Page 13 - AsianOil Week 26

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The APLNG terminal on Curtis Island.
The Australian Department of Industry, Innovation and Science’s most recent Resources and Energy Quarterly report shows that the country’s LNG export earnings climbed 61% year on year to an estimated A$49.7bn ($34.78bn) in 2018-2019.
Secondly, the state has clear leverage in its dealings with the resources sector. Unlike many other Australian states, Queensland has remained open for business despite the anti-hy- draulic fracturing lobby’s campaign to demonise the country’s unconventional gas sector.
For example, the government has called a new round of exploration bids for 3,700 square km of onshore acreage, which is mainly near Springsure in central Queensland. e govern- ment has said more than 25% of this will only be allocated to developers focusing on supplying the domestic market.
is is a far cry from the likes of Victoria, which has complained about soaring gas prices and has called for a curb on exports all while maintaining a moratorium on conventional or unconventional gas development. South Aus- tralia may be open for business to conventional gas developers, but a moratorium on hydraulic fracturing is in place.
Beyond the two reasons stated above, how- ever, is another less obvious motive.
Reasserting authority
On May 24, the APLNG consortium won a landmark legal challenge against the Queens- land government in the state’s Supreme Court. e ruling, which concerns the amount of roy- alties the LNG export facility in Gladstone pays, meant the government was unable to count on hundreds of millions of dollars of anticipated revenue from a single project.
Gas developers pay a royalty equivalent to 10% of the wellhead value of volumes sold com- mercially. Determining APLNG’s feedstock value is more complicated, however, given that the gas is transferred between various subsidiar- ies and related parties. Because it is not an arm’s
Image: Origin Energy
length approach to determining the nal con- tract price, the producer must apply to the gov- ernment to determine how the wellhead value is be calculated.
In 2015, the Queensland Treasury followed the advice the O ce of State Revenue (OSR) and rejected APLNG’s submission that a resid- ual price valuation be used, preferring a netback calculation method. e state estimated that its preferred valuation would lead to additional roy- alties of A$143.5-232mn ($100.3-162.2mn).
APLNG challenged this decision in Novem- ber 2018 and emerged victorious in May.
Just two weeks later and the government introduced an industry-wide royalty hike that blindsided the sector. e lack of consultation le the Queensland Resources Council (QRC) complaining that the state had the highest gas royalties in Australia.
Moreover, the budget suggested that a review of the current royalty regime was on the cards. Such a review would “ensure greater certainty and equity for all parties and identify opportu- nities to simplify the current regime, while pro- viding an appropriate return to Queenslanders”.
At rst glance, the royalty rate hike to 12.5% could be seen as a cash-strapped government’s move to raise revenue. Coupled with a warning that a review of the whole system was necessary, with Trad stating that she believed state revenue from the gas sector should be higher, and it can be instead taken as a warning shot across the entire industry’s bow.
Royalty payments from these LNG projects are expected to ramp up in the coming years in line with exports. If local developers push back too hard at an individual level, then the gov- ernment may squeeze the entire sector. By not consulting with local industry, and by burying the royalty changes in a wide-ranging budget, the government prevented players from rallying until it was too late. e sector must now move cautiously over the proposed royalty review, lest it encounter further unwelcome surprises in the years to come.™
Week 26 03•July•2019 w w w . N E W S B A S E . c o m P13