushima Daiichi disaster in March 2011.

There are 14 proposed LNG export plants on Canada’s west coast, including projects led by Chevron and Exxon Mobil.

But the more skeptical analysts believe that only two projects will ultimately get off the ground, instead of the five potential projects on which the province has staked its hopes.

In addition to the Petronas-led Pacific NorthWest LNG project, the other frontrunner is Shell Canada Energy’s LNG Canada.