Major natural gas companies oppose Australia's imposition of LNG windfall tax due to soaring prices

Major natural gas companies, including Shell and Chevron, warn Australia not to impose windfall taxes on natural gas exporters, saying such measures would hinder investment and weaken energy security, while current supply disruptions caused by the Iran war have led to soaring liquefied natural gas prices.

After Iran’s attack forced Qatar to halt production, Australia has become the world’s second-largest liquefied natural gas supplier, with export revenues set to increase significantly due to reduced supply caused by the conflict.

Canberra is weighing plans to profit from rising prices, with Prime Minister Anthony Albanese requesting the Treasury to simulate taxation on liquefied natural gas exports and to propose reforms to resource rent taxes. The suggested windfall tax rate could exceed 25%.

Cecil Wacker, Chair of Shell Australia, warned against taking “short-term measures” to address the energy crisis. Shell Australia exports natural gas from the Curtis LNG project in Queensland and operates the Prelude floating LNG project in northern Australia.

“At such times, the risk increases that strong and stable policies will be replaced by short-term measures or populist rhetoric,” she said at the Australian Domestic Gas Outlook conference on Tuesday.

Potential impacts of the proposed policy

Wacker stated that the proposed policy would “erode project value and make many of Australia’s future growth opportunities uneconomical and less competitive compared to other global options.”

She noted that high commodity prices “have already benefited Australians through increased corporate taxes and resource rent taxes.”

Since the outbreak of conflict in Iran in February, Asian spot LNG prices have doubled, reaching a three-year high. Profits from long-term contracts linked to oil prices (accounting for 75% of Australia’s exports) are also expected to surge within three to six months.

Late last year, Canberra launched an LNG market review, which may reserve 15% to 25% of exports from the East Coast and Northern Territory starting in 2027. More specific policies are expected to be announced later this year.

Chevron described the windfall tax as an “knee-jerk reaction” and a “short-term stimulus” policy that is “completely contrary to Australia’s actual needs.”

“There’s a lot of discussion in the market about intervention and taxation,” said Danny Wodell, Chevron Australia’s Director of Operations and Maintenance, at the conference.

“Now is the time to reject such approaches and consider how to encourage more investment to ensure supply,” he added.

Australia exported $65 billion AUD (USD 44.5B) worth of LNG last year, but producers have faced criticism for low taxes, as regulations allow them to pay taxes only after recovering construction costs.

Kevin Gallagher, CEO of Santos, said the idea that “liquefied natural gas exports are draining funds from Australia” is incorrect, noting that “each LNG ship departing from Gladstone pays about AUD 4.5 million in royalties to the state government.”

“Australia must establish a policy framework that abandons the ‘fossil fuel’ ideology and instead encourages companies to invest, explore, and produce more natural gas,” he said at the event.

The Gladstone LNG project is the only one among Queensland’s three export alliances that sources domestic natural gas from third parties, while the other two alliances are net suppliers.

Shell has been exploring in the frontier region of the Taruum Trough in Queensland, and in early March, the Australia Pacific LNG project was approved to drill nearly 1,700 new coal seam gas wells, which could continue until 2081.