Angry about the sudden and astronomical rise in the cost of Australian gas? You should be.
Not only is it hitting household budgets directly and escalating costs to local business, it also is a major contributing factor in the recent spike in electricity prices.
Ordinarily, there would be some consolation in knowing our hard-earned cash was going to a good home, where at least it was being used to build a future for the next generation.
It is quite possible that is the case. Unfortunately, that home is not here.
Most of the windfall profits being earned at the moment — courtesy of Vladimir Putin’s invasion of Ukraine — are being funnelled out of the country because Australia’s oil and gas resources are overwhelmingly exploited by global multinationals.
In fact, there’s barely any local equity involved.
According to a new study by The Australia Institute, Australians have just 4.3 per cent ownership in the companies extracting and processing natural gas across the country — from the North-West Shelf, across the inland, to Bass Strait and north Queensland.
Given the vast amounts of capital required to extract, process and export oil and gas, you’d expect the major energy multinationals to be at the forefront of developing these massive projects.
The tragedy, however, is that not only is there minimal Australian ownership involved — which means most of the dividends flow offshore — but also that most of these corporations pay no tax.
The majority have never paid any tax and, in some instances, have made it clear they never will.
Despite promising billions of dollars in tax and royalty revenues while seeking regulatory approval, a combination of accommodative tax regimes on our part and tax avoidance strategies have allowed them to extract vast profits in recent years while contributing almost nothing to the nation.
The no-tax regime
Back in 2015, US petroleum giant Chevron reckoned it would be making huge annual contributions to Australia’s tax base as its expansion of oil and gas fields off the northern coast of Western Australia gathered pace.
That never happened. Within two years, it had suffered a humiliating defeat in the Federal Court after the Australian Tax Office exposed what had been one of the oldest tricks in the tax-avoidance handbook.
The US parent was borrowing cash, at about 2 per cent, and lending it on to the Australian subsidiary at about 9 per cent, ensuring all profits from the local business were being shuffled out of the country.
Its most recent set of accounts show it still hasn’t paid a cent in corporate income tax.
When it comes to paying tax, or rather not paying, it’s not alone.
Shell — which has large stakes in most of Western Australia’s major new LNG fields, along with outright ownership of one of the three big exporting facilities off the coast of Gladstone in Queensland — has paid no income tax since 2015.
In fact, an analysis of the ATO database shows that five of the gas industry’s biggest operators haven’t paid any income tax for the past seven years.
As part of its investigation into Chevron, the tax office discovered that, in the previous four years, loans from the head offices of major petroleum multinationals to their Australian subsidiaries — essentially loans to themselves — had doubled from $52 billion to $107 billion.
During the past seven years, the world’s biggest resource companies have earned around $138 billion in revenue here without paying a cent in corporate income tax, leading to calls for an urgent overhaul in the way we tax multinationals.
Those calls largely have landed on deaf ears.
However, the critical shortage of east coast gas in recent months — that has seen east coast gas exporters charging a 900 per cent premium to prices on the west coast — is likely to, once again, bring the tax regime sharply into focus.
Resources boom but rents fall
For more than 30 years, we’ve had a special tax on oil and gas companies, called the Petroleum Resources Rent Tax. It was a little like the Mining Tax, although a much earlier incarnation.
The tax only kicks in during the production phase and is supposed to capture a share of the profits from major developments. Somehow, despite the boom in gas exports during the past decade, it consistently has delivered less income than 20 years ago.
Even with the recent surge in prices, this year it is likely to collect just $2.4 billion, around $1 billion more than forecast last December, but still at or below levels around the turn of the century.
Not surprisingly, the likes of Chevron and other big oil and gas players have argued that it should remain just as it is.
“The PRRT is working as designed,” the company said in a submission to the federal government in 2017.
“It has contributed to major investments in Australia by Chevron and others and it can underpin a further wave of oil and gas investment.”
That may be true. However, given Chevron’s most-recent accounts indicate that, between 2015 and 2020, it hadn’t paid any tax under the regime, what benefit does Australia derive from that investment?
Chevron’s joint-venture partner in the massive Gorgon project off the Western Australian coast, Shell, last year went one step further.
It told investors that it believed it would never pay any tax under the PRRT as it had racked up enough losses to offset any future payments.
It’s not as though we weren’t warned.
In his 2010 review of the tax system, former Treasury Secretary Ken Henry said the PRRT “fails to collect an appropriate and constant share of resource rents” because it overcompensated investors on deductions.
Royalties fit for a pauper
When it comes to paying taxes, the big resource houses almost always cite the amount they shell out in royalties.
But royalties aren’t tax.
They’re a cost of doing business. Just as musicians earn a royalty from allowing others to sell their recordings at a profit, Australians — or rather the states that make up the Commonwealth — own the resources. The miners have to buy them from us.
Even on that score, we somehow seem to have undersold ourselves.
During the past decade, Australia has, on occasion, overtaken Qatar as the world’s biggest exporter of liquefied natural gas.
However, where Qatar has managed to reap a financial windfall from royalty payments on its exports, we’ve barely managed to eke out spare change.
Five years ago, Treasury estimated we’d receive around $800 million in royalties for 100 billion cubic metres of LNG.
Qatar, in contrast, was forecast to pull in $26.6 billion for exactly the same amount. That’s primarily because it levies a 35 per cent royalty on its gas.
Gas firing up foreign coffers
While there are a few homegrown companies playing key roles in the gas industry, that’s done precious little to lower foreign ownership in the sector.
That’s because the likes of Woodside, Santos and Origin are all public companies that attract huge levels of foreign investment themselves.
A study by The Australia Institute to be released today shows Woodside is 82.2 per cent foreign owned and Santos at 71.1 per cent.
Of the 10 major LNG projects, three were 100 per cent foreign-controlled, including the biggest, Gorgon.
Seven of the 10 were more than 90 per cent foreign-owned, while the three Queensland-based operations that have created so much angst during the past five years range from 89 per cent foreign ownership to 100 per cent.
A fortnight ago, Origin energy estimated that the surge in gas prices would add $300 million in additional earnings this year for its 27.5 per cent stake.
That multiplies out to about $1.1 billion extra for that one project.
It’s likely the other two are making similar windfall gains, some of which are being extracted from east coast businesses and households, most of whom pay their share of Australian tax.
Two decades ago, then-treasurer Peter Costello blocked Shell from a takeover of Woodside, arguing that a foreign takeover of the North-West Shelf was against the national interest.
It’s happened anyway.
Source – https://www.abc.net.au/news/2022-06-13/ian-verrender-column-on-electricity-bills/101146926