Australian LNG Tax Under Review


By The Maritime Executive 02-21-2017 06:45:31

Australia is set to become the world’s largest LNG exporter, but the country has drawn criticism from the local oil and gas sector after announcing it would review its tax system for the commodity.

Australia’s capacity to find and develop its oil and gas resources may be at stake as the Commonwealth Treasury reviews the petroleum resource rent tax (PRRT), says industry body APPEA’s Chief Executive Dr Malcolm Roberts. He says a stable, competitive tax regime had been essential in attracting more than $200 billion in new gas projects for Australia.

“There is intense global competition for capital.  Australia is just one of 21 countries exporting LNG,” Roberts said.

“Australia is not the most attractive destination for global investors.  Our reserves are costly to develop, our corporate tax rate is higher than many competitors, and we have high cost structures. Australia’s costs of supplying LNG to Japan are 30 percent higher than those of countries such as Canada.

“Without the natural advantages of countries such as Qatar, Australia has relied on stable policy settings to attract investors. Policy stability is vital for high-risk, long-lived LNG projects – Australian projects typically take more than 10 years to recover upfront capital costs and begin to make a profit.

“With such a delay before projects become profitable, investors must be confident that policy is stable and that, eventually, there will be adequate returns to justify their long-term commitment. Policy stability gives investors that confidence.

“Retrospective policy changes can kill confidence and, with it, investment, jobs and exports.”

Over the last decade, the industry has paid on average $7.5 billion per year in taxes to governments. It is one of the most highly taxed industries in Australia.

“When investors have recovered their costs and begin to earn solid profits, the PRRT is triggered to ensure that most of that profit – up to 58 cents in the dollar – is collected by governments.

“Australia’s emergence as a major LNG exporter is due, in part, to the design of our resource tax system.  If Australia wants to capture the next wave of oil and gas developments, the PRRT must be retained.”

Roberts said APPEA’s submission to Treasury’s PRRT Review showed the industry’s economic contribution was large and growing. New and existing gas projects will deliver jobs, export income and government revenues for decades to come.

APPEA has commissioned an independent report from global consulting firm Wood Mackenzie examining the different petroleum tax regimes in countries around the world.

“The Wood Mackenzie analysis confirms the PRRT is working as intended.” he said.

Shell Voices Concerns

Shell Australia has also voiced concerns, joining a number of companies including Origin Energy and Santos and submitting comments to the Australian Treasury.

Santos, Shell and Origin, which all are involved in the Australian LNG industry, share the opinion that the tax is already operating effectively and any changes to it could threaten new projects and jobs.

Changes to the petroleum tax “at a time when the industry is under considerable pressure from a depressed global market will be detrimental to existing and future projects, and will undermine Australia’s global competitiveness and perceived sovereign risk.”

“The unprecedented investment in Australian resources projects during the last decade should not be taken for granted. If Australia’s economy is to continue to grow and prosper, it is critical that actions are not taken without a comprehensive analysis of potential impact on existing projects and future investment,” Shell said in the submission.

Shell Australia said it had invested more than $50 billion in Australian LNG projects in the last five years, and paid state and federal governments around 40 percent of its profits.

The company operates the QCLNG project on Curtis Island and has stakes in the NWS and the Gorgon project. Shell is also developing the giant Prelude FLNG project off the coast of Australia.

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.