Tax hike ‘a confidence-killer’
The father of Queensland’s $80 billion liquefied natural gas industry has warned that business and investment confidence could be destroyed by the state government’s deeply contested royalty hike killing “the goose that laid the golden egg”.
Coal-seam gas pioneer Richard Cottee spoke out as industry body the Australian Petroleum Production and Exploration Association said a second wave of gas projects in Queensland to boost domestic supply would be jeopardised.
State Treasurer and Deputy Premier Jackie Trad had wrongly insisted the tax increase would hit only the export sector, forcing her office to correct the record last night.
Mr Cottee said the planned increase in the royalty rate from 10 per cent to 12.5 per cent announced by Ms Trad in Tuesday’s budget, with no consultation with the industry, would shatter confidence in already “skittish” capital markets and strangle the development of new gasfields.
“If you lose the confidence of the industry to explore, you actually do kill the goose that laid the golden egg,” he told The Australian. “I just think the announcement was mistimed. At least, it should not have been surprising.”
The state budget papers predict that “substantial new gas supply” will come online in two years, expanding an industry centred on three vast CSG liquefaction plants at Curtis Island, off Gladstone, 550km north of Brisbane. The royalty increase would boost the Labor government’s take by $476 million over the forward estimates to nearly $2.5bn, APPEA said.
But the association’s chief executive, Andrew McConville, cautioned that in most cases capital funding for projects with a 2020-21 horizon had not yet been committed. “Capital is scarce and will flow to the highest value use,” he said. “This announcement
changes the commercial setting for investing in Queensland.”
Mr Cottee, who headed the start-up Queensland Gas Company that was folded into one of the Curtis Island joint ventures now run by energy giant Shell, said moratoriums on onshore gas exploration in Victoria and NSW had squeezed supply so badly that producers could not meet domestic demand while servicing export contracts.
Australian Competition & Consumer Commission chairman Rod Sims detailed recently how the gas shortage had pushed domestic wholesale prices up two or three times the historical average, putting trade-exposed manufacturers under pressure to stay internationally competitive.
Pointing to his work with State Gas, a new company looking to develop a natural gas project near remote Rolleston, 700km northwest of Brisbane, for the domestic market, Mr Cottee said Ms Trad was risking Queensland’s reputation as the “honourable exception” to the east-coast gas production freeze.
“I am very passionate about finding a way to increase gas supply into the domestic market,” he said. “Governments need to recognise that only 20 per cent of natural gas is used for electricity generation … more than 50 per cent is used by industry, which can’t replace it, and that’s one million jobs in Australia.
“Somehow we have got to make sure that the capital markets, whether it’s the stock exchange or whether it’s a foreign investor, have confidence.
“But the capital markets remain very, very skittish, especially for the higher-risk end of the market. I just think this decision by the Queensland government is going to exacerbate that skittishness and therefore be counter-productive.”
Defending the royalty move after warnings from former Labor federal resources minister Martin Ferguson, now a board adviser to APPEA, that it would raise sovereign risk concern, Ms Trad said yesterday it was time the LNG industry paid a “bit more back”.
“Because of our facilitation of this industry, it is now one of our major exporters,” she said. “We export (gas) at double the value of thermal coal and it is growing at an accelerating rate, 40 per cent growth in the last year …
“There has been a 10 per cent royalty rate on the gas sector for the past years. It was a competitive royalty rate because it was a new fledgling industry. Now it is very much established, it is … growing at a rapid rate. And now is the time for it to pay a bit more back to the people of Queensland.”