After a turbulent 2020, industry is looking for drivers of economic growth through measures that target long-term business investment, according to the Australian Petroleum Production and Exploration Association’s 2021-22 Federal Pre-budget Submission.

To help kick-start the economy as Australia recovered from the COVID-19 pandemic, the 2020-21 Federal Budget introduced short-term measures such as temporary full expensing and loss carryback which were designed to have an immediate impact.

APPEA said the Federal Government’s early and decisive actions helped to stimulate the economy to pull it out of its first recession in 30 years.

APPEA’s pre-budget submission said efforts to increase investment in the resources sector was needed to assist long-term recovery.

“While there is an understandable focus on households to drive recovery from the current downturn, the reality is that households will not spend without secure, well-paying jobs,” APPEA’s submission said. “These jobs will be delivered because of substantial investment in capital-intensive projects such as infrastructure and resources.

“Capital-intensive projects can take upwards of six years to complete once an investment decision is taken, while job creation arising starts almost immediately from the time investment decisions were taken.”

A report from consultants Ernst & Young (EY), engaged by APPEA, found there were significant economic dividends from unleashing a new wave of oil and gas developments.

The report, Australia’s oil and gas industry: Kickstarting recovery from COVID-19, said it was estimated that a new wave of investment would increase national economic output by more than $350 billion, with more than 220,000 jobs created over the next two decades.

It said that the benefits do not stop there.

“The gains from reinvigorated activity in the oil and gas industry have the potential to spread throughout the economy, providing a kickstart for Australia’s industrial base by lowering energy prices, boosting demand for services, and generating wealth for all Australians,” the EY report said.

However, it said there were challenges ahead.

“The slump in oil and LNG prices, which has been exacerbated by the COVID-19 pandemic, has caused producers worldwide to cut expectations for revenues and global gas consumption over the next several years,” the report said.

A separate report released by Deloitte, the 2021 Oil and Gas Outlook, found that the soft demand for oil and rallying equity markets resulted in oil and gas companies lacking the confidence and capital for investment.

“Oil and gas is a depleting resource with an average annual production decline rate of 6-7 per cent,” the Deloitte report said. “Add to that five years of low capital spending and deep cuts in 2020 and we have an industry at risk of underinvestment.”

The APPEA pre-budget submission outlined five key recommendations to encourage investment in the industry:

• Encourage employment and job creation by ensuring it is clear salary and wage costs are immediately deductible for all industries, thereby removing ambiguity for capital-intensive industries like infrastructure, mining, utilities distribution and transmission, agriculture, construction and oil and gas.
• Promote investment through the introduction of investment allowance(s) to provide positive signals and encourage investment, increase employment opportunities, promote domestic spending by lowering the overall cost of projects.
• Remove barriers to business project restructuring by reforming the rules around transactions involving swaps of permits and existing infrastructure in Australia, making them tax neutral.
• Improve investment and supply certainty by amending the Petroleum Resource Rent Tax (PRRT) Assessment Act 1987 to link a petroleum project to a production licence where a production licence may revert to a retention lease.
• Increase investment certainty and maximise the efficient use of infrastructure by closing out the PRRT Gas Transfer Pricing Review without change.

APPEA Chief Executive Andrew McConville said the Australian oil and gas industry was ready and fully committed to supporting the next phase of the Government’s economic recovery agenda. 

“The opportunity through the 2021-22 Federal Budget is to ensure economic growth and job creation can occur through measures that target long-term business investment,” he said. “Establishing the right fiscal and policy settings and undertaking the reform needed will also help to create jobs, stimulate local economies and generate long-term government revenues.

“This will ensure Australia can create a positive, competitive and stable investment and operating environment.”

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