Province Giving Away Royalties from Shale Gas

21 06 2014
JOHN CHILIBECK LEGISLATURE BUREAU

FREDERICTON • Newly released documents have ignited a difference of opinion between the Green party and the Tory government over the fairness of the province’s natural gas royalty system.

On Friday, the leader of the province’s Green party accused the Progressive Conservative government of shafting the public with a new royalty regime, arguing it had given up too much to big industry

The Tories quickly countered that the Greens’ idea of charging higher royalty rates would kill the shale gas industry if it were put into practice.

Green Leader David Coon said he had looked at four contracts signed with the province’s Department of Finance and four subsequent consulting reports showing the government changed the royalty rules to favour gas companies.

Coon, who battled with the Tory government for 18 months to see the documents and only received them in mid-May when a Court of Queen’s Bench judge ordered them released, likened the new royalty regime to giving the resource away.

“The studies confirm that the Alward government abandoned the natural gas royalty it originally proposed to the public in May of 2012 by November of 2013” Coon said in a media release. “Behind closed doors, a decision was made to virtually give natural gas away by charging the lowest natural gas royalty rates in North America”

He also invited the public to look at the reports on the Green party’s website.

But Energy Minister Craig Leonard said it was untrue the province’s new gas royalty regime was far more lucrative to industry than what’s available elsewhere in Canada.

“The Green party policy is to set the royalty so high that no one will ever invest, and shale gas development will never take place because they are opposed to it,” Leonard said from Toronto, where he was on a layover after flying from an energy conference in Brussels. “They’re not concerned about being competitive with other jurisdictions with our royalty system. They don’t care about the revenue we could get off of it. They want it set up so it’s an impossibility for a company to come in and make any money.”

Coon laughed when he heard this argument.

“We are opposed to shale gas development,that’s true,”he said in an interview, explaining the high cost to the humanhealth and the environment would outweigh any potential new revenues.“But whether it’s potash, timber, metal or natural gas, the resource sector needs to pay its fair share because it’s not,and this new royalty regime is making the situation even worse.”

In May 2012, following public consultations, the provincial government proposed keeping its royalty of 10 per cent of the market value of natural gas, but would add a 40 per cent royalty on excess profits across a company’s New Brunswick operations. However, after more analysis, the government decided to put new rules in place in April reducing the 10 per cent royalty to four per cent of the market value of gas (with a minimum two per cent royalty on revenues) and slashed the 40 per cent royalty proposed for excess profits down to 25 per cent.

“This is just the latest example of what happens when governments develop public policy in the back rooms with resource companies,”Coon said.“The benefits go the companies, and New Brunswickers get shafted”

But Leonard argued the old royalty regime was thrown out because it was too vague on the deductions that companiescould make on items such as transportation and processing costs. The government had previously overlooked how much the deductions could hurt its coffers, he said.

“Royalties off of natural gas and oil weren’t that big a revenue stream for us, but knowing what we had potentially coming, we wanted to tighten that up,”he said.“We looked at what our rate was, why we weren’t getting a lot of investment in the province, did a comparison against what other companies are paying in other provinces when they’re first starting up,and what they’re getting when the new wells are being developed. And what we realized is we just weren’t competitive in attracting industry.”

Under the new model, the province copied British Columbia’s definitions to sort out the deductions.The province has a more highly developed natural gas industry than New Brunswick’s.

The Green party favours the Saskatchewan model, where the natural gas industry is also highly developed and has helped enrich the Western province.The Greens say Saskatchewan charges royalty rates in the 20 to 30 per cent range that vary with the productivity of individual wells and the selling price of natural gas. If the productivity of the well and the selling price goes up, the royalty rate also increases. But Leonard says Saskatchewan also has incentives for industry.

“Those incentives bring royalties down to around the same ball park of where we are,”he said.

Natural gas development is controversial in New Brunswick because much of the resource is locked in shale rock deep underground, which is impossible to extract using conventional methods.

The environmental party is strongly opposed to the development of shale gas that needs to be fracked with large amounts of water, sand and chemicals to release it from the deep rock beds, saying it would pollute water and air,and be highly disruptive to rural communities.

The Tory government is making shale gas a part of its re-election platform, arguing New Brunswick has lost too many workers and families to the Western provinces, where natural resources like oil and gas provide plenty of high-paying jobs. It says it has already put in place regulations that will protect health and the environment.

The Liberal Opposition, which is leading in public opinion polls,wants a moratorium on shale gas development,saying the evidence is still unclear whether the practice is safe.

Green Leader David Coon likens the new natural gas royalty regime to giving the resource away. Photo: AdAm hurAs/LegisLAture BureAu Archive

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