While gas companies spruik the promise of more jobs and economic opportunities for local communities, and significant tax and royalty revenues for governments, unfortunately the reality of unconventional gas development is very different.
Research and statistics from unconventional gas development in Australia reveal that these promises just don’t stack up and that there are a range of negative economic impacts following gasfield industrialisation.
Limited Job Creation: The gas industry is a highly capital-intensive industry that provides relatively small numbers of long term jobs. The Office of the Chief Economist estimates that the entire oil and gas industry in Australia employed just 29,000 people in 2015/16, which is less than one quarter of one per cent of the total Australian workforce. By comparison, in 2016, Australian agricultural industries employed more than 10 times as many people as the oil and gas industry combined.
- Boom and Bust Cycle: The majority of unconventional gas industry jobs are required for the short initial construction phase only. According to the Office of the Chief Economist, the three major unconventional gas projects in Queensland employed 16,000 people during their brief construction phase, with employment falling by over 80% to 3,000 as the projects entered their operational phase.
- Few spill over jobs: In one of the largest and most rapid resource expansions ever seen in Australia, researchers found that job spill over into non-mining employment following Queensland coal seam gas (CSG) development was “negligible”. Retail and manufacturing showed minimal growth whilst other local services jobs and agricultural employment declined. Overall, 9 jobs were lost in the services sector for every 10 new CSG jobs, whilst 18 agricultural jobs were lost for every 10 people employed in the coal seam gas industry.
- Transient Workforces: Existing unconventional gas developments in Australia have relied extensively on the use of fly-in, fly-out (FIFO) and drive-in, drive-out (DIDO) workforces which have wide ranging social impacts including: decline in local resident populations with flow on effects on local schools, essential services and volunteer organisations; reduced community cohesion; impacts on housing availability and affordability; increased rents and other living expenses; detrimental impacts on local businesses; and social problems such as violence and crime in ‘host’ communities.
Negative Economic Impacts on Local Businesses
- A 2013 study of people working in non-gas industry employment in rural Queensland reported a deterioration in financial capital, local infrastructure, social cohesion, and local skills and knowledge as a result of CSG development. The main reasons cited for these impacts were the loss of skilled staff to the gas industry and the increased cost of labour, rent, transport, and goods and services for local businesses.
- In 2016, the CSIRO released a report detailing the total losses to gross revenues incurred by farmers who host unconventional gasfields on their properties. The report found that the alienation of productive farmland for CSG infrastructure in Queensland results in losses in gross economic returns of up to 10.9%, with landholders losing an average $2.17 million in revenue as a result.
Limited Economic Benefits for Australia
Gas companies often cite the amount of money they invest or the value of the gas they sell as proof of the economic benefits of their projects. However, these numbers say little about benefits for Australians if the money invested in a project is spent on equipment from overseas, profits flow to foreign investors and the companies pay little tax or royalties.
The oil and gas industry in Australia is over 80% foreign owned, which means that the vast majority of the profits flow to overseas owners and are not spent in the local economy. To date, the unconventional gas industry in Australia has shown a preference for sourcing materials and equipment from overseas, thereby denying any benefits to Australian manufacturers. For example, the huge LNG export facilities at Gladstone in Queensland were entirely designed and built overseas by global oil and gas engineering company Bechtel.
Taxes and Royalties
There are two ways in which Australian governments levy the petroleum sector for its inputs so that Australia (theoretically) receives a revenue for the nation’s finite reserves of oil and gas – through resource taxation and through royalties. All onshore oil and gas projects in Australia are subject to State or Commonwealth royalties of 10%. They are also subject to the Petroleum Resource Rent Tax (PRRT), a profit-based primary resource tax. In addition, oil and gas companies are subject to corporate and other taxes that are paid by all companies in the economy.
- Tax Revenue Shortfalls: According to the Tax Justice Network, a decade ago the PRRT system worked reasonably well. However, changes to the PRRT system have expanded loopholes and, combined with aggressive tax avoidance, have meant that the effectiveness of the PRRT system has been gutted. The situation has become so bad, Australia is now practically giving away its natural resources to multinational corporations for free. The ABC reports that almost 60% of resource and energy companies paid no tax in 2014/15. A comparison of Australia's top competitors in the growing LNG export industry shows that Australia is falling far behind in its ability to capture sufficient public benefit from private exploitation of oil and gas resources.
“By 2021 Australia will eclipse the Persian Gulf state of Qatar to become the world's biggest exporter of liquefied natural gas. In that year, Qatar's government will receive $26.6 billion in royalties from the multinational companies exploiting its offshore gasfields. According to Treasury estimates, Australia will receive just $800 million for the same volume of gas leaving our shores.” Tax Justice Network
- Royalties Shortfalls: Gas industry contributions to the Australian nation via royalty payments are also falling well short of expectations, with Queensland reaping very little of the royalties that it was promised. The QLD Treasury mid-year review in 2013-14 forecasted $482M for petroleum royalties to flow during 2015-16, however, actual royalties from onshore oil and gas were just $36M in total from all CSG and conventional gas in 2015-16. That equates to only 7.5% of projected royalty payments, compared to what was expected just three years earlier. The reality is down by $446 Million.
- Low Corporate Tax Rates: Based on figures from the Australian Tax Office (ATO), the Australia Institute reports that the oil and gas industry as a whole paid $1.3 billion in corporate tax on profits of $20.2 billion in 2013. This means it paid an effective corporate tax rate of just six per cent, well below the theoretical corporate tax rate of 30 per cent.
- Corporate Tax Avoidance: In late 2016, the ATO revealed that a number of large companies in Australia paid no corporate tax in the 2014/15 financial year, including two of the gas companies with CSG projects in Queensland and exploration tenements across the country. ATO figures show that Origin Energy Ltd (total taxable income $12,200,600,757) and Santos Ltd (total taxable income $3,389,399,798) both paid ZERO corporate tax in 2014/15.