Australia: LNG Projects on Hold Because of The New Tax Regime

The oil and gas producer Santos says it may delay a final investment decision on its $8 billion liquefied natural gas plant in Queensland until it understands the full impacts of the government’s resource rent tax.

As more companies joined the chorus of concern over the 40 per cent ”super profits” tax to be levied on the mining industry from 2012, the Resources Minister, Martin Ferguson, said it was important to separate ”fact from fiction”.

At its annual general meeting in Adelaide, Santos said it was still hopeful of announcing a new customer from its LNG joint venture with Malaysia’s Petronas, despite the tax uncertainty.

”It is difficult to regard the tax proposals as anything other than bad news for the resources sector and the thousands of Australians who work in it,” Santos’s chief executive, David Knox, said.

The company’s chairman, Peter Coates, said people outside Australia were already questioning the proposal.

”The whole issue lacks clarity. We need clarity to make investment decisions and at the moment that is not clear and until it is clear we are going to see investment paralysed,” he said.

The comments came a day after Origin Energy’s managing director, Grant King, said introduction of the tax could threaten his plans to build a neighbouring $35 billion plant.

Mr Ferguson said the coal-seam methane industry could feel the pinch because it was not yet subject to royalties.

”It is a new industry,” he said. ”I can assure you that members of the coal-seam methane industry have actually been in Canberra in Treasury this week … going through the details of their books.”

Joining the coal-seam gas proponents in Canberra this week was Rio Tinto, which says its $US10 billion ($11 billion) in Australian projects are ”on hold” until there is some certainty around the proposed tax regime.

Fortescue Metals Group’s chief executive, Andrew Forrest, said all its Australian mining projects which required substantial capital ”will now be under review”.

Mr Forrest joined six other West Australian miners to call on the government to abandon its tax, which would ”impede the growth of the sector and its long term contribution to the economy”.

The nickel sulphide producer Western Areas said it had doubts about starting on its third mine, Diggers South, in Western Australia. However, analysts expressed doubts about the economic viability of the project long before the words ”resource rent tax” were uttered.

[mappress] Source: The Sydney Morning Herald, May 6 , 2010;