Gas fight turns Australian life and death brawl

Australia’s gas fight is turning into a life-and-death brawl.

One of the most egregious lobbies in Australia has weighed in: the Business Council.

Structural shortfalls of approximately 12 petajoules on the east coast and 4 petajoules on the west coast are also forecast from the end of this decade.

To put this in perspective, the east coast shortfalls are the equivalent of the gas used in 375,000 homes, and the west coast shortfalls are the equivalent of the gas used in 125,000 homes.

An additional new tax would therefore not solve the supply problem – it would make it worse.

Many of the misleading calls for an additional tax rest on comparisons with Norway. But that comparison does not withstand scrutiny.

Norway’s system is fundamentally different to our own. It combines significant state ownership of companies, loss refundability and fast-tracked approvals.

The Norwegian government shares both the upside and the downside of projects, including capital costs and risk.

Blah, blah, blah. There is no “structural shortage” of gas. There is only a shortage of courage to keep enough at home for our use.

A kindergarten child could solve this problem. Keep the tiny 12Pj of the 4500Pj we export at home!

As for Norway, whatevs. It takes 80% and shares risk; we’re talking 25%, which doesn’t require risk sharing.

Meanwhile, BP has completely jumped the shark.

BP warned that as a global company it had choices on where to invest capital, noting it was “acutely aware of the conditions in the regions in which we operate”. It said changed tax settings might make future projects in Australia “uneconomic”.

A 25 per cent windfall profits tax would “make Australia the least fiscally attractive regime among peer oil and gas jurisdictions, behind Canada, Indonesia, Malaysia, Nigeria, Norway, PNG, Timor-Leste, Qatar and the United States”, BP said.

Here’s the list.

• Norway — ~78%
• Nigeria — ~60–85%
• Malaysia — ~60–75%
• Qatar — ~60–70%+
• Indonesia — ~50–70%
• United States — ~40–55%
• Canada — ~30–50%
• Australia — ~20–40% (always much lower in practice)

Did you know that BP played a key role in ousting the democratically elected government of Mohammed Mosaddegh in the early 1950s, when he nationalised Iran’s oil industry, which had been controlled by the British-owned Anglo-Iranian Oil Company (later BP), and was again afterwards? Don’t listen to these imperialist robber barons.

Unfortunately, the gas hippopotamus, Resources Minister Madeliane King, won’t stop spewing their propaganda.

She said no decision had been made: “Our tax policies haven’t changed.”

King, who is not a fan of a gas tax, echoed industry concerns that it would harm further investment – especially at a time when Australia is trading on its reputation as a reliable provider of liquefied natural gas to secure fuel supplies from key Asian trading partners amid the disruption to oil from the Middle East conflict.

Bwaaaaaah! Somebody throw her a bale of hay to shut her up.

Finally, Ken Henry has the correct approach.

Dr Henry said there were “several tax design options available”, including a windfall gains tax whose “socially optimal tax rate is approximately 100 per cent”.

This would have no bearing on gas supply, he said, with a pointed reference to Angus Taylor’s criticism of a windfall gas tax.

“Windfall gains, supernormal profits and economic rents are forms of income above the opportunity cost of capital,” he said.

“They share a common feature: the level of income-generating activity (measured in terms of output, employment or invested capital) is insensitive to the rate at which the excess returns are taxed. Thus, a tax rate of even 100 per cent applied to a windfall gain would have no impact on the underlying level of activity.

“Like land and anything else in perfectly inelastic supply, windfall gains present tax bases that offer tax revenue with no adverse consequences for economic efficiency. These constitute a special set of tax bases that avoid the oft-quoted maxim that the more you tax something, the less you have of it.

Yes! Set an export levy at 100% above a set price. I say $7Gj, which delivers 20% ROI on every gas 2P gas molecule in Australia.

And don’t forget that much of the investment is already written off, and cash costs are far lower!

If you want to be a bit more generous, set your threshold to $8Gj and collect all revenue above that line.

We are talking about hundreds of billions. Plus, it prevents the cartel from passing on the costs in local gas prices, so all local shortages are resolved.

Finally, today, with the approach of Gojeerah Takaichi, who undoubtedly intends to stomp on the gas tax, I argued yesterday that we might offer some short-term tax relief in exchange for fuel, given that Japan relies on 40% of Aussie LNG for its electricity grid.

A new chart casts doubt on that.

At the current rate of depletion of its strategic reserves, the Japanese political window will close quickly.

It may be politically impossible to offer us fuel.

In which case, tax the monster.