Australia’s liquefied natural gas exporters will snare windfall profits of as much as $40bn this year alone in the wake of Russia’s war on Ukraine, offering the government a chance to fund key programs by taxing some of the excess earnings, the Australia Institute says.
Analysis by the thinktank found domestic gas prices doubled from $7.50 a gigajoule in 2020-21 to $16.20/GJ in 2021-22 even though the invasion happened two-thirds of the way through the year. During the current year, prices will average $19.90/GJ.
While volumes were basically steady, rising only 6% in the 2021-22 year to 82.2m tonnes, their total value soared 130% to about $70.2bn. The expansion had come “with virtually no increase in the cost of production”, the institute’s report said, citing the Australian Competition and Consumer Commission.
Depending on the long-term price used, windfall gains were between $26bn and $40bn, it said. Even raking back $20bn of that boon would fund the government’s entire Rewiring the Nation plan to modernise the grid.
“A wide and growing range of experts back a windfall profits tax as an economically responsible way for Australians to receive a fair return for the once-off exploitation of our gas resources,” said Richard Denniss, executive director at the Australia Institute.
“Many LNG companies pay little if any income tax and get much of the gas for free as it’s not subject to royalties.
“LNG producers in Australia are overwhelmingly foreign-owned, with profits flowing almost entirely overseas.”
Pressure from industry groups has been mounting on the Albanese government to do more to lower high energy costs, particularly in eastern Australian states. Last month’s deal to secure sufficient gas to avoid supply gaps may only serve to lock in high prices, the groups – from aluminium smelters to food manufacturers – have said.
Western Australia, which has had a reservation policy keeping 15% of LNG exporters’ supplies for domestic users since 2006, is paying only about $5/gigajoule for gas, state energy minister Bill Johnston told Guardian Australia last week. Since gas costs also influence electricity prices, power bills are also relatively low out west.
Industry analysts such as EnergyQuest’s Graeme Bethune said the current supersized earnings of the east coast gas exporters should be weighed against massive writedowns for their projects in earlier years.
“Worst of all is Arrow Energy, which so far has cumulative losses of over $8bn,” Bethune told Guardian Australia.
Meanwhile, a separate report by Market Forces has found a split has emerged among Australia’s biggest super funds, with some offloading millions of shares in oil and gas giants Woodside and Santos while a few have been accumulating their stock.
Its analysis found 11 of the 14 super funds studied owned fewer Santos shares in their default investment options as of 30 June 2022 than six months earlier, based on their latest disclosures.
AustralianSuper, for instance, had sold 41.3% of its Santos shares, while UniSuper has ditched 26.8% and Hesta 20.5%. All up, the sales totalled 14.1m shares.
UniSuper’s Balanced option has also offloaded nearly three-quarters of its Woodside shares. HESTA’s Balanced Growth option had cut its holding of the company by more than one-fifth.
“This massive fire sale of Santos and Woodside shares by some of the biggest super funds in the country is great news and a tribute to members who are demanding an end to investment in companies expanding oil and gas,” said Brett Morgan, super funds campaigner at Market Forces.
Against that trend, though, Market Forces said the country’s biggest super fund, AustralianSuper, had increased its stake in Woodside in its Balanced option by more than 14-fold. Colonial First State’s FirstChoice Wholesale Growth option, too, had increased its stake in the company by more than six times.
Hostplus’ Balanced option was the only option in Market Forces’ study to have notably increased its stake in Santos, with a 16.1% rise in holdings, it said.
“AustralianSuper’s move flies in the face of its commitment to net zero by 2050 and the Paris climate goals,” Morgan said, adding that it was also “unacceptable” to many members that Hostplus was endorsing Santos particularly given the fund’s recent commitment to a net-zero emissions target by mid-century.
