How a carbon tax may impact Australia’s LNG industry

(Reuters) – Australia’s government plans to introduce a fixed price on carbon pollution from mid 2012 ahead of a full emissions trading scheme three to five years later, as part of its efforts to fight climate change.

The nation’s burgeoning 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 to ensure LNG projects are internationally competitive.

Here are some questions and answers on how carbon policy could impact Australia’s LNG projects.

WHAT WILL AUSTRALIA’S CARBON PRICE BE?

Although the government has proposed a carbon tax, it has not set the price, and the details of the price and compensation will be worked out by a multi-party climate committee.

Australia’s top climate adviser said last week that the carbon price should be set at between A$20 and A$30 ($20.26 and $30.39) a tonne, a recommendation in line with mining industry and analyst forecasts.

HOW WILL THE CARBON TAX IMPACT THE LNG INDUSTRY?

Since a carbon price has not been fixed, analysts have not yet been able to determine the exact cost of the tax on LNG projects. Some of Australia’s LNG producers are among Australia’s top carbon polluters and a price on carbon would affect their rate of return.

A report by JP Morgan analyst Garry Sherriff found that it would have a “modest” impact on the earnings per share of Australian oil and gas companies Woodside Petroleum and Santos from 2013 through 2015.

Under a best case scenario of a carbon price of A$20 per tonne with 70 percent of emissions exempt from the tax, Woodside’s earnings per share could fall less than 2 percent per year from 2013 through 2015, Sherriff said.

Woodside is the operator of Australia’s North West Shelf Venture, which produces 16.5 million tonnes per annum of LNG, and is scheduled to start-up another LNG project, Pluto LNG later this year.

The bulk of the costs for an LNG project are capital expenditure and operating costs are comparatively low, so while the carbon price could be a significant part of the operating cost, it would be a small portion of the project overall.

At a cost of A$20 per tonne, the carbon tax could add a cost of hundreds of millions of dollars over time across the industry, according to one analyst estimate.

http://www.reuters.com/article/2011/03/24/idUSL3E7EM0IU20110324