The gas crisis lie
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swoop42 
Whatcha gonna do when he comes for you?
Joined: 02 Aug 2008
Location: The 18
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London Dave 
Ješte jedna pivo prosím
Joined: 16 Dec 1998
Location: Iceland on Thames
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| Post subject: Re: The gas crisis lie |  |
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| swoop42 wrote: | | I find it disgusting that the natural resources of this country aren't first and foremost used for the benefit of all with the result being low cost gas prices favourably comparable to the rest of the world. |
Yup, it's quite mad, but when ideology triumphs over economic sense, this is what you get. The bullshitting churned out by the govt over the power 'crisis' is quite something! |
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Culprit 
Joined: 06 Feb 2003
Location: Port Melbourne
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Mugwump
Joined: 28 Jul 2007
Location: Between London and Melbourne
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| Post subject: Re: The gas crisis lie | |
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| London Dave wrote: | | swoop42 wrote: | | I find it disgusting that the natural resources of this country aren't first and foremost used for the benefit of all with the result being low cost gas prices favourably comparable to the rest of the world. |
Yup, it's quite mad, but when ideology triumphs over economic sense, this is what you get. The bullshitting churned out by the govt over the power 'crisis' is quite something! |
This is the type of subject where technical knowledge and understanding is a good idea before one settles into an opinion.
LNG investments are massive - well into the tens of billions, probably the single largest investments that will be made in Australia. The Aussie govt does not have the skills, so you have to find a private operator with the capital strength to do it. There are not too many with the capacity to do developments on this scale, and virtually no Australians. Woodside is an ok company but it's not likely to be able to bring off $10bln+ projects with a very high level of technical difficulty. And why risk the bankruptcy of your one decent private national oil company for a 15% return on capital ?
Any private operator - whether Australian or international - is going to want a return of at least 15%+ for a project of this scale, complexity and risk. So typically the tax impost only kicks in once the 15% return has been reached. Presumably that is how this taxation arrangement has been structured. If so, it is not unreasonable, it's just a phasing effect, probably made worse by the low oil price (as LNG contracts are indexed to the oil price).
Now, it may well be that the Australian government has made a bad deal. But I'd certainly wait til the inquiry has been handed down in April and then I'd read it carefully before rushing into an opinion on the basis of clickbait headlines. Whatever that reveals, we should be very wary of changing agreed taxation rules governing large long-term investments. Apart from the fact that it is borderline unethical and may be contested legally, it's a very good way to make the next bid to develop your resources far more expensive than the money you gather this time.
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Culprit
Joined: 06 Feb 2003
Location: Port Melbourne
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think positive 
Side By Side
Joined: 30 Jun 2005
Location: somewhere
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What's a lie is the cost of power. Try putting both your elec and gas with the same provider (either swap one to match, or if they are the same, ring another company for a comparison) the discounts they offer are mindblowing, I just signed up for a year of 37off gas usage, and 47% off electricity, with no exit fees if I find another deal. Now I know they ain't making a loss on me, so who is getting ripped off royally paying the full price or getting less of a discount? That's just plain wrong.
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You cant fix stupid, turns out you cant quarantine it either! |
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London Dave
Ješte jedna pivo prosím
Joined: 16 Dec 1998
Location: Iceland on Thames
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| Post subject: Re: The gas crisis lie | |
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| Mugwump wrote: | | London Dave wrote: | | swoop42 wrote: | | I find it disgusting that the natural resources of this country aren't first and foremost used for the benefit of all with the result being low cost gas prices favourably comparable to the rest of the world. |
Yup, it's quite mad, but when ideology triumphs over economic sense, this is what you get. The bullshitting churned out by the govt over the power 'crisis' is quite something! |
This is the type of subject where technical knowledge and understanding is a good idea before one settles into an opinion.
LNG investments are massive - well into the tens of billions, probably the single largest investments that will be made in Australia. The Aussie govt does not have the skills, so you have to find a private operator with the capital strength to do it. There are not too many with the capacity to do developments on this scale, and virtually no Australians. Woodside is an ok company but it's not likely to be able to bring off $10bln+ projects with a very high level of technical difficulty. And why risk the bankruptcy of your one decent private national oil company for a 15% return on capital ?
Any private operator - whether Australian or international - is going to want a return of at least 15%+ for a project of this scale, complexity and risk. So typically the tax impost only kicks in once the 15% return has been reached. Presumably that is how this taxation arrangement has been structured. If so, it is not unreasonable, it's just a phasing effect, probably made worse by the low oil price (as LNG contracts are indexed to the oil price).
Now, it may well be that the Australian government has made a bad deal. But I'd certainly wait til the inquiry has been handed down in April and then I'd read it carefully before rushing into an opinion on the basis of clickbait headlines. Whatever that reveals, we should be very wary of changing agreed taxation rules governing large long-term investments. Apart from the fact that it is borderline unethical and may be contested legally, it's a very good way to make the next bid to develop your resources far more expensive than the money you gather this time. |
Take 10% |
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Pies4shaw 
pies4shaw
Joined: 08 Oct 2007
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The underlying problem, of course, is the disordered thinking that allowing the market to manage such important matters as energy and communications could ever have been a good thing.
This is just another example of how ordinary citizens here continue to pay an extreme price for the pointless repetition in Australia of stupid policies first imagined and implemented by dumb conservatives like Thatcher in the UK as a means of breaking the working class.
In short, this is the sort of idiocy that results from putting matters of great national importance in the hands of people with small minds and a large - and exclusive - interest in making money. |
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Mugwump
Joined: 28 Jul 2007
Location: Between London and Melbourne
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^ the politics of Cuba and Venezuela decrying foreign direct investment as a matter of "small minds". Fidel and Chavez must be laughing out of their dead bellies, as Rex Connor serves the drinks.
Meanwhile, in the real world, the Inquiry needs to consider the points made by Prof Kraal and test whether the tax regime is consistent with a reasonable return for the investors and for the sovereign government over the lifetime of the project. That's ultimately a matter of competitive dynamics, whatever the headlines and the clueless slogans say. The report in April will be interesting reading. The tax take looks rather low to 2030 but these are 30 year projects, and the oil price is a lot lower than would have been envisaged when it was committed, so grown-up analysis is needed. I know for certain that the ATO is not shy re corporate taxation if it has the legal framework to support a case.
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stui magpie 
Prepare for the worst, hope for the best.
Joined: 03 May 2005
Location: In flagrante delicto
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I don't know how much we charge these companies to get the gas and sell it overseas, but it seems deadset stupid that we have to buy it back at inflated prices.
We should have the arrangement with gas or oil that whichever company digs it out needs to supply X amount to Australia at a fixed cost set at the cost of production, well below market rate. They can make their profit selling the rest overseas.
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Every dead body on Mt Everest was once a highly motivated person, so maybe just calm the **** down. |
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Pies4shaw
pies4shaw
Joined: 08 Oct 2007
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| stui magpie wrote: | I don't know how much we charge these companies to get the gas and sell it overseas, but it seems deadset stupid that we have to buy it back at inflated prices.
We should have the arrangement with gas or oil that whichever company digs it out needs to supply X amount to Australia at a fixed cost set at the cost of production, well below market rate. They can make their profit selling the rest overseas. |
If we can't pay for it, we don't deserve to be allowed to have it.  |
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Mugwump
Joined: 28 Jul 2007
Location: Between London and Melbourne
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| stui magpie wrote: | I don't know how much we charge these companies to get the gas and sell it overseas, but it seems deadset stupid that we have to buy it back at inflated prices.
We should have the arrangement with gas or oil that whichever company digs it out needs to supply X amount to Australia at a fixed cost set at the cost of production, well below market rate. They can make their profit selling the rest overseas. |
Essentially agree. This was the arrangement with the original North West Shelf LNG project - there was a Domgas stream and an LNG component. The issue here, however, seems to be that the energy mix is changing quickly - where once it was almost all coal, it is now coal (ageing, technically unreliable and uninvestable) plus renewables (subsidized but structurally unpredictable) and gas (which has not been secured because all parties have been too focused on the first two).
I agree that a clause which obliges LNG producers, as a condition of their license, to supply a domestic consumer at a reasonable global market rate would be a good idea if it can be made to work. But given LNG is largely traded through fairly liquid global markets nowadays, I am not sure how to account for the suggestion that domestic generators are having to pay three times the market rate - that might be a slanted part of the story.
In any event, judging from the article in Swoop's OP, this is clearly a messed-up situation, seemingly arising from poor planning by electricity generator companies and government subsidies distorting the market. Any competitive market in a strategic industry should have an office of regulation - I wonder if they were awake in this case ?
When it comes to downstream gas supply and telecoms, I've lived under both government monopoly and "competition". I think the evidence is that both are roughly as bad as one another, for different reasons. I have some residual positive feeling towards the Whitlamite idea of state enterprises running as a "vanilla offering" competitor under private sector competition. I have a lot of scepticism about the ability of government to run a customer-focused and efficient enterprise, but only a fool would deny that government can help to keep the private sector honest. Though I think Thatcher was profoundly necessary for an utterly dysfunctional Britain by 1979, I have no Thatcherite faith in unfettered markets.
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Two more flags before I die! |
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Culprit
Joined: 06 Feb 2003
Location: Port Melbourne
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Pies4shaw
pies4shaw
Joined: 08 Oct 2007
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| Culprit wrote: | http://reneweconomy.com.au/clarke-and-dawe-absolutely-nail-the-australian-energy-debate-28852/
Clarke and Dawes    |
It's even funnier that almost no Petroleum Resource Rent Tax has been paid by any of the MNCs involved to achieve this outcome - basically, the way it works is that Australian taxpayers fund the research and exploration through massive tax-breaks that are applied to the revenue of the MNCs when they sell our gas overseas. The indexation allowed on the unused proportion of the research and exploration cost base (that is, the part that isn't applied to reduce revenue for tax purposes in a given year) is around 20% per year - so that the value of the unused portion of the tax concession balloons. Its like negative-gearing on steroids - with special concessional rates applied for the benefit of the super-rich.
Here's a slightly stupid article that more or less explains some of it: http://www.smh.com.au/federal-politics/political-news/only-5-of-oil-and-gas-companies-pay-resource-tax-20161010-grz470.html
What government policy should be aiming for is secure, environmentally responsible and sustainable energy production. None of those things is ever an object of market exploitation, so I suppose we get what we deserve by implementing market ideology.
This is just another example of the wonderful politico-theology of the 1980s coming back to bite us (I was going to say "burn us" - but it appears that there's no longer enough fuel to start the fire). Like most large markets of special importance to national peace and security, the selloffs of our energy infrastructure and resources lead to something called "market failure". "Market failure" is, typically, code used by economic rationalists to avoid having to explain how it could possibly come to be that prices for consumers have gone up massively for monopoly products they previously received at very low prices, as a direct consequence of the imposition of "market discipline" and the "elimination of inefficiencies" that were peddled by snake-oil salespeople as a purported means of delivering better returns to government and better outcomes for consumers.
The attempts to rehabilitate the political filth responsible for these horrors disgust me. |
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Mugwump
Joined: 28 Jul 2007
Location: Between London and Melbourne
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^ governments and central planners never have market failures. It's why central planning has been such a successful economic model over the long term.
The article quoted by P4S complains that few projects are now paying PRRT, but this is a super profits tax (i.e. Special tax on high profits earned when the project return exceeds some supernormal level, usually 15-20%). It is unlikely that super profits are being earned when oil prices are around half of the consensus that reigned between 2003 and 2014. If it is true, as claimed in the article, that the combination of state and federal royalties and company taxes plus PRRT add up to over 50% of each dollar produced (before counting the associated employment income and taxes), then presumably the tax system is not working very badly - but lobbyists speak with forked tongue, so a proper inquiry is a good idea.
Exploration expenses are written off at a high rate because oil companies can drill several very expensive holes before they find any oil, and the tax system provides an incentive for these companies to drill to find Australian oil and gas. Is 18% too high ? No idea, but I tend to think that public servants in Canberra are more on the side of the taxpayer than Chevron. They also have more expertise in the energy business, I suspect, than Nick's politburo, whatever the Greens may imagine in their more hallucinogenic moments.
These are highly technical matters, so best if we have the inquiry, get the facts and arguments and recommendations, and then try to make an informed judgement. I recognise that is less satisfying than ideological disgust, but intellectual hatreds are usually more poisonous than cane toads.
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Two more flags before I die! |
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