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Queensland raises gas royalties
The state government’s new budget for 2019-2020 has raised royalties on natural gas by 25%, much to the industry's consternation
COMMENTARY
WHAT:
The state’s royalty hike from 10% to 12.5%
is projected to raise $333.2mn over four years.
WHY:
The government is running up heavy debts to fund social welfare programmes.
WHAT NEXT:
A proposed review of the entire royalty system could lead to even higher resource payments.
AUSTRALIA’S Queensland State increased its natural gas royalties by 2.5 percentage points on July 1, a er unveiling the hike on June 11. e rise, which li s royalties from 10% to 12.5%, is projected to raise an additional A$476mn ($333.2mn) over four years for the state’s co ers.
The move was much criticised by the oil and gas industry at the time of its unveiling, but since then the industry has gone relatively quiet on the subject. Complaints included that it had come without warning or consultation and that it could threaten future investment in the state’s gas plays; a far from ideal outcome given that there are already gas supply issues with the three world-class LNG export terminals on Queens- land’s Curtis Island.
ConocoPhillips, which leads the A$25bn ($17.5bn) Australia Pacific LNG (APLNG) project in Queensland, said on June 12 that it was disappointed by the Labor government’s decision. ConocoPhillips owns 37.5% of the gas export project, while Origin Energy holds 37.5% and China’s state-run Sinopec has 25%.
“As a signi cant investor in Queensland and Australia, we rely on the government for a sta- ble scal and policy regime,” a ConocoPhillips spokeswoman said on June 12. “Disruption to that, as we saw yesterday, puts at risk future investment and the competitiveness of the gas industry in Queensland.”
e government justi ed its decision by say- ing that it had supported the sector with “incred- ibly competitive royalty rates” during its infancy and that it was now time for gas developers to give back.
On June 12, State Treasurer Jackie Trad said: “We think now is the time for the gas industry to pay a little bit more back to the people of Queens- land for their resource. Now, the gas industry is very well established. Last year, it grew by more than 40%.”
e state is taking a tougher stance with the industry for several reasons.
Debt and leverage
e rst is Queensland’s ballooning debt prob- lem. While Trad’s budget, unveiled on June 11, was able to project a surplus of A$189mn ($132.3mn) in 2019-2020, debt is forecast to climb from A$71.4bn ($49.98bn) in 2018-2019 to A$78.7bn (55.09bn) in 2019-2020 before hit- ting A$90.7bn ($63.49bn) by 2022-2023.
The Labor government is increasing debt to deliver greater investment in social and eco- nomic programmes, such as record spending on healthcare as well as tax breaks for small to medium enterprises (SMEs). Mounting debt is a compelling reason to raise gas royalties as the projects exit their capital-intensive development phases and enter revenue generation.
Quuensland Treasurer Jackie Trad (L) and Premier Annastacia Palaszczuk. Image: ABC
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w w w . N E W S B A S E . c o m Week 26 03•July•2019