Appea warns on new oil and gas taxes
PERTH (miningweekly.com) – New research by advisory firm Wood Mackenzie (Woodmac) has warned that any additional taxes on the Australian oil and gas industry could inflict significant damages.
Undertaken on behalf of the Australian Petroleum Production & Exploration Association (Appea), the report confirms that the new tax promoted by activists would deter new investment and damage the viability of existing projects, said Appea CEO Dr Malcolm Roberts.
“Activists are arguing for a new 10% royalty on all oil and gas projects in Commonwealth waters. Their arguments are simplistic, ignoring the costs of retrospective changes to long-established tax rules. Obviously, any tax increase will yield, for a time, more revenue – but at what economic cost?
“It would be penny-wise, pound-foolish to chase the short-term gain of more revenue at the cost of killing investment. The Woodmac analysis shows that the latest liquefied natural gas (LNG) projects are already well below normal rates of return needed to finance such projects; more taxes will further undermine these projects and therefore deter investment.”
The report analysed the effects of retrospective changes on five LNG projects, including Chevron’s Wheatstone and Gorgon projects, Shell’s Prelude project, as well as Woodside’s Pluto and Inpex’ Ichthys projects.
“Imposing a new tax amounts to a retrospective change to the arrangements that have been in place for 30 years. Such a glaring case of sovereign risk would deter footloose international investors. Australia is already a relatively high-cost place to produce oil and gas, adding political risk is likely to make us uncompetitive,” Roberts said on Thursday.
The report comes as the federal government is considering the design and operation of the current Petroleum Resources Rent Tax (PRRT), crude oil excise and associated Commonwealth royalties.
“Increasing taxes on energy production must flow through to higher production costs and therefore higher energy prices. That will affect customers across Australia. In Western Australia, most gas used by domestic customers comes from Commonwealth waters. On the east coast, about half of the demand for gas is supplied from Commonwealth waters.
“The debate clearly must be balanced by an independent assessment of the likely impact of new taxes on industry investment,” Roberts said.
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