Energy price controls don’t work: ConocoPhillips Australia president Dan Clark
It does not make sense for Australia to risk its hard fought investment reputation by adopting policies that have failed elsewhere.
Having built strong investment conditions, repeating other countries’ policy mistakes will not fix Australia’s energy and affordability concerns.
There is a lot to like about Australia. Australia benefits from inherent advantages with abundant natural resources, and proximity to significant global markets. These benefits have helped build the nation’s wealth over the past half century. It’s the reason that ConocoPhillips, a global oil and gas company, would like to keep investing and building on the $20bn we have invested here.
Australia didn’t just ride its luck. It built a hard-fought global reputation as an open, well-regulated economy with a highly skilled workforce; mainly from a foundation of market-opening economic reforms introduced over successive governments. Australia also encouraged foreign investment, understanding that this major investment and connection to global markets allowed for economies of scale to many industries, including the gas industry.
Having worked in many oil and gas provinces around the globe over the past three decades, I have seen Australia be the envy of the world, largely remaining unimpacted by successive financial crises, and the country is in a stronger position than most economies in recovering from the pandemic because of these enduring reforms.
This has been one of the compelling reasons for ConocoPhillips’ increased interest in gas production and exploration through its APLNG joint venture and offshore exploration in the Otway Basin.
ConocoPhillips invests $1bn each year so that APLNG can continue drilling and exploring for gas to fulfil its domestic and export commitments. This year-on-year investment enables APLNG to be the largest supplier of gas to the east coast market, an increasingly important role as southern basins decline and gas development restrictions in NSW and Victoria remain.
There has been a lot of noise recently about price-caps and windfall profits tax to reduce the cost of gas. I respect the intentions of the government, but having built a reputation and attracted this scale of investment, it does not make sense for Australian policy makers to now risk these hard fought gains by adopting policies that have failed elsewhere.
Facing similar drivers to lower gas prices, other governments have attempted price controls and interventions with ultimately negative outcomes. Despite having vast hydrocarbon potential, Argentinian government intervention led to the country’s sovereign default. International oil and gas companies exited the country, investment dried up and production dwindled. Intervention measures and government subsidies failed to curb inflation.
Windfall profits taxes are not new and have been tried unsuccessfully elsewhere in response to rising inflationary pressures.
US President Jimmy Carter’s 1980 tax response to a doubling of oil prices caused by the Iran Revolution and the deregulation of the industry had the unintended consequence of reducing domestic oil production and increasing reliance on foreign oil between 1980 and 1988.
While interventionist policies may lower short term domestic prices they also artificially stimulate demand and tend to restrict supply, leading to gas shortages.
Simple economics rule here. You tax what you want less of. The way to reduce prices is to increase supply. Taxes do not reduce prices. Price caps do not encourage supply.
Australia is, and has been, an exceptional economic player, but it should not expect different results by repeating the mistakes of other countries.
Dan Clark is President of ConocoPhillips Australia