Offshore gas project royalty would reap billions for government, report says – The Guardian

The Turnbull government is contemplating measures to boost the revenue it collects from offshore oil and gas projects. Photograph: AFP/Getty Images

The federal government could gain revenue of US$4.8bn ($6.4 bn) from Chevrons Gorgon gas project between now and 2030 if it made offshore gas projects subject to a royalties regime, according to research from a Monash University academic.

The Turnbull government is contemplating measures to boost the revenue it collects from offshore oil and gas projects after collections under the petroleum resource rent tax plunged after 2012-13, and crude oil excise collections fell by more than half.

The Tax Justice Network has used an inquiry the government is conducting into the PRRT to argue that it should impose a 10% royalty on all offshore oil and gas projects in Australia to ensure taxpayers start getting a fair return on their natural resources.

Monash University lecturer Diane Kraal, who is conducting research on integrated natural gas-to-liquids projects that extract from basins in commonwealth waters, also favours the imposition of a royalties regime for offshore oil and gas.

She says that in the absence of a royalties regime, the Gorgon project will not pay any PRRT until at least 2030.

Kraal says the PRRT is clearly not working as intended for gas, and imposing commonwealth royalties for offshore projects would be one way of addressing the problem, without creating double taxation.

Royalties are fully credited from any PRRT payment, so there is no double taxation, she says.

Gas producers have used the review to dig their heels in over changes to the PRRT.

The Australian Petroleum Production and Exploration Association (APPEA), the peak national body that represents companies engaged in oil and gas exploration and production operations in Australia, has told the inquiry investment is at risk if the system is overhauled.

Any changes that lead to increased imposts under the resource taxation system will damage the ability of Australia to attract projects and thereby diminish the capacity to create sustainable taxation revenue streams for future generations, APPEA says in its submission to the PRRT review.

But with the budget in need of more revenue, the government has made it clear it will use the review process to determine how to achieve better rates of return. Reports this week suggest the treasurer, Scott Morrison, is contemplating several options, including imposing a minimum resource tax.

On Friday, the government also left open the option to pursue a separate policy change that the gas industry is opposed to creating a domestic gas reservation to ensure a percentage of gas remains onshore for domestic use.

The prime minister, who will meet gas executives next week to address a looming shortage of gas supply, refused on Friday to rule out reserving gas for domestic industry.

The Australian Energy Market Operator warned this week that New South Wales, Victoria and South Australia would face gas shortages from the summer of 2018-19. It said the tight domestic gas market would have flow-on effects, including rising electricity prices, that could threaten the financial viability of commercial and industrial businesses.

Last year, the Australian Competition and Consumer Commission warned the government against adopting a reservation policy be it a percentage of reserved gas supply, export controls or a national interest test to try to address the problem of gas shortages in Australias eastern states.

The ACCC said gas reservation policies seek to shield domestic users from the effects of linking to export markets.

In the short term, such policies may reduce prices for domestic users as additional gas is forced onto the domestic market above efficient market demand, the competition watchdog said. These artificially reduced prices weaken the economic incentives for further gas exploration and appraisal.

The gas industry has rejected arguments it should face a royalties regime for offshore projects.

Kraal said on Friday she had analysed all the industry submissions to the PRRT review. It is clear that the petroleum industry has closed ranks and is calling for no change to resource taxation, such as the PRRT, she said.

But she contended the industry had not supplied any substantive evidence to the inquiry to support the idea that the PRRT was operating as intended, and providing equitable returns to the public from current gas projects.

No industry submission has fully addressed the range of issues put forward by the PRRT review, she said.

Kraal expressed hope that the review would countenance a wider range of views than just those of the industry because the Australian public was entitled to have adequate rates of return on resources development.

She said she was a supporter of LNG development, and it was obvious Australia should welcome foreign investment, but the hanging question is who is shaping our policy on resource taxation?

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Offshore gas project royalty would reap billions for government, report says - The Guardian