Will Putin’s war finally see Australia profit from its gas exports?


The other big question mark over the value to Australia of the LNG sector is how much of the gas will be given away for free.

It is no surprise that Chevron wants to change the narrative before the cash-strapped Labor government presents its first budget next month. Normally, there would be radio silence until journalists interrogate Chevron’s mandatory filing to corporate regular ASIC next May.

Even before the seven of Australia’s ten newest LNG plants began production, the Reserve Bank warned in a 2015 bulletin that the benefit to Australian living standards would be relatively low due to few employees, a high level of foreign ownership, and in the near term deductions offsetting tax payments.

Global giants Chevron and Shell are the big players in Australian gas exports, each owning more than 15 per cent of the capacity of Australia’s LNG plants, which are predicted to earn $84 billion this financial year.

Australia’s biggest player, Woodside, has just 11 per cent and Santos only four per cent, less than the low-profile Total of France. ASX-listed Woodside, Santos and Origin, which all have significant foreign ownership, together own just 20 per cent of the trade.

Demand for Australian LNG has risen amid the global energy crisis.

Foreign companies have more levers to reduce their taxable income by managing the price of transactions with related entities.

In 2017, the full federal court found Chevron had shifted profits overseas by charging its Australian subsidiary an interest rate of nine per cent for money it borrowed in the US for 1.2 per cent, saving itself $340 million.

An ACCC report into the east coast gas market in August revealed that a gas exporter, later confirmed to be Shell, was selling uncontracted gas to a wholly owned Singapore-based marketing entity for “significantly below the international spot prices.”

Time will tell if Chevron’s 2022 tax bill is a temporary blip for one company or the start of significant income tax revenue from the mainly foreign owners of Australia’s second-biggest export.

The other big question mark over the value to Australia of the LNG sector is how much of the gas produced offshore will be given away for free.

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Apart from the original North West Shelf project that is charged a volume-based royalty for the gas it extracts, production in Commonwealth waters is subject to the profit-based Petroleum Resources Rent Tax (PRRT).

The PRRT, misnamed a tax as it is really a payment for an essential business input, has been heavily criticised for excessively generous credits for expenditures that escalate with time.

While Woodside paid $US424 million ($630 million) in PRRT for the first six months of 2022, for some companies accumulated revenue never overtakes the rapidly growing pile of credits so PRRT is never paid, effectively receiving free gas for decades.

Shell’s 2020 accounts revealed it never expects to pay PRRT for its Prelude floating LNG project or its 25 per interest in Chevron’s Gorgon project. Similarly, a 2017 ACIL Allen analysis of the $US45 billion Ichthys LNG project for operator Inpex concluded PRRT would never be paid.

Increased PRRT revenue could come from a review of the gas price used to calculate PRRT liability that the Morrison government four years ago tasked Treasury to complete within 18 months.

A Treasury spokeswoman said the work was put on hold as the onset of the pandemic and recently restarted and the department would report to the government “as soon as possible.”

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