November 23, 2020
Good policy will unlock investment and growth
A new report from EY, Australia’s Oil and Gas Industry: Kickstarting Recovery from COVID-19, has confirmed the oil and gas industry’s important contribution to the Australian economy. Over the past decade more than $450bn has been invested in oil and gas projects, supporting around 80,000 jobs and raising more than $77bn in tax payments to fund essential services and projects.
Australia is a leading producer of oil and natural gas and has abundant reserves which will last for many years to come. However, supportive policy investment and operating environments are needed to capture the next wave of growth for the oil and gas industry.
From 2005 to 2019, Australia fell from 5th place to 18th place in World Bank’s global Ease of Doing Business index. The slip in Australia’s competitiveness rankings is indicative of wider policy inefficiencies which are contributing to missed growth opportunities, ceding investment to other countries which present more attractive investment environments.
EY found that overlapping State and Federal regulations within the Environmental Protection and Biodiversity (EPBC) Act, for example, are presenting an unnecessary cost and time hindrance to project approvals and could be significantly streamlined. Likewise, the rigidity of current approvals processes is also burdensome, and does not take the diversity of projects into adequate consideration, applying an impractical ‘one-size-fits-all’ approach.
EY stated that if no action is taken to decrease the stifling effect of the regulatory double-handling, every $1bn of investment lost through regulation will result in an overall loss of $1.79bn to the economy.
Conversely, if the right investment settings are implemented and a new phase of long term investment is triggered— what the authors call a “high growth scenario” — national economic output could be boosted by more than $350bn and support the creation of 220,000 jobs over the next two decades.
The report cited several moves that could be made by government and industry to support this scenario, including implementing shorter depreciation time frames for assets; realigning joint venture arrangements to improve efficiency; and stabilising resource tax settings to encourage investment from smaller producers.
These revisions will not only ensure continued high returns for the oil and gas sector, but also stimulate supply chains across multiple industries, supporting the means for an economy-wide recovery.