Deja vu - Australia's Resources, Australia's Benefit
Introduction
I thank the committee and the secretariat for the work they have done in relation to this inquiry.
It is entirely reasonable that Australians receive full and fair compensation for the removal of the nation’s finite resources. Sadly, this is something that is not happening.
It’s unsurprising the industry body is against the change.
This dissenting report is supplementary to my dissenting report in the previous committee report on this bill.
Intent of the bill
The intent of the bill remains to make the benefit to the Australian community a guiding principle in the interpretation of the Act, by broadening the objects clause of the Offshore Petroleum and Greenhouse Gas Storage Act 2006.
Industry v Australians
As I said in my second reading speech 'the balance is all wrong, with the scales firmly tipped in favour of exploration and extraction companies' and there are a number of instances which provide some insight into how industry has been better positioned than Australia when it comes to the extraction and processing of the countries finite national resources, such as:
(a)
The judgment in Chevron Australia Holdings Pty Ltd (CAHPL) v Commissioner of Taxation [2017] FCAFC 62 handed down on 21 April 2017 saw Chevron lose their appeal to the Full Federal Court in relation to a tax bill totalling $340 million, which related to a $US2.5 billion ($3.7 billion) intercompany loan agreement used to fund development of gas reserves off Western Australia.
(b)
‘Prelude’, the floating LNG facility off the West Australian coast, of which Shell has a 67.5 per cent stake, has consistently failed to deliver the annual output of 3.6 million tonnes of LNG originally intended from the project. However, it’s not as bad as it sounds, as could be seen from the Shell 2020 Annual Report:
Furthermore, there are unrecognised losses for Petroleum Resource Rent Tax (PRRT) in Australia, amounting to $39,402 million as at the end of the most recent PRRT fiscal year, June 30, 2020 (June 30, 2019: $36,905 million). Based on business forecasts at existing commodity price levels, and the annual augmentation of the unused PRRT losses, this amount is expected to increase in the near future.
(c)
The effect of which would be Australians will never receive any compensation in the form of PRRT for the loss of this resource, not from this project.
When such issues arise the industry response is always along the lines of 'we pay substantial amounts of tax in Australia, including royalties, payroll tax, fringe benefits tax, excise and interest withholding tax'.
None of this is to say that Australia has not benefitted, more the case that Australia seems to be the minority beneficiary, which should not be the situation when the nation is selling off what are finite resources.
It’s clear there’s a problem.
Disappointingly the Department of Industry, Science, Energy and Resources, (the Department) seems to side with Industry, some might say captured, nevertheless, their view, again, is that the proposed changes probably wouldn’t achieve the goals outlined in the Explanatory Memorandum. Of course, it is important to remember that the Department was very clear in their original submission about where the benefit to Australia comes from:
… the beneficial nature of the OPGGS Act is derived from the safe and responsible operation of offshore oil and gas activities, that reduce risks to safety and the environment to as low as reasonably practicable and meet the requirements of good oil field practice and optimal recovery of the petroleum
The Department could have assisted the committee by explaining what is meant by 'good oil field practice' and 'optimal recovery', and who is responsible for their assessment and how they are assessed.
On face value 'good oil field practice' is likely something that could be assessed. If it is limited to safety and environmental impacts it would fall within NOPSEMA’s remit, as explained by Ms Hillier at the hearing on 18 June 2021:
We regulate the offshore oil and gas industry. More particularly, our key responsibilities are the safety of the offshore workforce and ensuring that petroleum activities are managed in an environmentally safe way.
However, if it extends beyond safety of personnel and the environment it doesn’t.
More concerning is 'optimal recovery' which as it stands is highly subjective, but does not appear to fit into any Department or Agency’s purview to assess if the recovery was in fact ‘optimal’.
What is clear is that 'optimal recovery' requires a better definition and the definition must consider relevant qualities, as a minimum:
quantity of the resource;
costs of the recovery/extraction;
transport to the point of processing; and
quantity of the resource extracted.
Recommendation
The terms 'good oil field practice' and 'optimal recovery' be properly defined with measurable qualities, and the Offshore Petroleum and Greenhouse Gas Storage Act be amended to reflect the definition.
It is expected that the Industry will express concern regarding the implications of 'optimal recovery' becoming a characteristic that can be and is assessed. This will require the Department to develop an assessment model which is accessible to industry and the public.
Recommendation
The Department of Industry develop the model for assessing 'optimal recovery' and make it accessible to industry and the public.
To add to concerns, the person or position responsible for ensuring the recovery is optimal cannot be identified. As the saying goes 'if you can’t point to the person who is responsible, no-one is'.
Recommendation
The Department/Agency and position responsible for assessing and ensuring recovery of Australia’s offshore resources is optimal should be clearly identified.
Domestic Gas Reserve
Paragraph 2.26 of the Chair’s report could provide readers with a somewhat fallacious feeling of comfort regarding domestic access to Australian gas, with the statement 'the states have policies in place which either reserve, or preference, petroleum or tenements for domestic supply'.
(a)
As WA’s policy is focussed on the needs of WA and would only 'export' to the east coast in exceptional circumstances; and
(b)
The Victorian fields, in a state of declining production, are only required 'to take all reasonable steps to supply petroleum to domestic consumers first'. There is a commitment from the Victorian Government to prioritise any gas from future onshore production licences for the domestic market.
Glaringly absent in coverage is a Federal reservation policy; something negotiated a couple of years yet still awaiting full implementation. Meanwhile the Government intends to shovel taxpayers’ money into the coffers of the oil and gas companies to open-up more gas to fuel the untested ‘gas-led recovery’.
Conclusion
The broad intentions of the proposed amendment are clear, and I support the intent as I have stated previously. It is entirely appropriate that exploitation of Australia’s resources should be for the benefit of Australians. In fact, this should be a guiding principle for all government departments or agencies as they manage the resources they are the custodians of on behalf Australians.
It is disappointing that the major parties continue to let the oil and gas industry plunder and pillage resources that belong to the Australian public.
Senator Rex Patrick
Member
Independent Senator for South Australia