Australia accused of ignorance of the changed world oil environment

Apr 11, 2005 02:00 AM

Australia's oil and gas industry is set to embark on developing a new relationship with the government in a bid to head off the massive impact that oil imports will have on the country's energy future.
After years of demanding bigger incentives from Canberra for exploration and development -- with only limited success -- industry heavyweights are increasingly alarmed the Howard administration is ignoring the implications of the changed world oil environment. In Perth more than 1,400 oil industry executives will attend the Australian Petroleum Production & Exploration Association (APPEA) conference, the biggest annual oil industry meeting in the southern hemisphere.

APPEA executive director Barry Jones said there was little appreciation in government that the world energy market had changed. He warned that a large loss of corporate knowledge was occurring in both industry and government. Mr Jones said the federal Government's energy statement in June last year virtually handed over the nation's oil future to the Middle East suppliers.
"That means that within a decade our balance of payments deficit is going to double," he said. "We will be paying $ 25 bn more for oil if current prices remain and that has huge implications for the economy and the lifestyle of individual Australians."

The APPEA boss, who retires after the conference, said there was a level of complacency in government that export sales of LNG would offset the oil import bill. Australia needed a graded exploration policy that recognised that international oil majors such as Shell and BP were no longer spending big dollars on exploration in our region.
Government had to accept that the Petroleum Resource Rent Tax regime -- which affects offshore producing fields -- has passed its "use-by date" and that no amount of tweaking would encourage the smaller players in the industry to invest.

PRRT was introduced in 1987 as a more economically efficient replacement of commonwealth royalties for offshore projects. Like royalties, PRRT payments are allowable deductions for calculating income tax. The tax is calculated at 40 % of "excess" profit, similar to the concept of economic rent.
APPEA calculates that taxation accounts for around 43 % of operating costs for established fields, rising to 58 % for new fields.

Mr Jones said exploration incentives needed to encourage smaller companies and recognise that in world terms Australia was vastly under-explored for hydrocarbons. He said that for the first time APPEA's conference would concentrate on gas and the need for Australia to make better economic use of the vast reserves that had been discovered, particularly off the northwest and northern coasts.
Developments such as export LNG and gas-to-liquids added little economic value to the reserves, estimated at more than 140 tcf. Australia had to develop domestic markets for the gas.

Source: The Australian
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