Russell: Australia's LNG industry is worried about missing out on huge opportunities due to the Iran war.
According to the Australian liquefied gas industry, the sector offers both the best opportunity for growth and the least investment.
The dichotomy isn't quite as contradictory at first glance, since the industry is saying that there is a window of opportunity during which the?third largest exporter in the world of LNG could either grow or stagnate, and then slowly decline.
Senior executives at the Australian Energy Producers conference (AEP) this week all echoed the same message, stating that Australia must correct its policy settings to restore confidence and spur renewed investment.
The major LNG companies in Australia will always advocate for their shareholders' best interests, even though they claim to be the largest contributors to Australia as a country through jobs, taxes, and royalties.
It is not clear how much Australia would benefit if the federal government and the state governments gave the industry exactly what it wanted, which is a less burdensome regulatory regime, quicker project approvals, and a stable fiscal regime that was internationally competitive.
The industry claims that it requires a more favourable regulatory environment, as well as fiscal certainty, to unlock new investments. However, there are doubts about the amount of new investment it will unlock even if governments do what they want.
The Beetaloo Basin, in the Northern Territory has the potential to be developed. It is described as an onshore shale formation of world-class quality similar to those which boosted U.S. gas production. This led the United States to surpass both Australia and Qatar and become the largest LNG exporter.
The Beetaloo plant could theoretically provide enough natural gases to stabilize the domestic market, and feedstock for the additional LNG trains in Darwin's two existing LNG plants.
Other basins onshore in Queensland could also be developed in order to supply more gas for the three LNG plants already in place in the state as well as to the domestic market of New South Wales, Victoria and the other southern states.
It is important to note that, even if the fields were?developed', it would take many years before they could be brought online. They may also need to wait decades to recoup the capital invested, which is a long time to recover.
Tax Issues
The way the LNG industry was developed is a major factor in the problems it faces.
Australia has allowed private companies to develop natural gas reserves for export via LNG. In the last 15 years, up to $400 billion have been invested to increase Australia's capacity of exporting around 87 millions metric tons annually.
The capital has now been recovered, so the industry is not paying as much corporate taxes as some politicians or lobby groups think it should.
AEP does pay taxes and royalties, and AEP leaders repeatedly stated at the conference that AEP is the second largest corporate contributor to the Federal Treasury. But, even then, they find it difficult to counter claims that AEP should be paying more.
The fact that Qatar's LNG is currently unable to reach the global market due to the Iran War, and the closure of the Strait of Hormuz, makes this even more important.
Spot prices have risen sharply since the loss of 20% of global LNG supply
The Petroleum Resource Rent Tax will capture some of the price increases, which rise in tandem with the prices. However, the industry remains vulnerable to the accusations that it is making super-profits and not sharing them among Australians.
As long as LNG prices are high, the industry will continue to fight against a campaign to include a tax of 25% on LNG exports in last week's federal spending plan.
The industry believes it has won the debate. This is partly due to the fact that LNG is now seen as a way for Australia to encourage its partners, such as Australia to continue supplying liquid fuels like diesel and gasoline.
Australia imports more than 80% of liquid fuels. It is also a major LNG and coal supplier to Asian countries like South Korea, Japan and Malaysia, where it purchases its diesel, jet-fuel and gasoline.
It is a fortunate outcome for the industry but allows it to state how vital it is for Australia’s overall energy security.
It remains to be determined whether this increased public awareness about the need for fuel safety will cause the federal government's to bend to industry demands.
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These are the views of the columnist, who is also an author. (Editing by SonaliPaul)
(source: Reuters)
