Natural Gas at an LNG Facility Inlet Meter Valuation Rules
The cost of natural gas is generally deductible in determining your net operating income. Rules for determining the value of natural gas at an LNG facility inlet depend on the location of the transaction and the type of transaction.
Arm’s Length Purchases
Arm’s length purchases of natural gas at the LNG facility inlet meter are valued at the transaction's price.
Non-Arm's Length Purchases
Non-arm's length purchases of natural gas within an LNG plant are subject to the transfer pricing rules.
Notionally acquired natural gas is subject to special rules. Non-arm’s length purchases of natural gas at the LNG facility inlet meter and certain deemed purchases of natural gas at the LNG facility inlet meter are considered notionally acquired natural gas.
When you own the natural gas immediately before and after it passes through an LNG facility inlet meter, you’re deemed to have notionally acquired natural gas. Deemed purchases can occur if:
- You produce and deliver the natural gas to the LNG facility
- The natural gas is purchased at any point upstream of the LNG facility inlet meter
Notionally acquired natural gas other than natural gas purchased at arm's length on the feedstock pipeline is valued based on the reference price.
The reference price is determined monthly by the Ministry of Natural Gas Development. It is based on the market price of natural gas at a geographic reference point in B.C.
The cost of notionally acquired natural gas can include transportation costs and may be subject to a cost adjustment.
If you own both the gas and the pipeline or the pipeline is owned by a non-arm's length party, transfer pricing rules apply to the transportation costs.
Cost adjustments may occur when natural gas is purchased from an arm's length party along the feedstock pipeline.