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

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

It’s 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 reporters question Chevron’s mandatory filing with the company’s regular ASIC next May.

Even before 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 small due to few employees, d a high level of foreign ownership and, in the short term, deductions. compensation for tax payments.

Global giants Chevron and Shell are the biggest players in Australian gas exports, each owning more than 15% of the capacity of Australia’s LNG plants, which are expected to bring in $84 billion this fiscal year.

Australia’s biggest player, Woodside, has just 11% and Santos only 4%, less than France’s discreet Total. ASX-listed Woodside, Santos and Origin, all of which have significant foreign ownership, together hold just 20% of the trade.

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

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

In 2017, the full federal court found that Chevron shifted its profits overseas by charging its Australian subsidiary a 9% interest rate for money it borrowed in the United States for 1, 2%, saving $340 million.

An ACCC report on the East Coast gas market in August found that a gas exporter, later confirmed to be Shell, was selling gas without a contract to a 100% Singapore-based marketing entity at a price “significantly below international spot prices”.

Time will tell if Chevron’s tax bill for 2022 is a temporary blow to a business or the start of significant tax revenue from the mostly 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 offshore gas will be given away for free.

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Apart from the original Northwest Shelf project which is charged a volume-based royalty for the gas it extracts, production in Commonwealth waters is subject to the Petroleum Resource Rent Tax (PRRT) based on profits.

The PRRT, mislabeled as a tax because it is actually a payment for an essential business input, has been heavily criticized for providing overly generous credits for expenses that increase over time.

While Woodside paid out $424 million ($630 million) in PRRT for the first six months of 2022, for some companies accrued revenue never exceeds the rapidly growing credit stack, so the PRRT does not is never paid, effectively receiving free gas for decades.

Shell’s 2020 accounts revealed that it never planned to pay PRRT for its floating Prelude LNG project or its 25 per interest in Chevron’s Gorgon project. Similarly, a 2017 ACIL Allen analysis of the $45 billion Ichthys LNG project for operator Inpex concluded that the PRRT would never be paid.

The increase in PRRT revenue could come from a gas price review used to calculate liability for the PRRT which the Morrison government instructed the Treasury four years ago to complete within 18 months.

A Treasury spokeswoman said work was suspended at the start of the pandemic and had recently restarted and the department would report back to the government “as soon as possible”.

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