Extending the licence for the North West Shelf gas project won’t assist Australia’s energy transition, experts say, even as it allowsWoodsideand its foreign partners to profit from the nation’s mineral wealth while delivering “almost nothing” to the national purse.
Environmental and Indigenous groups were dismayed this week after the environment minister, Murray Watt,granted conditional approvalto extend the Woodside Energy-operatedNW Shelf gas projectout to 2070.
The decisioncomes amid reports the Albanese government may consider creating an east coast gas reserve to prevent predicted shortfalls in domestic gas supplies over coming years.
Australia is the world’s third-largest liquefied natural gas (LNG) exporter after the US and Qatar, exporting nearly $70bn worth of the fuel in 2023-24. Austraila’s proven gas reserves are more than 40 times the country’s annual consumption, alongside a bounty of unconventional gas resources.
Despite the huge revenues generated by exporters such as Woodside, Chevron and Santos, oil and gas companies contributed only $1.1bn in petroleum resource rent tax (PRRT) in 2023-24, according to budget papers.
Woodside paid $175m in PRRT from the NW shelf project in 2022-23, according to the Australian Taxation Office.
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The 40% PRRT is levied on offshore oil and gas projects once they become cash-flow positive, which usually takes years or decades because of generous rules that allow capital expenditure to be fully deductible upfront when assessing the PRRT liability.
This last allowance has meant the hugely profitable east coast LNG producers have yet to pay any PRRT, although a tweak to the deductibility rules in August last year will force them to begin paying some tax.
While the owners of the long-running North West Shelf project pay the resources rent tax, which is in addition to the 30% corporate income tax, experts believe the settings do not place a high enough underlying value on the extracted gas, and too much on the value added through the manufacturing process, which is not liable for PRRT.
The independent economist Chris Richardson argues that the resources rent tax has proved entirely unfit for purpose.
“It is fair to say that how we tax gas in Australia is a massive fail,” he said.
“This is a national asset and Australians deserve a return, as indeed do the miners. This is something that should be shared. The problem is that Australia struck deals that ended up resulting in little tax from extracting the resources that we all own, and so the big gains go to owners of those businesses.”
The $30bn proposed development of other offshore gas fields to feed Woodside’s Karratha plant on the Burrup peninsula would, if it goes ahead, again be used to offset PRRT liabilities.
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Alison Reeve, the deputy program director of the Grattan Institute’s energy program, said extending the life of the project would have no impact on the major national policy challenges of power costs, availability and reliability.
“It might lower prices in WA because under WA’s gas reservation policy a certain amount of gas needs to be put aside for domestic use,” she said.
“But WA already has lower gas prices than the east coast, and it will do nothing for east coast gas prices.”
The NW Shelf project was essentially a huge export project, Reeve said.
“There’s no benefit from this project to Australia’s energy transition at all.”
She said Australia had largely missed the opportunity to properly tax the gas boom but it must get the settings right in time for the next resources boom.
“If, as part of the energy transition, we are going to be exporting lithium or cobalt to the world, then we want to start pricing resource taxes properly now so we can actually do better next time.”
Bob Breunig, the director of the Australian National University’s Tax and Transfer Policy Institute, said resources rent taxes were highly efficient as they levied excess profits rather than production.
Lobby groups and gas companies have long argued a less generous PRRT would lead to a drop in investment, but Breunig said the evidence did not support that argument.
“Norway has really high rent taxes and it doesn’t stop companies drilling because they are still making profits,” he said, saying a rent tax of 50% in Australia would not be too high.
“The PRRT is a great structure for a tax. Really it’s about fiddling with its setting.”