Thanks very much, Mr. Chairman and members of the committee. We very much appreciate the opportunity to appear before you.
My name is David Collyer. I am the president of the Canadian Association of Petroleum Producers, or CAPP. We have representatives from Encana and Shell also in attendance at the committee this afternoon, reinforcing the importance of our submission.
We have a single recommendation for your consideration in the next federal budget, that being a change in the federal tax treatment of liquefied natural gas, liquefaction, or LNG liquefaction facilities to tax class 43, which is a 30% declining balance, from tax class 47, which is an 8% declining balance.
In our view, this reclassification would do several things. First, it would harmonize the treatment of LNG liquefaction with other comparable manufacturing and processing facilities and equipment, for example, straddle plants. It would enhance the competitiveness of the Canadian LNG export industry, thereby encouraging economic growth. It would positively influence near-term final investment decisions for LNG liquefaction facilities.
As the committee is aware, the natural gas market is undergoing significant change. Shale gas supply is abundant, and it will provide Canadians with a long-term, reliable supply of an affordable, cleaner-burning fuel. This abundance of supply relative to demand has put downward pressure on natural gas prices and increased the imperative for Canada to develop new international markets through LNG export opportunities, particularly from the coast of British Columbia. This will provide both additional demand for western Canadian natural gas and provide access to global natural gas pricing.
Canada's LNG export facilities will be among the greenest in the world. LNG exports to Asian markets will displace the use of more carbon-intensive fuels in those markets. For all those reasons, we think it's in Canada's interest to develop a sustainable LNG export industry.
I turn now to the specific tax treatment for LNG liquefaction facilities.
In our view, LNG liquefaction is a manufacturing and processing business, not unlike straddle plants. These facilities are complex, and much more technical detail is provided in our submission. The bottom line is that LNG liquefaction facilities process input sales gas, resulting in changes to both chemical composition and physical characteristics in order to manufacture marketable LNG and NGL products. In doing so, they meet the test of M and P, which means they should be included in tax class 43 rather than in tax class 47.
We presume LNG liquefaction was not contemplated when class 47 was amended to cover the much simpler regasification process of LNG import facilities, as the potential for export of significant volumes of natural gas from Canada was not contemplated at the time those changes were made.
Very briefly, in a global competitive context, as you aware, the world demand for LNG continues to grow, especially in Southeast Asia. Canada can participate in those markets, but it's fair to say we face stiff competition as well in terms of supplying Asian markets, competition both from established LNG exporters in Australia and the Middle East as well as from emerging LNG suppliers. The current class 47 tax classification puts Canadian LNG liquefaction facilities at a significant disadvantage relative to competitors in both the U.S. and Australia. It takes about 27 years to write off 90% of an asset under class 47 as compared to about 13 years in the U.S. or Australia, and about seven years under the proposed tax class 43. That said, class 43 would make Canadian LNG liquefaction facilities much more competitive on an international basis.
Timely development of Canada's LNG export facilities is also an imperative. As you are aware, a number of proposed facilities are on the books. We're operating in a very competitive international market. This tax class reclassification would positively influence those upcoming investment decisions.
To summarize, in our view Canada has a unique opportunity to diversify its natural gas markets through development of a sustainable LNG export industry. This will support investment and jobs in Canada, and supply reliable, cleaner-burning natural gas to the growing economies of Southeast Asia. I believe we can compete with the best in the world. The tax reclassification we are talking about for LNG liquefaction facilities will help to enable those significant investments in Canada.
Thank you very much. I look forward to your questions.