Oil giant Shell says tax hike could hurt Australia’s hunt for fuel
Global energy giant Shell warns Australia against taxing gas exporters’ windfall profits; It said it would destabilize vital trade ties with Asian partners and make it harder for the government to secure dwindling deliveries of oil, diesel and jet fuel from the region.
As war in the Middle East chokes a fifth of the world’s supply and prices soar to the highest levels in decades, Labor has asked the Treasury to create a new tax model for Australian energy companies that will make huge profits selling liquefied natural gas (LNG) overseas.
It comes as MPs, unions, environmentalists and some energy experts are advocating a 25 per cent tax on gas giants’ windfall profits; They say this tax could generate billions of dollars in revenue and be used to help households cope with worsening cost-of-living problems and energy price shocks. The price of petrol in Australia has jumped again this week, with regular unleaded petrol rising to an unprecedented average of $2.53 a litre.
The initiative has the support of some of the country’s most prominent musicians, including Jimmy Barnes, Missy Higgins, Amyl and the Sniffers, Angie McMahon, John Butler and King Gizzard and the Lizard Wizard, who added their names to an open letter to the federal government.
“A 25 per cent tax could raise more than $17 billion each year to invest in climate solutions and help with the rising cost of living for Australians,” said the letter, co-signed by more than 100 Australian artists.
Meanwhile, leading opposition figure Andrew Hastie called on his Coalition colleagues to keep an open mind about increasing taxes on gas companies.
In a speech to an industry conference on Tuesday, Cecile Wake, chief executive of Shell Australia, one of the country’s biggest gas producers, called on the government to avoid short-term “easy fixes” such as a windfall tax that could “fundamentally erode” the case for investment in developing critical new energy sources in the future.
“I understand why governments look for additional levers when cost-of-living pressures are real and urgent, as they are now,” he says in a draft version of his speech.
“Increasing the financial burden on gas exports is not the solution.”
Shell, one of the world’s largest energy companies, produces gas for domestic use and export markets from projects in Western Australia and Queensland. Wake is expected to tell delegates on Tuesday that a windfall 25 per cent levy on LNG would “send a strong negative signal” to key Asian trading partners that depend on Australian LNG deliveries for their energy security and could jeopardize reciprocal trading arrangements “at precisely the time when we are dependent on these partners to continue to provide safe liquid fuel supplies”.
With only two domestic oil refineries still in operation, Australia relies mostly on imports from larger refineries in Asia to supply more than 80 per cent of its petrol, diesel and jet fuel. The government and Australia’s fuel industry are in talks with fuel suppliers in Asia and around the world to lock up additional cargoes amid growing alarm that refineries are running out of stock. The Strait of Hormuz, a vital shipping channel that usually carries a fifth of the world’s crude oil and LNG supply, remains effectively closed.
Prime Minister Anthony Albanese is seeking to strengthen Australia’s role as a major LNG supplier to ensure the country is not left behind in the global oil supply crisis triggered by war in the Middle East.
Last week he struck a deal with Singapore Prime Minister Lawrence Wong to support the flow of petroleum products, including LNG and diesel, between the two countries. Singapore’s refineries are a major supplier of liquid fuels to Australia.
Australia is the world’s third-largest exporter of LNG, natural gas that is supercooled to a liquid state so it can be shipped around the world. Australia sold $65 billion worth of LNG in the year to December.
Asia’s major economies, including Japan and Korea, are particularly dependent on Qatar LNG passing through the strait to power their heaters and power grids. They are increasingly turning to Australia to make up for a drop in shipments due to the closure of the Strait of Hormuz and a drop in supply due to drone attacks on key Qatari production assets.
Since the war against Iran began on February 28, one-off LNG cargoes from Australian projects are said to have sold for more than double their pre-conflict prices, reaching as high as US$25 million ($35) per British thermal unit.
Analysts say Australian oil and gas exporters will benefit significantly. During the recent global gas crisis caused by Russia’s invasion of Ukraine, Australia’s LNG export earnings nearly doubled from $50 billion in 2021 to $90 billion in 2022, fueling accusations that the industry is profiting from the war.
The Greens said on Monday that the push for a 25 per cent gas tax was “gaining momentum” after parliament approved a motion for an inquiry into the taxation of the industry, which is due to report before May’s federal budget.
Greens leader Senator Larissa Waters said: “Gas companies should not be giving away free rides when people are struggling to pay bills and see the cost of living skyrocketing.”
The oil and gas industry says higher global LNG prices will already flow to Australians through higher tax revenues under the current profit-based tax regime, the Petroleum Resources Lease Tax. Energy Producers of Australia, an industry group, argues that a push for a 25 per cent tax would push actual tax rates “to around 80 or 90 per cent for some companies, destroying Australia’s ability to compete for global investment”.
“The reality is that the oil and gas industry is already Australia’s second largest corporate taxpayer, contributing $21.9 billion in tax and royalty revenues last year alone,” said Australian Energy Producers CEO Samantha McCulloch.
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Nick Toscano is an economic correspondent for The Age and the Sydney Morning Herald.Connect with: X or email.
