PRRT predictions based on falling LNG price tip from Treasury

Treasury tips falling petroleum resource rent tax take without changes, but will gas prices really fall?

The federal government says projected prices falls on international gas markets would have cost the budget bottom line $1.3bn over the next five years, if its proposed changes to the petroleum resource rent tax do not go ahead.

The changes proposed by Treasurer Jim Chalmers will instead reap the federal government an additional $3.2bn over the same period, after the introduction of a 90 per cent cap on the use of deductions that can be offset under the PRRT from July 1, which will bring forward revenue from the nation’s offshore LNG projects.

The reforms effectively mean the 40 per cent PRRT tax rate will be applied to at least 10 per cent of upstream revenue from LNG projects as a minimum cash tax payment.

But the figures projecting falling PRRT revenue without the reforms are based on treasury projections of a sharp fall in global LNG prices that is not shared by commodity analysts, who are tipping strengthening gas prices in key Australian markets.

“The downgrade reflects a deterioration in the outlook for oil and gas prices since the October budget. Oil prices have fallen since the October budget and are assumed to be lower across the forward estimates,” the budget papers say.

The federal budget says treasury expects that spot gas prices will fall from average levels in the March quarter around $US16 per mmbtu to long term levels of $US10/mmbtu within a year.

But consensus estimates published by Bloomberg suggest spot prices on the JKM will average $US14.93/mmbtu in 2023 and rise to an average $16.38/mmbtu in 2024 – well above treasury estimates.

Mr Chalmers’ reforms to the PRRT have seen the federal treasurer caught in the crossfire from both sides, with Chevron breaking ranks with the broader LNG industry this week to criticise the pre-budget announcement, and Australian Greens leader Adam Bandt attacking the decision on Tuesday as one that lets off the LNG industry too lightly.

While the bulk of Australia’s gas industry reacted with relief that the PRRT changes were relatively mild, Chevron – owner of the $80bn Gorgon and Wheatstone LNG projects in Western Australia – said this week the previous regime was working and there was no need for a further industry impost.

“Fiscal and regulatory certainty is key for countries such as Australia to remain an attractive place to invest and compete with other energy-producing countries,” said a Chevron spokesman.

Originally published as PRRT predictions based on falling LNG price tip from Treasury