Massive cash grab looms for gas producers’ war gains

The Federal Government is under renewed pressure to tax energy companies harder to ensure a bigger take from surging gas prices and relieve pressure on the Budget.

Energy Minister Chris Bowen confirmed on Friday that Prime Minister Anthony Albanese had asked Treasury to look into a windfall tax on Australia’s LNG, most of which is sourced from WA.

Critics of the existing taxation regime for Australia’s energy companies say the country will again miss out on tens of billions of dollars of the additional revenues flowing from higher prices for Australian gas triggered by the Middle East war unless the Government squeezes producers harder.

They’ve called variously for a revamp of the existing Production Resource Rent Tax, a tax on the cash flow of gas producers or a 25 per cent levy on gas exports.

The big producers, led by the likes of Woodside Energy and Chevron, have seen off similar calls in the past.

However, this time the pressure is coming from a growing, influential and vocal loose coalition of bodies from the ACTU to One Nation, and appealing to Government concerns over a growing Budget deficit.

“The risk today is a lot more acute than the industry realises,” MST Financial energy analyst Saul Kavonic said, claiming a tax hit on gas companies wouldn’t cost the Government public support or political capital.

The gas industry’s peak lobby group, Australian Energy Producers, was quickly on the front foot on Friday, warning higher taxes risked further exposing Australia to energy shocks.

“Imposing higher taxes on Australian gas producers would stop investment in new gas supply, leading to gas shortfalls, higher energy prices, and the closure of Australian industries that rely on reliable and affordable gas,” chief executive Samantha McCulloch said.

“The current surging petrol and diesel prices in Australia underscore just how important it is that we ensure Australia remains able to meet its own gas needs through secure domestic supply.”

However, think tank the Australia Institute, which has been at the forefront of the criticism of the energy taxation system, said its polling suggested widespread support across the political spectrum for increased taxes on the industry.

“There’s real momentum ... people are getting annoyed at the free ride the gas industry is getting,” institute principal adviser Mark Ogge said.

Rather than a revamp of the much-maligned PRRT system, he said the institute backed the ACTU’s proposal for a “simple” flat 25 per cent tax on LNG exports that would send up to $17 billion a year into Government coffers and dramatically improve the Budget.

“There’s no workarounds for the gas industry, you’re either paying it or you’re not,” Mr Ogge said. “If it becomes some complicated windfall profit tax or a difficult-to-implement, complex policy, it just won’t end up raising much money.”

The Superpower Institute, another think tank headed by former Australian Competition and Consumer Commission chief Rod Sims, is promoting a levy on energy companies’ cash flow it reckons would have already raised $1.1b for the Government since the start of the Iran war.

“What we are proposing is not radical. It’s fair,” Dr Sims said.

“It would mean that Australians benefit ... from the extraction of their assets.

“If designed properly, the revenue it raises can be returned to households to provide significant cost-of-living relief.”

The PRRT was introduced nearly 30 years ago but is raising less than $1.5b a year because its generous offset rules enable companies to avoid payments until they’ve recovered all of the often considerable cost of developing a gas project.

Chevron, which led the $80b development of WA’s Gorgon and Wheatstone LNG projects, paid its first income tax in 2022 — six years after entering production — and made an initial PRRT contribution just last August.

Australian boss Balaji Krishnamurthy on Friday said that “reopening the tax framework for gas” would add uncertainty and risk deterring investment.

“These are highly uncertain global times, and Australia should remain focused on energy security and maintaining confidence in its investment environment,” Mr Krishnamurthy said.

“We understand community expectations that companies pay their fair share of tax, and we have made a significant contribution over recent years.”