PERTH Jul 11 Australia's government unveiled
plans for a carbon tax on Sunday as its tries to cut carbon
emissions, but the plans have not been warmly received by the
LNG industry, which argues the tax will make the industry less
The nation's liquefied natural gas (LNG) export industry,
which has about $200 billion projects on the drawing board, has
said it should be exempt from the tax.
Here are some questions and answers on how carbon policy
could affect Australia's LNG projects.
WHAT ARE THE DETAILS OF AUSTRALIA'S TAX PRICE SCHEME?
Prime Minister Julia Gillard's government has proposed an
initial carbon tax of A$23($24.74) per tonne from next year,
rising by 2.5 percent a year, moving to a market-based trading
scheme in 2015.
The plan could lead to the largest emissions-trading scheme
outside Europe as Australia tries to cut its emissions by 159
million tonnes by 2020, or by 5 percent based on 2000 levels.
WILL THE INDUSTRY GET ANY TAX EXEMPTION?
Yes. Australian LNG producers will receive a supplementary
allocation of emissions permits for 50 percent effective
assistance on the tax.
HOW WILL THE CARBON TAX IMPACT THE LNG INDUSTRY?
Although carbon tax will hurt LNG producers' profit margins,
many industry analysts feel the impacts will be minor to
moderate. The tax will add one more layer to mounting costs for
Australian LNG producers, however.
"The carbon tax is an added cost at a time when the industry
is facing delays and potential cost overruns with projects,"
Gordon Ramsay, an industry analyst with UBS in Melbourne said.
Australian LNG projects are already considered to be some of
the world's most costly and have gained a reputation for running
Most recently, Woodside delayed the first LNG shipments from
its Pluto LNG project to March 2012, a year behind the original
target, and costs are seen rising by A$900 million to A$14.9
billion as a design fault and weather-related issues delayed the
"Given the relatively thin margins of current LNG projects,
this will further dilute the value and returns of LNG projects
in Australia," Neil Beveridge, a senior analyst at Bernstein
Research, said in a note Monday.
Still, since the bulk of the costs for an LNG project are
capital expenditure and operating costs are comparatively low,
so while the carbon tax could be a significant part of the
operating cost, it would be a small portion of the project
Santos will likely be the most impacted by the tax,
followed by Woodside , Beveridge said. A 10 percent
increase in gas prices would likely neutralize any impact to
In a statement Sunday, Santos said it would face
"significant annual costs on LNG production which would not be
recoverable from our customers."
Santos is currently building the 7.8 million tonne per annum
(mtpa) Gladstone LNG project in Queensland,
Australia. Woodside is the operator of
Australia's North West Shelf Venture, which produces 16.5 mtpa
WILL THE TAX FREEZE ANY PROJECTS OR CREATE DELAYS?
Although the carbon tax will erode the profit margins of
some LNG projects, no major projects will become uneconomic as a
result of the tax, LNG industry experts said.
However, some in the industry say the carbon tax may be the
final blow to some marginally profitable projects.
WHAT IS THE INDUSTRY POSITION ON THE CARBON TAX?
The Australian Petroleum Production & Exploration
Association (APPEA) says the proposal will not do enough to
protect the competitiveness of Australia's growing gas export
Charging LNG producers the proposed carbon tax will not
provide enough incentives for a switch to the cleaner burning
fuel, according to APPEA.
"The export gas industry rejects the politically motivated
label of 'big polluter' when for every tonne of emissions
produced in liquefying natural gas, up to 9.5 tonnes are removed
from the atmosphere when substituted for coal in customer
countries," Belinda Robinson, CEO of APPEA, said on Sunday.
The proposal would also give Australia's competitors in LNG
production-- Qatar, Malaysia, and Indonesia-- an edge over
Australia, which is already suffering from a high cost
WILL THE IMPACT BE UNIFORM ACROSS PROJECTS?
No. Each LNG project will have a different level of carbon
emissions based on the gas used for the project as well as the
amount of energy used to extract, cool, and transport the gas.
Some projects in the Browse Basin off Western Australia have
as much as 10 percent carbon dioxide by volume, which is
extracted at the same time as the gas, analysts said.
Coal seam gas projects in Australia's eastern state of
Queensland may produce more greenhouse gas due to the amount of
energy required to extract the gas.
LNG's liquefaction for transport in LNG "trains," which
refrigerate the gas until it liquefies at minus 164 degrees
Celsius, will also determine greenhouse gas emissions as some
LNG trains are more energy and carbon-efficient than others.
Some projects are limiting or offsetting carbon emissions.
Chevron plans to sequester some of the carbon it emits
at its Gorgon projects, while Woodside's Pluto LNG will be
offsetting its carbon emissions over 50 years by planting
millions of trees at a cost of A$100 million.
($1=0.930 Australian Dollars)
(Reporting by Rebekah Kebede)