Russell: Australia's LNG industry is worried about missing out on huge opportunities due to the Iran war.
According to the industry, Australia's liquefied gas sector is uninvestable but also the best opportunity for growth.
The dichotomy may not seem as contradictory at first, but the industry is saying that there is a window of opportunity during which the third largest exporter in the world of LNG can grow or stagnate, and then slowly decline.
The senior industry executives who spoke at the annual Australian Energy Producers (AEP), conference held this week, all sang from the same song sheet. They repeatedly reiterated their belief that Australia must get its policy settings correct to restore confidence and encourage renewed investment.
The major LNG companies in Australia will always advocate for the best outcome for their shareholders while still claiming that they are major 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 less regulation, quicker project approvals, and a stable fiscal regime that was internationally competitive.
Industry says it needs a more favourable regulatory environment, fiscal certainty and a more flexible tax system to attract new investment. But there are doubts about the amount of new investment that will be attracted even if governments do as it asks.
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 the ones that boosted U.S. gas production.
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 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 other southern states.
The point is, even if these fields were developed, it would take many years before they could be brought online. It may also take decades to recover the capital invested, which must be recovered long before any contribution is made to the tax revenue of the company.
Tax Issues
The way the LNG industry was developed is partly to blame for 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 be sold on the international market due to the Iran War, and the closure of the Strait of Hormuz, makes this even more of a problem.
Spot prices have risen sharply since the loss of 20% of global LNG supply
The Petroleum Resource Rent Tax will capture some of the higher prices. However, the industry still faces accusations that it is not sharing its super profits with 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 partly because LNG can be seen as a way to encourage Australia's partners to continue supplying liquid fuels like diesel and gasoline.
Australia imports more than 80% of liquid fuels. It is also one of the largest suppliers of LNG and coal in Asia, including South Korea, Japan and Malaysia.
It is a fortunate outcome for the industry but allows it to state?how important 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)
