GOT GAS: Why the new ‘gas-led recovery’ makes more sense than the other
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Long-time readers of this column will know of my scepticism towards the previous government’s ill thought out gas-led recovery plan, so it might be a little jarring to see approval for another ‘gas-led recovery’ idea.
Hear me out.
The new plan was put forward by none other than Dr Ken Henry, who served as the secretary of the Department of Treasury between 2001 to 2011.
For a little context, the secretary actually heads up the Treasury, making whoever is in that role one of the most senior public servants in Australia. And Dr Henry was one of the longer serving appointees – certainly outlasting any that came after his tenure.
He was also architect of the proposed Resource Super Profits Tax back in 2010 that had miners and oilies up in arms. That opportunity has now gone, though in hindsight it might not have been a bad idea at all.
Given this background, it shouldn’t come as a surprise to anyone that his answer to addressing Eastern Australia’s energy crisis in lieu of a Western Australian-style gas reservation policy or carbon pricing would be introducing windfall taxes on multinational gas companies.
Speaking to the ABC, Dr Henry said the new “gas-led-recovery” would see the introduction of windfall taxes to push the domestic price of gas back down for Australian consumers and manufacturers.
“Given where we are now, I do think a gas export windfall tax would be the most effective way to reduce the domestic price below the world price,” he said.
“[It would] guarantee sufficient supply of gas for domestic users, both households and businesses, and of course it would have the additional benefit of generating very substantial revenue for the budget.”
The gas sector has long argued against windfall taxes, saying they will impact on their profitability and make gas developments untenable.
It’s an argument that successive Australian governments – on both sides of the political spectrum – seem to have to taken onboard, whether it be because they preferred to have the guaranteed jobs that would come with such developments, which would boost their re-election chances, or because it was simply too hard.
But is it really?
Santos reported net profit of $658m in 2021, $674m in 2019 and $630m in 2018.
Excluding a net loss in 2020, which was when the impact of the Covid-19 pandemic was hitting hard – clearly an exceptional circumstance – the numbers are a clear sign that some meaty returns are to be found.
Of course, looking at just net profit figures can be deceptive as they don’t break down just how much Santos’ stake in GLNG contributed to its bottom line, but it does show that company had some solid returns from resources that belong to the Australian people.
It is also true that developing such giant export projects requires good returns to justify the investment, however such incentives such only apply as long as the company is paying off its investment – and most of the export LNG projects operating out of Gladstone, Queensland, have been producing for six to eight years now.
There are discussions to be held on what’s fair and what’s not, but the new gas-led recovery certainly looks workable.
Across the continent, the Australian Conservation Fund (ACF) has filed legal action against Woodside Energy (ASX:WDS) in a last ditch bid to stop the Scarborough gas project from going ahead until its impact on the Great Barrier Reef is assessed.
While we are sure the ACF is not talking about the project’s direct impact on the World Heritage listed site, the environmental organisation wants new federal Environment Minister Tanya Plibersek to assess whether its carbon emissions will have an impact.
The challenge is unlikely to prevent the project from going ahead, but a well-thrown rock can have other impacts.
Woodside could well be required to refine its environmental management plans, forcing it to take further steps to reduce emissions, though it is up in the air how it could address Scope 3 emissions.
Delays could be introduced to the company’s timeline, which is not likely to be very welcome by its shareholders and arguably puts further pressure on companies to clean up their operations.