BRISBANE�Some $25 billion (Aus.) worth of Australian petroleum projects are in jeopardy because of federal government inaction on two issues�one involving taxation and the other greenhouse gas emissions�according to the Australian Petroleum Production & Exploration Association.
Speaking at the close of the APPEA conference in Brisbane this week, APPEA Associate Director Barry Jones accused federal Environment Minister Robert Hill and Energy Minister Nick Minchin of neglecting the petroleum industry by failing to deliver legislative reforms that are vital to the industry�s future.
The trouble is that the government hasn't given any clear indication of its position on either. And several major projects are thought to be in jeopardy as a result of uncertainty over these issues. The projects include the North West Shelf gas expansion, the Gorgon gas field development, the Bayu-Undan oil and gas development, the Papua New Guinea-to-Queensland gas pipeline project, the Comalco Ltd. alumina refinery at Gladstone, the Methanex Corp. methanol plant proposal for Darwin, and the Syntroleum Corp. chemicals and syncrude project on the Burrup Peninsula.
Unless details of the government�s new tax legislation relating to depreciation rates for these new projects are specified quickly, says Jones, most of the planned developments will be delayed, or possibly scrapped altogether.
Tax issue
As part of Australia's new Goods and Services Tax (GST) package, due to take effect July 1, 2000, the federal government has scrapped accelerated depreciation schedules for major capital projects like offshore petroleum developments. Instead, it has pledged to provide assistance on a case-by-case basis. But so far, no new scheme of assistance has been forthcoming that will make Australia internationally competitive.
Jones says the proposed tax schemes gives the industry absolutely no help and that the government is expecting all the proposed projects to just materialize without government support. He believes investment dollars will simply walk overseas if signals from the government are not right. Australia will be the loser in this game, because it needs the petroleum industry far more than the petroleum industry needs Australia.
Jones says that, until the government reveals details about taxation assistance for development projects, the uncertainty is making it impossible for companies to plan their projects.
Carbon emissions
The second sphere of uncertainty likely to affect Australian development projects involves greenhouse gas emissions.
The Australian government appears to be sticking to the letter of the Kyoto Protocol, although it hasn't made any definitive statement to that effect. This means that potential LNG-related projects such as the North West Shelf expansion and the Gorgon and Bayu-Undan field developments might have pay for emissions permits under the Kyoto agreement, while competing projects in Malaysia, Indonesia, and the Middle East won't be subject to the same restrictions because those governments have not signed onto the Kyoto agreement.
There is a widespread feeling in the petroleum industry that the incentive for Australia's major development projects will be greatly reduced if there is no international forum for trading emissions credits. Jones called on Minchin to reassure the industry within 4 weeks that local carbon emission trading will not move forward unless an international trading scheme takes shape.
Jones says Kyoto is a major trade-distorting piece of law. And the Australian projects are out on a limb if the federal government implements a system of carbon emissions trading before there is a global trading system in place, because there will be no one with whom to trade emissions credits. This will create a disincentive to bringing Australia's projects on stream.
The net result, if this is not clarified quickly, says Jones, is that overseas investors will look at the indecision in Australia, simply shrug their shoulders, and take their money elsewhere.
