Tax could end LNG advantagePeter Ker July 13, 2011 SMHTHE...

Tax could end LNG advantage

Peter Ker July 13, 2011 SMH

THE Gillard government's carbon tax threatens to neutralise Australian LNG exporters' geographic advantage over competitors from the Middle East, analysts warn.
And as the battle for Asian gas buyers looks likely to heat up under a carbon tax, multiple analysts have agreed that the tax would affect Santos more than other local suppliers.
Japan, Korea and China are expected to drive growth in LNG consumption in the decades ahead, giving Australian companies a clear ''proximity'' advantage over competitors in Qatar, Oman and Yemen.
But in 50 weeks Australian LNG exporters will have to add the Gillard government's carbon tax to their costs, and Macquarie Bank says the average cost would be ''broadly equal to the shipping differential between Qatar and Australia to the premium Asian markets''.
That impost would come despite LNG exporters winning 50 per cent protection for their emissions under the tax plan. Amid a range of forecasts released by investment banks, UBS predicts Santos's earnings could suffer by 5.1 per cent in the first year of the tax. Santos is expected to be harder hit than other players because its Cooper Basin gasfields have a high carbon intensity and because a bigger part of its business is focused on domestic gas supply, which would enjoy less protection than exports.
Santos's interest in coal seam gas projects - which require emissions-intensive beneficiation before sale - is also thought to increase its exposure to the carbon tax.
Woodside Petroleum's earnings are forecast to slide as much as 2.4 per cent, but analysts warn that the tax would make remote, carbon-intensive and financially marginal projects like Browse more difficult to justify. Woodside's partners in the Browse project are believed to want a cheaper solution than building a processing plant on James Price Point, and Macquarie analysts say the carbon tax ''may provide added ammunition to the more reluctant members of the joint venture to push for piping the gas back to the North-West Shelf''.
Santos yesterday resisted suggestions it would be worst affected, saying it would be able to pass on carbon costs and could benefit if the tax led to more gas being sold in Australia to replace declines in coal-fired power. ''We do see increased demand domestically and in Asia for natural gas in a carbon-constrained world,'' a spokesman said.