Via the AFR:
Industrial gas users representing more than 10 per cent of east coast domestic demand are at risk of closure because of high gas prices, with upward pressure on tariffs only set to worsen, according to leading industry consultancy Wood Mackenzie.
Senior analyst Saul Kavonic said the most at risk are about seven larger gas buyers in industries such as ethylene, ammonia and fertilisers production that use the fuel as one of their primary inputs and which are seeing legacy cheap supply contracts come to an end. Jobs in the industries are thought to reach into the thousands.
The fresh warnings about the hit to manufacturers from increased gas prices comes after Incitec Pivot chief Jeanne Johns advised last week that an expected $3.50 a gigajoule jump in the cost of gas for its Gibson Island plant in Queensland is expected to wipe out profits at the operation, while Orica chief executive Alberto Calderon has also warned that rising prices for gas will hit investment and jobs.
And the response of the gas sector? A propaganda push:
In an address to be given to the APPEA oil and gas industry conference in Adelaide on Tuesday, Zoe Yujnovich, who is also chairwoman of the association, says it is up to the sector to make its case and puts some blame on industry for not engaging in a wider debate.
…She says that taking the debate to the politicians in Canberra and into the business pages of the newspapers is not enough.
“We must extend the conversation to the lounge rooms, train stations and coffee queues across the country where 60 square centimetres of screen has become the only battleground that really matters,” Ms Yujnovich will say.
There is no negotiating with this. It must be confronted head-on. We need gas reservation for 10% of east coast exports. And, if necessary, fixed price quotas to force compliance. The market has failed. This justified a heavy-handed fix.
One Nation has the right idea. From the senate last week:
Senator HANSON (Queensland) (20:24): We are one of the most resource-rich countries in the world. Our gas fields off the North West Shelf of Western Australia are believed to be among of the richest. Multinational companies have been harvesting our gas for many years but successive governments, including the current crop, are reluctant to tax the petroleum industry, and the current Labor Party under the leadership of Bill Shorten is in the same boat. We hear not a word now, nor ever, because they are all looking after their mates, the multinationals. It is outrageous that we give away our natural gas for free to foreign multinationals and we give away $4 billion a year in foreign aid, including to the United Nations, while nearly 14 per cent of Australians live below the poverty line, and the number of homeless people in Australia is climbing at an alarming rate. Non-resident foreign owned petroleum giants with names like Chevron, ExxonMobil and Shell dominate the list of the top 10 foreign investors in Australia. They are here because our vast and valuable reserves of natural gas are located on the doorstep of Asia, the largest liquefied gas market in the world. We have the most concentrated foreign ownership of petroleum resources in the world, which gives these non-resident multinationals, which co-venture with each other, unprecedented power to intimidate the government of the day. The tax system is the way we get paid for our natural gas, but politicians have allowed foreign petroleum companies to design the tax system that applies to them, which means we get next to nothing for the gas taken from the seabed in Commonwealth waters. We get nothing on the profits made by foreign multinationals from the gas.
Foreign companies are exporting so much Australian natural gas that Australia will become the largest exporter of liquefied gas in the world next year, but none of the economic benefits of exporting our gas will come to Australia. We are the owners of the gas and we will receive less than one cent in the dollar of the export sales. Foreign multinationals take the other 99c in the dollar, less any claimed expenses. Experts say we get the lowest share of economic benefits of any country in the world in respect of the extraction of our gas, yet we cannot have a sensible conversation with Labor, and the government will not consider any significant reform.
We wrote to the Reserve Bank because we saw that the value of exported liquefied gas was used to increase the gross domestic product, when in fact none of the economic benefit from these export sales will trickle into the Australian economy. The Reserve Bank said that after the construction phase there were few benefits for Australia, but, ironically, they suggested Australians could benefit from the export of our gas by buying shares in companies like Chevron, ExxonMobil and Shell.
We say that the inclusion of export sales of liquefied gas renders the GDP figure in the budget inflated and renders any indicator which uses GDP in the ratio misleading. That includes debt to GDP and the government’s promise to restrict taxation to 23.9 per cent of GDP. We say that if the Japanese government makes $2 billion a year by imposing an import duty on our gas and if Japanese households buy our gas cheaper than we do then the government needs to reform the gas tax laws. The government could impose a common royalty regime and reform the petroleum resource rent tax, because one cent in the dollar is not exactly a fair share.
How do non-resident, foreign owned multinationals avoid paying tax? Firstly, they understate income and overstate expenses. But, in a belt-and-brace strategy, they also invest heavily to shape the tax system. The petroleum resource rent tax has been changed a number of times since it was introduced by Labor in 1988, and every change has favoured the companies. Years ago, petroleum multinationals told the government they needed certain concessions or else they would not invest in Australia. Governments, both Liberal and Labor, obliged them with generous tax concessions. By the time the government realised they were outwitted by these foreign petroleum companies, the multinationals were ready with the caution that any change to the law would create sovereign risk. This is a reputational risk to Australia that would then endanger further investment. If these arguments fail then foreign multinationals are prepared to fund negative advertising campaigns which would destabilise the government. This approach worked a treat when mining companies killed off the mining resource rent tax in 2010. The ghost of that event still walks the parliamentary corridors.
The mischief with the petroleum resource rent tax is that it allows claimed expenses to compound at rates set annually. A handful of companies, including Chevron, ExxonMobil and Shell, have more than $240 billion in tax credits created by concessions in the petroleum resource rent tax. These concessions mean that claimed expenses double every four years. This snowball effect means foreign multinationals will not pay tax during the life of these integrated gas export projects. The government could have made a regulatory change to the method of valuing gas but has not done so, with the result that $20 billion will stay with a few petroleum companies instead of the people of Australia.
Dr Kraal, an academic at Monash with an interest in petroleum taxation, notes that four of the largest integrated gas projects in Australia, producing 44 per cent of Australia’s natural gas, will raise no petroleum resource rent tax and scant income in the foreseeable future. We say that this is possibly for the 40-year life of these projects. We say that there never was a need to provide the generous concessions in the petroleum resource rent tax, because massive investments were made in Papua New Guinea without them. The PNG government got an equity share, a royalty, income tax and a super-profits tax arising from the establishment of the Hides gas-processing plant in the remote Southern Highlands of PNG, while we do not get any equity shares or royalties.
You’re probably wondering how PNG got a better deal than we did. Well, the PNG government listened to the Australian government Treasury officials who advised them, while our government ignored them. One Nation has been speaking to government about reducing the overly-generous concessions in the petroleum resource rent tax law and the need for a common royalty regime. The government, however, are unwilling to entertain a royalty regime, saying that it’s a sovereign risk, even though they know it is a cashflow issue.
Most petroleum-producing countries in the world receive royalties in exchange for extraction of their oil and gas. Qatar receives more than $10 billion a year on sales of gas. We get less than $400 million a year. State governments get royalties for their gas, but not the Commonwealth of Australia. Royalties are the price of taking the gas. They represent an expense for goods sold. The benefit of royalties is that they would give us the income earlier and allow us to increase the age pension and other pensions almost immediately.
Who do you think got rid of the Commonwealth royalties for our gas? Well, of course, it was Labor—good old Wayne Swan, from the political party that spruiks that it will look after the battlers and age pensioners. No, they don’t; they look after their multinational mates—and so do the coalition. Multinationals must stop ripping the guts out of our country by taking our resources and making billions of dollars while we are left paupers.
One Nation has been negotiating working with the government on these issues for more than a year. We want to repair the budget with the proceeds from a uniform regime of royalties on the extraction of gas and reduce the generous concession; introduce a reporting and disclosure regime so we can hold government accountable for its management of these precious publicly owned petroleum resources; set aside gas for domestic use so we can get cheaper electricity on the one day in four when gas is used to generate electricity; introduce a ‘use it or lose it’ policy for retention leases and licences that do not go into production; and build a gas pipeline from WA to the eastern states, with a guaranteed 15 per cent domestic gas supply from all production sites. It is ridiculous that we are about to become the largest exporter of gas in the world and, at the same time, we have the highest gas prices in the world.
The government plans to spend money in this budget to attract investment in coal-seam gas fracking, which farming communities do not want. What is the point of wasting money on developing coal seam gas when we already have plentiful gas in Commonwealth waters? It is just plain wrong to subsidise coal seam gas, which is ultimately more expensive for consumers, just so a few National Party members can get elected. Gas could come from Western Australia to the eastern states. The government is costing that project but, without a plentiful supply of gas, there is no point. Every Western Australian should make note of the fact that this government has undermined the domestic gas policy in Western Australia, which requires that 15 per cent of all gas coming from Commonwealth water be set aside for domestic use. The Commonwealth’s failure to place conditions on Shell’s floating storage and processing ship means that none of that gas will come into the domestic market.
The Commonwealth’s failure to place conditions on the Ichthys project means none of that gas will come into the domestic market. We note that the Ichthys pipeline took a 900-kilometre detour to avoid giving gas to Western Australia. Both of these failures by the federal government endanger not only the gas supply for Western Australia but also the viability of the proposed pipeline which would take gas to the east coast.
The gas story is not only about forgone tax revenue; it is about our loss of globally competitive gas and electricity prices and rising living costs that hurt most Australians. The government’s signature policy, the National Energy Guarantee, does not guarantee the price of electricity. But One Nation’s gas reform proposals will deliver much lower electricity prices because gas is used to generate electricity in Australia one day in four. Lower gas prices mean lower electricity prices.
When Pauline Hanson is the only one making sense on commodity economics you know that Australian institutions have well and truly jumped the shark.
Heavy-handed gas reservation now.
