A 25 per cent on LNG exports will not affect either the volume or price of LNG exports. Customers therefore have nothing to fear, and the Prime Minister was wrong to stop the tax.
The Prime Minister has let it be known that gas exports will continue to not be taxed. According to him, applying a tax to existing gas contracts would contravene those contracts and damage relations with our Asian customers on whom we depend for petrol, diesel and jet fuels.
He is wrong. The contracts cover the volume of LNG to be shipped. Prices vary substantially from year to year. It is also almost certain that the export tax would not affect either the price or supply of LNG.
According to the Australian Competition and Consumer Commission (ACCC), ‘LNG netback prices based on Asian LNG spot prices and oil-linked contract prices play an important role in influencing gas prices’. As can be seen from Table 1 below, the prices vary enormously from year to year, but the volumes produced and sold have hardly changed in the last few years.
Table 1 LNG prices and production
| Av. LNG price a | LNG production (PJ)b | |
| 2016-17 | 7.16 | 3981 |
| 2017-18 | 8.67 | 4628 |
| 2018-19 | 9.76 | 5266 |
| 2019-20 | 4.61 | 5630 |
| 2020-21 | 7.21 | 5375 |
| 2021-22 | 30.18 | 5872 |
| 2022-23 | 35.10 | 5860 |
| 2023-24 | 14.93 | 5724 |
| 2024-25 | 17.46 | |
| 10 mths. 2025-26 | 18.89 |
a This is the ACCC LNG netback price series, which is a measure of the price in $A per gigajoule that a gas supplier can expect to receive for LNG after subtracting the costs of converting the gas to LNG and shipping it to its destination port.
b The source is the Australian Bureau of Statistics
Change-in-law clauses are a standard feature of international LNG contracts. These clauses allow the buyer to seek price renegotiation or compensation if the seller’s government introduces fiscal measures that materially alter the economics of contracted supply.
But right now, the LNG export price is more than four times what it was only a few years ago in 2019/20. Back then it was clearly profitable to produce and export much the same volume of LNG as today, and it is most unlikely that costs have risen by anything like as much as more than four times since 2019/20. Instead, the LNG producers are enjoying super windfall profits or economic rent.
So, it is reasonable to expect that even with a 25 per cent export tax on LNG exports, or even more, it would still be very profitable to continue with the present contracts. In such a case the customers are not affected in any way and the producers still get an adequate return. The economics of the contracted supply have not been materially altered, and the change-in-law clauses would not apply.
That in turn means that our Asian neighbours, on whom we depend for our fuel supplies, would have nothing to complain about. They will continue to receive their contracted supplies. The prices will reflect the contract conditions and not be affected by the export tax.
By ruling out the LNG export tax, Albanese has made an already very difficult budget situation even worse.
Where does the PM get his advice? We know that his department initiated a request to Treasury to investigate increased taxation of LNG, so they most likely understood why it is warranted. But is Albo being like Trump and not listening to contrary advice?
Michael Keating is a former Secretary of the Departments of Prime Minister and Cabinet, Finance and Employment, and Industrial Relations. He is presently a visiting fellow at the Australian National University.