Australians to shoulder the risk of oil and gas exploration while Norway enjoys the financial gain, Australia Institute warns

This article is more than 10 months old

This article is more than 10 months old

The Norwegian government stands to gain $400m more from drilling in the Great Australian Bight than the South Australian and federal governments combined, according to a new study.

A report by the Australia Institute, to be released on Monday, finds that through its two-thirds ownership of Equinor the Norwegian government stands to make $8.1bn from oil and gas exploration in the Bight.

That compares with the equivalent of $7.4bn of revenue for the federal government from company tax and petroleum resource rent tax and $300m in payroll tax for the South Australian government over a 40-year period.

Great Australian Bight oil industry would need decades of subsidies, report warns Read more

Despite Equinor arguing that it can be conducted safely, its proposal to drill a well more than 370km off the coast of South Australia, starting in late 2020, has prompted community backlash.

The Australia Institute has been an outspoken critic of drilling in the Bight, warning it will likely require decades of subsidies because during the exploration phase production would be minimal, paying no royalties or taxes.

The authors of the Australia Institute report, Rod Campbell and Tony Shields, analysed economic modelling by ACIL Allen commissioned by the Australian Petroleum Production and Exploration Association.

The two scenarios examined were a base case in which 1.9bn barrels of oil equivalent is produced and a high case in which 6bn barrels is produced, both over the period 2028 to 2060.

The report noted the modelling predicted a total of $1.5bn a year would be paid in PRRT and company tax but – in today’s dollars – that equates to just $7.4bn over the 40-year project life because “payments are modelled to occur far in the future, so are heavily discounted to reflect uncertainty and time value of money”.

However, the $7.4bn of federal government revenue under the base case scenario rises to $35.3bn in the high production scenario.

“We focus on the base case because it is still unknown whether the development will be economically viable let alone whether production is viable at a higher level,” the report said.

Assuming Equinor is the sole developer, the Norwegian government would receive annual average benefits of $1.4 to $4.1bn, with present value of $8.1bn in the base case to $24.4bn in the high production scenario.

“PRRT would not be paid until 2047 under the base case and 2040 under the high production scenario,” the report said.

Drilling in the Great Australian Bight is not worth the risk | Rick Steiner Read more

The modelling appears to suggest that no royalties will be paid, which would mean that oil and gas lies in commonwealth waters and that “the commonwealth will give away Australia’s oil for free”.

Campbell and Shields argue that Norway reaps the rewards from “direct ownership” of oil and gas fields, with global revenue of $46bn from the petroleum industry in 2019 compared with the $1.2bn Australia received from PRRT in 2017-18.

“As a result of the Australian government’s decision to raise little revenue from the exploitation of its oil and gas resources, drilling in the Bight is effectively a no-win proposition for Australia and the communities along its south coast,” the report said.

“While Australians are being asked to shoulder all of the economic and environmental risk of the project, a foreign government is likely to enjoy much of the financial gain.”