Global energy giant Shell is warning Australia against taxing the profits of gas exporters, saying it would disrupt vital trade ties with Asian partners and make it harder for the government to secure increasingly scarce supplies of petrol, diesel and jet fuel from the region.
Labor has called on the Treasury to outline a new tax on Australian energy companies that could make huge profits from selling natural gas (LNG) abroad, as war in the Middle East chokes a fifth of the world’s supply and sends prices soaring for years.
This comes at a time when lawmakers, trade unions, environmentalists and some energy experts have been advocating a 25 percent tax on the profits of major gas companies, which they say could generate billions of dollars in revenue and be used to help households deal with the cost of living and falling energy prices. Petrol prices in Australia have risen again this week to an unprecedented average of $2.53 a liter for regular unleaded.
The push has received support from some of the country’s most famous musicians, including Jimmy Barnes, Missy Higgins, Amyl and the Sniffers, Angie McMahon, John Butler, and King Gizzard and the Lizard Wizard, who have added their names to an open letter to the federal government.
“A 25 per cent tax could raise more than $17 billion annually to invest in climate solutions and help Australians with the rising cost of living,” said the letter, signed by more than 100 Australian artists.
And the leader of the opposition Andrew Hastie, has called on his colleagues in the Union to be open minded about increasing taxes for gas companies.
In a speech to be delivered at an industry conference on Tuesday, the head of one of the country’s largest gas producers, Shell Australia chairperson Cecile Wake, made a plea to the government to focus on “easy solutions” in the short term – such as the proposed tax – which could “eliminate” the investment case for the development of new energy supplies in the future.
“I understand why governments seek additional funding when cost-of-living pressures are real and immediate, as they are now,” he says in a draft transcript of the speech.
“Adding the financial burden to gas transportation is not the answer.”
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 the 25 per cent LNG tariff would “send a negative signal” to key Asian trading partners, which depend on Australian LNG deliveries for their energy security, and could jeopardize balanced trade arrangements “as we rely on those partners to continue to provide a secure supply of liquid fuel”.
With only two domestic refineries still operating, Australia relies on imports, mainly from Asia’s largest refineries, to supply more than 80 percent of its gasoline, diesel and jet fuel. Australia’s government and oil industry are in talks with oil exporters in Asia and around the world to freeze excess cargo amid growing alarm that refiners’ inventories are dwindling. The Strait of Hormuz, a key shipping route that normally carries a fifth of the world’s crude oil and LNG supplies, remains closed.
Prime Minister Anthony Albanese is seeking to increase Australia’s position as a major supplier of LNG to ensure the nation is not left behind in the global oil supply crisis caused by the war in the Middle East.
Last week, he reached an agreement with Singapore Prime Minister Lawrence Wong to support the flow of LNG and oil products, including diesel, between the two countries. Singapore refineries are a major supplier of liquid fuels to Australia.
Australia is the world’s third-largest exporter of LNG – natural gas that has been supercooled until it becomes liquid so it can be shipped around the world. Australia sold $65 billion worth of LNG in the year to December.
Major economies in Asia, including Japan and Korea, rely primarily on Qatari LNG shipped via the waterway to power their heaters and power grids. They increasingly expect Australia to make up for the drop in shipments due to supply cuts caused by the closure of the Strait of Hormuz and drone attacks on key Qatari production assets.
Since the war on Iran began on February 28, one-off LNG cargoes from Australian projects are said to be selling for more than double their pre-conflict prices, fetching up to $US25 ($35) per million British fuel units.
Analysts say Australian oil and gas exporters could benefit greatly. During the last global gas crisis, caused by Russia’s invasion of Ukraine, Australia’s LNG export earnings almost doubled, from $50 billion in 2021 to $90 billion in 2022, prompting accusations that the industry was reaping the benefits of war.
The Greens on Monday said the push for a 25 per cent gas tax was “gaining momentum” after parliament approved an inquiry into the industry’s tax, which is due to report before the government’s May budget.
“When people are struggling to pay their bills and seeing the cost of living go through the roof, the gas companies shouldn’t be getting a free ride,” Greens leader Senator Larissa Waters said.
The oil and gas industry says higher global LNG prices will already be passed on to Australians through higher tax receipts under the existing profit-based tax system, the Petroleum Resources Tax. Australian Energy Producers, an industry group, says a push for a 25 per cent tariff would push effective tax rates to “nearly 80 or 90 per cent for some companies, damaging Australia’s ability to compete for global investment”.
“The reality is that the oil and gas industry is already the second largest taxpayer in Australia, contributing $21.9 billion in taxes and royalties last year alone,” Australian Energy Producers chief executive Samantha McCulloch said.
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Nick Toscano is a business reporter for The Age and the Sydney Morning Herald.Connect through X or email address.
