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Oil and gas continues to drive economy - report

23rd November 2020

By: Esmarie Iannucci

Creamer Media Senior Deputy Editor: Australasia

     

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PERTH (miningweekly.com) – Australia’s oil and gas industry still has a significant role to play in the country’s economic recovery following Covid-19, a new report by advisory firm Ernst & Young (EY) shows.

Commissioned by the Australian Petroleum Production and Exploration Association (Appea), the EY report notes that there is opportunity to secure a new phase of long-term investment and growth, creating jobs and helping repair public finances.

The report details the role the industry can play in economic recovery and the benefits that can flow from unleashing the industry’s full economic potential, but notes, however, that securing this investment requires investment in new exploration and active steps to improve Australia’s competitiveness through effective policy settings.

“In the current environment, there is an urgency to address Australia’s competitive position through effective and nationally cohesive policy settings. Undue regulatory and tax imposts have heightened risk of deterring long term investment,” the report reads.

“Strong opportunities exist to improve regulatory regimes by adopting clear risk-based frameworks and speeding up the time for project approvals. Some key priorities for the tax system include maintaining stability in Australia’s resource rent tax and royalty regime, optimising capital depreciation arrangements and supporting efficient restructuring of joint ventures.”

The report notes that the economic dividends from unleashing a new wave of oil and gas developments are large, with key projects currently in the industry pipeline able to increase national economic output by over A$350-billion, under a high growth trajectory, with over 220 000 jobs created over the next two decades.

“Conversely, regulations which suppress the industry’s potential to develop Australia’s resources impose heavy economic costs. The economic efficiency losses of regulations which prevent the industry’s investment pipeline from being realised could far exceed those from Australia’s worst performing taxes.

“In fact, for every billion dollars of industry activity lost through regulation there could be an overall efficiency loss of up to A$1.79-billion to the economy. Such costs should be recognised alongside the potential social and environmental risks of projects which many regulations are seeking to manage or avoid,” the report states.

The EY report notes that gains from reinvigorated activity in the oil and gas industry have the potential to spread throughout the economy, providing a kickstart for Australia’s industrial base by lowering energy prices, boosting demand for services, and generating wealth for all Australians.

Appea CEO Andrew McConville says while the report acknowledged the strong headwinds and challenges brought on by the Covid-19 pandemic, unlocking new energy resources at scale will help to build wealth, economic resilience and whole-of-economy gains for Australia.

“Delivering these benefits will require investment in new exploration and production projects and this is dependent on having the right investment settings in place. Currently, there are barriers to investment and additional interventions being proposed are an even greater disincentive,” McConville says.

McConville says a decade of regulatory instability and market interventions in Australia, coupled with being a relatively high-cost investment destination, has reduced investment confidence in many industries, including oil and gas.

“So we must address Australia’s competitive position through effective policy settings to encourage, rather than deter, long term investment. Without concerted action, Australia’s ability to harness new investment will be greatly diminished.

“Relatively simple changes to the timing of some investment allowances and improved regulatory arrangements, along with maintaining stability in the tax regimes – would make Australia much more competitive for global investment.

“A growing oil and gas industry means more economic benefits for everyone, supporting job creation and profits in industries across the economy, including construction, trade, business services and finance, and manufacturing.

“Economic recovery is not about just manufacturing. It is about every part of our economy, regional jobs, international trade and major infrastructure investment,” McConville says.

Edited by Creamer Media Reporter

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