Why is oil & gas industry seeing red over federal budget?

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Why is oil & gas industry seeing red over federal budget?

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 Why is oil & gas industry seeing red over federal budget?
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Summary

  • The Australian government has allocated A$1.8 billion in the federal budget towards energy sector development.
  • The budget is primarily focused on curbing greenhouse emissions and expanding the gas sector.
  • The oil industry has raised concerns regarding a levy that could impact the economy and jobs.

The Australian government revealed the 2021-22 federal budget yesterday. With its commitment to drive down gas prices by making significant investments towards unlocking more gas sources, the government allocated more than AU$1.8 billion for the energy sector.

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Where is the energy budget allocated?

The major portion of the budget for the energy sector is planned under two main categories: initiatives to drive Australia’s gas-fired recovery and lowering carbon emissions. With an aim to switch to clean energy to achieve carbon neutrality by 2050, the federal government allotted AU$58.6 million for the expansion of the gas sector and AU$1.2 billion for low emissions technology innovation and commercialisation.

Must Read: Federal Budget 2021-22: Who are the major winners?

The allocation of such a huge section towards the low emissions technology innovation has clearly indicated the country's commitment towards addressing the global greenhouse emission issue. The government has allocated AU$639 million to boost technology initiatives and partnerships by co-funding R&D activities in the Indo-Pacific region.

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In addition to that, AU$275.5 million has been unveiled to fast track the development of four additional hydrogen export hubs as part of the focus to build an Australian hydrogen industry to over A$850 million. An investment of A$263.7 million towards the development of carbon capture and storage technology is planned.

Additionally, AU$58.6 million will support critical gas infrastructure projects, development of the Wallumbilla Gas Supply Hub, empowerment of gas reliant businesses, facilitate Commonwealth support for future gas supply and strengthening of the government's gas system planning framework.

Good Read: Federal Budget 2021: Australia gets nearly AU$1 billion digital boost

Apart from this, a significant portion of the budget is planned to maintain affordability and reliability in the electricity system and long-term fuel security.

What is the industry response to a new levy?

There is a mixed industry reaction to the federal budget allocation. The government focus on lowering emissions and aiding the gas industry expansion has been welcomed. However, the Australian Petroleum Production and Exploration Association (APPEA) is displeased with a new levy announced in the government’s 2021-22 budget.

The oil industry is surprised by the levy on the offshore oil & gas industry aimed at recovering AU$250 million cost for the decommissioning of an oil field off northwest Australia. The project owner Northern Oil & Gas Australia collapsed in 2019.

The move has shocked the industry as it was not flagged in the proposed new framework for decommissioning rules, which were set out last month.

The government took charge of removing the massive floating production storage and offloading (FPSO) vessel and rehabilitating the Laminaria-Corallina oil fields located on the Timor Sea.

Also Read: Why is Clean Energy Council not pleased with federal budget?

The oil industry lobby is pushing the government to find alternative ways to recover the decommissioning cost, as it is expected to impact the investments and job opportunities in the sector.

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