How Norway made Australia look like a complete gas idiot

at Michael West:

Norway delivered its oil & gas riches to its people, Australia delivered the profits into foreign hands, having done the exploration, spending years and billions proving up giant gas fields. As the gas cartel rakes in the profits exporting LNG at the expense of local consumers Clinton Fernandes presents a timely reminder of the enormous public subsidies for large corporations.

In December 1970, Geoscience Australia, then known as the Bureau of Mineral Resources, Geology and Geophysics, began conducting underwater scientific explorations of Australia’s offshore geology.

A specially designed ship circumnavigated Australia, trailing a proton precession magnetometer 200 meters behind it in order to detect iron-rich objects.

The ship carried a marine gravity meter mounted on a gyro-stabilized platform in order to measure variations in the earth’s gravitational field.

These measurements revealed Australia’s underwater structure: the locations of rifts, faults, basins, and other features. The ship also took seismic soundings using a six-channel hydro-streamer cable and a single-channel cable.

It used two depth sounders, one designed for shallow water and the other for deep water, to measure water depths.

This project was the biggest single systematic marine survey ever done anywhere in the world, collecting geo-scientific data covering almost 200,000 square km. The Bureau went from knowing almost nothing about the offshore features to having a good idea of where the underwater plateaus, terraces, trenches, canyons and other features were located, what their dimensions were, where they were steep and where shallow, and how they were all organised together offshore.

Many years of data processing took place after the surveys. The process began when John Gorton was Prime Minister and continued all the way to Bob Hawke’s era.

The Bureau extended its exploration in the 1980s. A purpose-built ship equipped with sophisticated geophysical equipment mapped the resource potential of Australia’s offshore features. Its air compressors, air gun arrays and seismic streamer reels occupied 342 square meters of space over three decks.

Heavy geological equipment was also on board, such as a large coring and dredging winch containing ten kilometres of wire rope with a breaking strain of over 20 tons. This winch was the largest of its kind on an Australian ship and enabled the Bureau to take rock and sediment samples from the deepest part of the seafloor around Australia. The geological equipment and laboratories occupied 170 square meters of space over three decks.

The machinery wasn’t the only aspect of the project. Seismic data collection was a continuous, 24-hour operation from 20 to about 40 days. Three shifts of two technical officers monitored navigational and seismic acquisition. Two shifts of two engineering technical officers maintained compressors and air guns. An electronic specialist maintained the hardware, and two systems geophysicists on 12-hour call ensured data quality control. Five additional scientific crew were involved, as were experts in micropaleontology, geochemistry, heat flow, and side-scan sonar.

The Commonwealth’s aim was to support the interests of petroleum companies by reducing the element of risk involved in exploration. It wanted the project to collect “the same kind of data that are the principal tool of the petroleum exploration industry — high quality, deep penetration multichannel seismic reflection data.” Would the petroleum companies pay for all this? No, said the Hawke Cabinet in March 1988,

The overriding concern was to encourage petroleum companies to invest.

According to the Cabinet Minutes of March 22, 1988, the Treasury Department objected to all this valuable information being given away. It asked why “the Government should be willing to accept higher risks than the industry which primarily stands to benefit from any success.” It pointed out that “market failure in the petroleum exploration industry has not been demonstrated. At the least, increased industry participation in the program is warranted, and this would be best achieved by a much more substantial level of cost recovery.”

Extract from Cabinet Minute No. 10805 of March 22, 1988

The Finance Department also spoke up, saying it was “concerned at the lack of visible evidence of industry participation” in the scientific surveys. In particular, it said, a “level of cost recovery well in excess of the five percent of program costs” was warranted. It was not as though the offshore exploration sector suffered from too much competition. On the contrary, the Finance Department argued, there was a “high level of industry concentration in offshore exploration” and this small sector would derive “significant benefits promised by the [scientific surveys] in reducing exploration risks.”

Extract from Cabinet Minute No. 10805 of March 22, 1988

But Australia’s Department of Foreign Affairs insisted the “national interest” required nothing less. Thus, the Australian public funded the costs and – crucially – the risks of investment in fundamental research and the corporate sector benefited from the energy riches in the continental shelf. In reality, this meant that a tiny minority of people in control of huge concentrations of capital were able to set up the North West Shelf Gas Project off the coast of Western Australia, near the Pilbara town of Karratha.

On September 4, 1984, West Australian premier Brian Burke formally opened the $27 billion Project, which was operated by a then little-known company called Woodside Petroleum. It began exporting liquefied natural gas (LNG) in 1989. The Project has today become one of the largest LNG producers in the world. Woodside has become Australia’s largest natural gas producer, and one of the top 20 stocks in the Australian Stock Exchange (ASX) by market capitalisation.

In return, according to Woodside’s own calculations in February 2017, the government received approximately $26 billion in royalties, excise and taxes from the North West Shelf Project since it began in 1984.

In contrast, Norway made better use of the oil and gas in its continental shelf. The Norwegian government owns two-thirds of the shares in Equinor, formerly known as the Norwegian State Oil Company. Equinor’s workers elect three of the 11 directors.

The Norwegian government created the Government Pension Fund Global in 1990 to invest Norway’s oil revenue. The Ministry of Finance owns the fund on behalf of the Norwegian people, and determines its investment strategy. The Fund had more than 9 billion kroner (almost $1.5 trillion Australian dollars) in 2019. This was a handsome investment for a country with less than six million people.

Norway’s Sovereign Wealth Fund

The Commonwealth should have insisted on equity in the North West Shelf Project at the very beginning, when share prices were affordable. It could have insisted on income-contingent loans in the same way that Australian students are required to pay back their university fees once their incomes exceed some amount. The Commonwealth could have insisted on a golden share of any patents that came out of subsidised research. These alternatives would reward inventors whilst also giving society some additional benefits.

But in Australia, in the absence of a nationally owned energy company, the “national interest” amounts to the socialisation of costs and risks, and the privatisation of profits.

Editor’s Note: As per the MW Top 40 Tax Dodgers and associated commentary, the industry is responsible for Australia’s most aggressive tax avoidance. The hydrocarbons riches, which belong to the people, have not been shared fairly.

Houses and Holes

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the fouding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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Comments

  1. a handsome investment for a country with less than six million people.

    That is the other aspect of it. Stop mass immigration and you will have more mineral wealth per capita.

    Taxing profits instead of LNG is extremely silly because the companies say “we make no profit”. Tax the LNG itself – offset by any corporate tax paid (which is usually $0).

    • I think the real question is not so much with how the dastardly Norwegians have made us look like idiots, but how we – a nation with ample gas resources, and having invested spectacularly in gas production facilities and LNG trains, and which only a few years ago had some of the cheapest gas anywhere, and decked itself out with gas powered electricity generation to meet its peak electricity demand needs on that basis, and which gave away access to reserves fulfilling that demand source to global energy giants and a pipeline monopoly (all amortizing the living bejesus out of the ‘investment to avoid paying any tax on their access to Australian natural resources, and in the case of the pipeline monopoly essentially a shell structure controlled out of a Caribbean tax haven – are now looking to import gas for electricity generation purposes, and have circa 22 days fuel supply on hand should anything happen with the fuel supply pipeline (from Saudi Arabia to Singapore refineries). How we, potential possessors of Energy Arcadia, have somehow taken the opportunity to shove a cactus up our own jaxi.

      That is nothing to do with the Norwegians, but is profoundly stupid on an epic (Darwin Award) scale.

        • Profound stupidity ?
          Treacherous grand theft more like.
          Australia is NOT an independant Nation .
          It is a foreign owned Colony.

      • The Economist magazine published an issue several years ago entitled The Unlucky Country – a reference to the debacle that is our political system and the quality of our pollies.

      • In my younger days I was occasionally over-heard uttering the words: I want a Norwegian

        Now I’m thinking: I want to be a Norwegian.

        We are a laughing stock.

    • I can not tell the difference between a liar and a lunatic. Just listen to Tanya Plibersek and her policy of letting every Tom, Dick, and Harry into “uni”. Is she mad or corrupt?

      Jacinda is fully corrupt – she talked sense before the election and now refuses to cut immigration.

  2. My retired, LNP-voting parents just got back from a holiday Norway raving about the quality of life, impressive infrastructure and adoption of new technology like electric cars.
    When I pointed out this is the result of heavy taxes on mining and income, and spending on schools and hospitals rather than negative gearing or franking credits, I (faintly) heard the sound of a penny drop.

    • The Traveling Wilbur

      To be fair, even if Australia had taxed like Norway, it was never going to get Norway’s results. Unless it outsourced delivering them. To Norway.

      Instinctively, all Australian boomers know this. The same way salmon know if they spawn up-river they’ll die.

      The logical outcome was most likely going to be just an even greater number of demolished stadia.

        • The Traveling Wilbur

          Yes, but there’s is “Would you like the beef or the vegan?”.

          And also, Yes, in the same way that Aussies have about doing stupid things and making stupid choices (like taking profits on bonds).

    • lol

      And the salaries in Norway are higher due to the lack of mass immigration.

      Electric cars in Norway are simply a function of putting a massive tax on petrol cars – and allowing electric cars to use the bus lanes.

      AUS has so much immigration that we could order every “skilled” immigrant to give a Nissan Leaf to the ATO and 200,000 of them will still keep coming over annually. Gladys NSW has put in a land tax on foreigners and foreigners keep coming over – put a railway land tax on foreigners too.

  3. “This project was the biggest single systematic marine survey ever done anywhere in the world, collecting geo-scientific data covering almost 200,000 square km…….

    Many years of data processing took place after the surveys. The process began when John Gorton was Prime Minister and continued all the way to Bob Hawke’s era.”

    What happened to this spirit?

      • There are very few things on this earth more regressive and anti-human than feminism, but it’s not applicable here.

    • They took ‘The Curiosity Show’ off the air.

      In seriousness. We are generally scientifically illiterate in the same way that we are economically and politically illiterate. This includes the majority of our political class. Couple that with short term thinking and a general void of vision and you have Australia. Just look at the NBN and our lack of response to climate change. Big projects that rely on science and technology and we’ve, to borrow a term from The Betoota Advocate, sh1t the bed with both of them.

  4. Mining BoganMEMBER

    Done by the same people who laughed at blackfellas for never making something of their country.

    Go figure.

  5. Narapoia451MEMBER

    To be fair – Australia doesn’t need any international help to look like a bunch of fvcken idiots.

  6. IncrediblebulkMEMBER

    I’m Norwegian, and I’m quite proud of what we have achieved. However, the idea of how our natural resources should be shared across our communities came from an Iraqi, Mr Farouk al-Kasim.

    Here: https://www.ft.com/content/99680a04-92a0-11de-b63b-00144feabdc0

    So instead of beating yourselves up about idiotic decision of the past, why don’t you Australians look to the future?

    Listen to others. Learn from foreigners. We did and we still do.

    You still have an awesome continent to yourself, with huge potential to do incredible things.

    Go with Thorium power. Molten Salt Reactors running Thorium, funded in Australia and built in partnership with the USA and Norway.

    These are close to 100% efficient, leaving no waste. They are zero emission electric generators that can produce multi-100MWs of clean power in a decentralised grid. The can’t explode, they can’t melt down and they can be mass-produced in factories to bring the cost down way below solar and wind.

    You have one of the largest deposits of Thorium on the planet, but you’re throwing it away.

    You can use Thorium reactors to mass-desalinate water and pump it deep inland, run your factories, power remote communities, produce clean hydrogen for export, make ammonia for fertilizers, crate EV charging grids, refine your commodities like iron ore into pig iron, bauxite into alumina and you can even use them to split complex hydrocarbons into lighter elements. Use it to improve Australia, and export it to a world hungry for clean commodities.

    Industrial Australia can have a bright future despite foolish decisions of the past.

    We’ll even throw in some good looking Norwegian scientists to help you make it happen.

    Cheer up Oz!

    • You had me until you mentioned Thorium. Thorium based power sources have been ‘about 20 years away from commercial use’ for about 70 years now. In another 20 years Solar PV, Wind AND battery prices will have halved about 3 times.

      • IncrediblebulkMEMBER

        Nah. In 20 years you’ll have millions of tonnes of broken solar panel waste which cannot be recycled or re-used. You can’t run factories on solar power, neither can you do much else than supplement an already struggling grid.

    • You have forgotten the Donors
      They must have full use of our fossil fuel resources until they are all depleted,
      then, and only then, will we consider renewable resources