❓ Hon Jon Ford questions a proposed royalty discount for gas projects in the mid-west, focusing on justification, impact on Commonwealth grants, and potential service cuts. Hon Norman Moore defends the discount, citing the higher costs of tight gas extraction and minimal impact on government projects.
AnsweredQoN 723Legislative Council
QuestionView source ↗
GAS PROJECTs — ROYALTY RATE DISCOUNT
I refer to the minister’s recently reported comments in The West Australian that he would consider a royalties discount for a gas project in the mid-west region. (1) How would the minister justify this decision? (2) What impact, if any, would this have on Commonwealth Grants Commission allocations? (3) What services or government projects would be cut back as a result of the loss of this revenue? Hon NORMAN MOORE
I refer to the minister’s recently reported comments in The West Australian that he would consider a royalties discount for a gas project in the mid-west region. (1) How would the minister justify this decision? (2) What impact, if any, would this have on Commonwealth Grants Commission allocations? (3) What services or government projects would be cut back as a result of the loss of this revenue? Hon NORMAN MOORE
AnswerView source ↗
I thank the honourable member for some notice of this question. I suggest that he should have read the article more carefully. (1) The recently announced lower royalty rate for gas projects referred only to those projects that meet the criteria for unconventional gas fields—that is, tight gas. Tight gas is natural gas that is produced from difficult to extract reservoirs that require extensive drilling and stimulation to extract gas at commercial rates. Gas resources currently viewed as tight gas in the south west region of the state could potentially hold enough gas to satisfy much of the state’s needs far into the future. Together with the added cost of drilling a large number of wells to assist the extraction of the tight gas, pre-wellhead costs for this type of development are considerably higher than those for conventional gas fields. After considering the specific factors affecting tight-gas development it has been determined that a five per cent royalty rate for WA production from a hydrocarbon pool that meets the tight-gas definition is comparable with a 10 per cent wellhead royalty rate applied to a conventional gas field after allowing for the additional drilling and extraction costs. (2) Through the operation of the commonwealth grants process, the calculation would be based on the state collecting its royalties on a gas project at the current rate of 10 per cent per wellhead. Therefore, there would be a negative effect on the state’s grants due to this decision. However, as the expected collection of tight-gas royalties is estimated to be only a very small percentage of the overall royalty take for the state, the impact of any negative effect on the Commonwealth Grants Commission calculation would be minor. It is important to note that the Commonwealth Grants Commission process is under periodic review to ensure fairness between the states. (3) Potential royalty revenues from tight-gas developments are in line with royalty revenues collected from conventional gas fields when considering the additional costs involved for tight-gas development. Also, the flow-on effect from such a development would provide benefits to the state other than the additional royalties. For example, tight-gas operations employ a relatively much higher number of personnel compared with regular gas fields. This is because of the greater number of wells that need to be drilled with associated well stimulation. The tight-gas industry, therefore, presents new economic opportunities for regional Western Australia on a small yet potentially significant scale. The tight-gas industry also presents new employment opportunities for Western Australian small businesses, including general retail, transport, food preparation and local manufacturing. This is particularly beneficial in the current economic environment and also presents the fiscal benefit of additional state payroll taxes. Considering these factors, it is expected that there would be no negative impact on planned government projects, due to the application of a lower royalty rate to the development of tight-gas fields.
(1) How would the minister justify this decision? (2) What impact, if any, would this have on Commonwealth Grants Commission allocations? (3) What services or government projects would be cut back as a result of the loss of this revenue? Hon NORMAN MOORE replied: I thank the honourable member for some notice of this question. I suggest that he should have read the article more carefully. (1) The recently announced lower royalty rate for gas projects referred only to those projects that meet the criteria for unconventional gas fields—that is, tight gas. Tight gas is natural gas that is produced from difficult to extract reservoirs that require extensive drilling and stimulation to extract gas at commercial rates. Gas resources currently viewed as tight gas in the south west region of the state could potentially hold enough gas to satisfy much of the state’s needs far into the future. Together with the added cost of drilling a large number of wells to assist the extraction of the tight gas, pre-wellhead costs for this type of development are considerably higher than those for conventional gas fields. After considering the specific factors affecting tight-gas development it has been determined that a five per cent royalty rate for WA production from a hydrocarbon pool that meets the tight-gas definition is comparable with a 10 per cent wellhead royalty rate applied to a conventional gas field after allowing for the additional drilling and extraction costs. (2) Through the operation of the commonwealth grants process, the calculation would be based on the state collecting its royalties on a gas project at the current rate of 10 per cent per wellhead. Therefore, there would be a negative effect on the state’s grants due to this decision. However, as the expected collection of tight-gas royalties is estimated to be only a very small percentage of the overall royalty take for the state, the impact of any negative effect on the Commonwealth Grants Commission calculation would be minor. It is important to note that the Commonwealth Grants Commission process is under periodic review to ensure fairness between the states. (3) Potential royalty revenues from tight-gas developments are in line with royalty revenues collected from conventional gas fields when considering the additional costs involved for tight-gas development. Also, the flow-on effect from such a development would provide benefits to the state other than the additional royalties. For example, tight-gas operations employ a relatively much higher number of personnel compared with regular gas fields. This is because of the greater number of wells that need to be drilled with associated well stimulation. The tight-gas industry, therefore, presents new economic opportunities for regional Western Australia on a small yet potentially significant scale. The tight-gas industry also presents new employment opportunities for Western Australian small businesses, including general retail, transport, food preparation and local manufacturing. This is particularly beneficial in the current economic environment and also presents the fiscal benefit of additional state payroll taxes. Considering these factors, it is expected that there would be no negative impact on planned government projects, due to the application of a lower royalty rate to the development of tight-gas fields.
(2) What impact, if any, would this have on Commonwealth Grants Commission allocations? (3) What services or government projects would be cut back as a result of the loss of this revenue? Hon NORMAN MOORE replied: I thank the honourable member for some notice of this question. I suggest that he should have read the article more carefully. (1) The recently announced lower royalty rate for gas projects referred only to those projects that meet the criteria for unconventional gas fields—that is, tight gas. Tight gas is natural gas that is produced from difficult to extract reservoirs that require extensive drilling and stimulation to extract gas at commercial rates. Gas resources currently viewed as tight gas in the south west region of the state could potentially hold enough gas to satisfy much of the state’s needs far into the future. Together with the added cost of drilling a large number of wells to assist the extraction of the tight gas, pre-wellhead costs for this type of development are considerably higher than those for conventional gas fields. After considering the specific factors affecting tight-gas development it has been determined that a five per cent royalty rate for WA production from a hydrocarbon pool that meets the tight-gas definition is comparable with a 10 per cent wellhead royalty rate applied to a conventional gas field after allowing for the additional drilling and extraction costs. (2) Through the operation of the commonwealth grants process, the calculation would be based on the state collecting its royalties on a gas project at the current rate of 10 per cent per wellhead. Therefore, there would be a negative effect on the state’s grants due to this decision. However, as the expected collection of tight-gas royalties is estimated to be only a very small percentage of the overall royalty take for the state, the impact of any negative effect on the Commonwealth Grants Commission calculation would be minor. It is important to note that the Commonwealth Grants Commission process is under periodic review to ensure fairness between the states. (3) Potential royalty revenues from tight-gas developments are in line with royalty revenues collected from conventional gas fields when considering the additional costs involved for tight-gas development. Also, the flow-on effect from such a development would provide benefits to the state other than the additional royalties. For example, tight-gas operations employ a relatively much higher number of personnel compared with regular gas fields. This is because of the greater number of wells that need to be drilled with associated well stimulation. The tight-gas industry, therefore, presents new economic opportunities for regional Western Australia on a small yet potentially significant scale. The tight-gas industry also presents new employment opportunities for Western Australian small businesses, including general retail, transport, food preparation and local manufacturing. This is particularly beneficial in the current economic environment and also presents the fiscal benefit of additional state payroll taxes. Considering these factors, it is expected that there would be no negative impact on planned government projects, due to the application of a lower royalty rate to the development of tight-gas fields.
(3) What services or government projects would be cut back as a result of the loss of this revenue? Hon NORMAN MOORE replied: I thank the honourable member for some notice of this question. I suggest that he should have read the article more carefully. (1) The recently announced lower royalty rate for gas projects referred only to those projects that meet the criteria for unconventional gas fields—that is, tight gas. Tight gas is natural gas that is produced from difficult to extract reservoirs that require extensive drilling and stimulation to extract gas at commercial rates. Gas resources currently viewed as tight gas in the south west region of the state could potentially hold enough gas to satisfy much of the state’s needs far into the future. Together with the added cost of drilling a large number of wells to assist the extraction of the tight gas, pre-wellhead costs for this type of development are considerably higher than those for conventional gas fields. After considering the specific factors affecting tight-gas development it has been determined that a five per cent royalty rate for WA production from a hydrocarbon pool that meets the tight-gas definition is comparable with a 10 per cent wellhead royalty rate applied to a conventional gas field after allowing for the additional drilling and extraction costs. (2) Through the operation of the commonwealth grants process, the calculation would be based on the state collecting its royalties on a gas project at the current rate of 10 per cent per wellhead. Therefore, there would be a negative effect on the state’s grants due to this decision. However, as the expected collection of tight-gas royalties is estimated to be only a very small percentage of the overall royalty take for the state, the impact of any negative effect on the Commonwealth Grants Commission calculation would be minor. It is important to note that the Commonwealth Grants Commission process is under periodic review to ensure fairness between the states. (3) Potential royalty revenues from tight-gas developments are in line with royalty revenues collected from conventional gas fields when considering the additional costs involved for tight-gas development. Also, the flow-on effect from such a development would provide benefits to the state other than the additional royalties. For example, tight-gas operations employ a relatively much higher number of personnel compared with regular gas fields. This is because of the greater number of wells that need to be drilled with associated well stimulation. The tight-gas industry, therefore, presents new economic opportunities for regional Western Australia on a small yet potentially significant scale. The tight-gas industry also presents new employment opportunities for Western Australian small businesses, including general retail, transport, food preparation and local manufacturing. This is particularly beneficial in the current economic environment and also presents the fiscal benefit of additional state payroll taxes. Considering these factors, it is expected that there would be no negative impact on planned government projects, due to the application of a lower royalty rate to the development of tight-gas fields.
Hon NORMAN MOORE replied: I thank the honourable member for some notice of this question. I suggest that he should have read the article more carefully. (1) The recently announced lower royalty rate for gas projects referred only to those projects that meet the criteria for unconventional gas fields—that is, tight gas. Tight gas is natural gas that is produced from difficult to extract reservoirs that require extensive drilling and stimulation to extract gas at commercial rates. Gas resources currently viewed as tight gas in the south west region of the state could potentially hold enough gas to satisfy much of the state’s needs far into the future. Together with the added cost of drilling a large number of wells to assist the extraction of the tight gas, pre-wellhead costs for this type of development are considerably higher than those for conventional gas fields. After considering the specific factors affecting tight-gas development it has been determined that a five per cent royalty rate for WA production from a hydrocarbon pool that meets the tight-gas definition is comparable with a 10 per cent wellhead royalty rate applied to a conventional gas field after allowing for the additional drilling and extraction costs. (2) Through the operation of the commonwealth grants process, the calculation would be based on the state collecting its royalties on a gas project at the current rate of 10 per cent per wellhead. Therefore, there would be a negative effect on the state’s grants due to this decision. However, as the expected collection of tight-gas royalties is estimated to be only a very small percentage of the overall royalty take for the state, the impact of any negative effect on the Commonwealth Grants Commission calculation would be minor. It is important to note that the Commonwealth Grants Commission process is under periodic review to ensure fairness between the states. (3) Potential royalty revenues from tight-gas developments are in line with royalty revenues collected from conventional gas fields when considering the additional costs involved for tight-gas development. Also, the flow-on effect from such a development would provide benefits to the state other than the additional royalties. For example, tight-gas operations employ a relatively much higher number of personnel compared with regular gas fields. This is because of the greater number of wells that need to be drilled with associated well stimulation. The tight-gas industry, therefore, presents new economic opportunities for regional Western Australia on a small yet potentially significant scale. The tight-gas industry also presents new employment opportunities for Western Australian small businesses, including general retail, transport, food preparation and local manufacturing. This is particularly beneficial in the current economic environment and also presents the fiscal benefit of additional state payroll taxes. Considering these factors, it is expected that there would be no negative impact on planned government projects, due to the application of a lower royalty rate to the development of tight-gas fields.
I thank the honourable member for some notice of this question. I suggest that he should have read the article more carefully. (1) The recently announced lower royalty rate for gas projects referred only to those projects that meet the criteria for unconventional gas fields—that is, tight gas. Tight gas is natural gas that is produced from difficult to extract reservoirs that require extensive drilling and stimulation to extract gas at commercial rates. Gas resources currently viewed as tight gas in the south west region of the state could potentially hold enough gas to satisfy much of the state’s needs far into the future. Together with the added cost of drilling a large number of wells to assist the extraction of the tight gas, pre-wellhead costs for this type of development are considerably higher than those for conventional gas fields. After considering the specific factors affecting tight-gas development it has been determined that a five per cent royalty rate for WA production from a hydrocarbon pool that meets the tight-gas definition is comparable with a 10 per cent wellhead royalty rate applied to a conventional gas field after allowing for the additional drilling and extraction costs. (2) Through the operation of the commonwealth grants process, the calculation would be based on the state collecting its royalties on a gas project at the current rate of 10 per cent per wellhead. Therefore, there would be a negative effect on the state’s grants due to this decision. However, as the expected collection of tight-gas royalties is estimated to be only a very small percentage of the overall royalty take for the state, the impact of any negative effect on the Commonwealth Grants Commission calculation would be minor. It is important to note that the Commonwealth Grants Commission process is under periodic review to ensure fairness between the states. (3) Potential royalty revenues from tight-gas developments are in line with royalty revenues collected from conventional gas fields when considering the additional costs involved for tight-gas development. Also, the flow-on effect from such a development would provide benefits to the state other than the additional royalties. For example, tight-gas operations employ a relatively much higher number of personnel compared with regular gas fields. This is because of the greater number of wells that need to be drilled with associated well stimulation. The tight-gas industry, therefore, presents new economic opportunities for regional Western Australia on a small yet potentially significant scale. The tight-gas industry also presents new employment opportunities for Western Australian small businesses, including general retail, transport, food preparation and local manufacturing. This is particularly beneficial in the current economic environment and also presents the fiscal benefit of additional state payroll taxes. Considering these factors, it is expected that there would be no negative impact on planned government projects, due to the application of a lower royalty rate to the development of tight-gas fields.
(1) The recently announced lower royalty rate for gas projects referred only to those projects that meet the criteria for unconventional gas fields—that is, tight gas. Tight gas is natural gas that is produced from difficult to extract reservoirs that require extensive drilling and stimulation to extract gas at commercial rates. Gas resources currently viewed as tight gas in the south west region of the state could potentially hold enough gas to satisfy much of the state’s needs far into the future. Together with the added cost of drilling a large number of wells to assist the extraction of the tight gas, pre-wellhead costs for this type of development are considerably higher than those for conventional gas fields. After considering the specific factors affecting tight-gas development it has been determined that a five per cent royalty rate for WA production from a hydrocarbon pool that meets the tight-gas definition is comparable with a 10 per cent wellhead royalty rate applied to a conventional gas field after allowing for the additional drilling and extraction costs. (2) Through the operation of the commonwealth grants process, the calculation would be based on the state collecting its royalties on a gas project at the current rate of 10 per cent per wellhead. Therefore, there would be a negative effect on the state’s grants due to this decision. However, as the expected collection of tight-gas royalties is estimated to be only a very small percentage of the overall royalty take for the state, the impact of any negative effect on the Commonwealth Grants Commission calculation would be minor. It is important to note that the Commonwealth Grants Commission process is under periodic review to ensure fairness between the states. (3) Potential royalty revenues from tight-gas developments are in line with royalty revenues collected from conventional gas fields when considering the additional costs involved for tight-gas development. Also, the flow-on effect from such a development would provide benefits to the state other than the additional royalties. For example, tight-gas operations employ a relatively much higher number of personnel compared with regular gas fields. This is because of the greater number of wells that need to be drilled with associated well stimulation. The tight-gas industry, therefore, presents new economic opportunities for regional Western Australia on a small yet potentially significant scale. The tight-gas industry also presents new employment opportunities for Western Australian small businesses, including general retail, transport, food preparation and local manufacturing. This is particularly beneficial in the current economic environment and also presents the fiscal benefit of additional state payroll taxes. Considering these factors, it is expected that there would be no negative impact on planned government projects, due to the application of a lower royalty rate to the development of tight-gas fields.
(2) Through the operation of the commonwealth grants process, the calculation would be based on the state collecting its royalties on a gas project at the current rate of 10 per cent per wellhead. Therefore, there would be a negative effect on the state’s grants due to this decision. However, as the expected collection of tight-gas royalties is estimated to be only a very small percentage of the overall royalty take for the state, the impact of any negative effect on the Commonwealth Grants Commission calculation would be minor. It is important to note that the Commonwealth Grants Commission process is under periodic review to ensure fairness between the states. (3) Potential royalty revenues from tight-gas developments are in line with royalty revenues collected from conventional gas fields when considering the additional costs involved for tight-gas development. Also, the flow-on effect from such a development would provide benefits to the state other than the additional royalties. For example, tight-gas operations employ a relatively much higher number of personnel compared with regular gas fields. This is because of the greater number of wells that need to be drilled with associated well stimulation. The tight-gas industry, therefore, presents new economic opportunities for regional Western Australia on a small yet potentially significant scale. The tight-gas industry also presents new employment opportunities for Western Australian small businesses, including general retail, transport, food preparation and local manufacturing. This is particularly beneficial in the current economic environment and also presents the fiscal benefit of additional state payroll taxes. Considering these factors, it is expected that there would be no negative impact on planned government projects, due to the application of a lower royalty rate to the development of tight-gas fields.
(3) Potential royalty revenues from tight-gas developments are in line with royalty revenues collected from conventional gas fields when considering the additional costs involved for tight-gas development. Also, the flow-on effect from such a development would provide benefits to the state other than the additional royalties. For example, tight-gas operations employ a relatively much higher number of personnel compared with regular gas fields. This is because of the greater number of wells that need to be drilled with associated well stimulation. The tight-gas industry, therefore, presents new economic opportunities for regional Western Australia on a small yet potentially significant scale. The tight-gas industry also presents new employment opportunities for Western Australian small businesses, including general retail, transport, food preparation and local manufacturing. This is particularly beneficial in the current economic environment and also presents the fiscal benefit of additional state payroll taxes. Considering these factors, it is expected that there would be no negative impact on planned government projects, due to the application of a lower royalty rate to the development of tight-gas fields.
(1) How would the minister justify this decision? (2) What impact, if any, would this have on Commonwealth Grants Commission allocations? (3) What services or government projects would be cut back as a result of the loss of this revenue? Hon NORMAN MOORE replied: I thank the honourable member for some notice of this question. I suggest that he should have read the article more carefully. (1) The recently announced lower royalty rate for gas projects referred only to those projects that meet the criteria for unconventional gas fields—that is, tight gas. Tight gas is natural gas that is produced from difficult to extract reservoirs that require extensive drilling and stimulation to extract gas at commercial rates. Gas resources currently viewed as tight gas in the south west region of the state could potentially hold enough gas to satisfy much of the state’s needs far into the future. Together with the added cost of drilling a large number of wells to assist the extraction of the tight gas, pre-wellhead costs for this type of development are considerably higher than those for conventional gas fields. After considering the specific factors affecting tight-gas development it has been determined that a five per cent royalty rate for WA production from a hydrocarbon pool that meets the tight-gas definition is comparable with a 10 per cent wellhead royalty rate applied to a conventional gas field after allowing for the additional drilling and extraction costs. (2) Through the operation of the commonwealth grants process, the calculation would be based on the state collecting its royalties on a gas project at the current rate of 10 per cent per wellhead. Therefore, there would be a negative effect on the state’s grants due to this decision. However, as the expected collection of tight-gas royalties is estimated to be only a very small percentage of the overall royalty take for the state, the impact of any negative effect on the Commonwealth Grants Commission calculation would be minor. It is important to note that the Commonwealth Grants Commission process is under periodic review to ensure fairness between the states. (3) Potential royalty revenues from tight-gas developments are in line with royalty revenues collected from conventional gas fields when considering the additional costs involved for tight-gas development. Also, the flow-on effect from such a development would provide benefits to the state other than the additional royalties. For example, tight-gas operations employ a relatively much higher number of personnel compared with regular gas fields. This is because of the greater number of wells that need to be drilled with associated well stimulation. The tight-gas industry, therefore, presents new economic opportunities for regional Western Australia on a small yet potentially significant scale. The tight-gas industry also presents new employment opportunities for Western Australian small businesses, including general retail, transport, food preparation and local manufacturing. This is particularly beneficial in the current economic environment and also presents the fiscal benefit of additional state payroll taxes. Considering these factors, it is expected that there would be no negative impact on planned government projects, due to the application of a lower royalty rate to the development of tight-gas fields.
(2) What impact, if any, would this have on Commonwealth Grants Commission allocations? (3) What services or government projects would be cut back as a result of the loss of this revenue? Hon NORMAN MOORE replied: I thank the honourable member for some notice of this question. I suggest that he should have read the article more carefully. (1) The recently announced lower royalty rate for gas projects referred only to those projects that meet the criteria for unconventional gas fields—that is, tight gas. Tight gas is natural gas that is produced from difficult to extract reservoirs that require extensive drilling and stimulation to extract gas at commercial rates. Gas resources currently viewed as tight gas in the south west region of the state could potentially hold enough gas to satisfy much of the state’s needs far into the future. Together with the added cost of drilling a large number of wells to assist the extraction of the tight gas, pre-wellhead costs for this type of development are considerably higher than those for conventional gas fields. After considering the specific factors affecting tight-gas development it has been determined that a five per cent royalty rate for WA production from a hydrocarbon pool that meets the tight-gas definition is comparable with a 10 per cent wellhead royalty rate applied to a conventional gas field after allowing for the additional drilling and extraction costs. (2) Through the operation of the commonwealth grants process, the calculation would be based on the state collecting its royalties on a gas project at the current rate of 10 per cent per wellhead. Therefore, there would be a negative effect on the state’s grants due to this decision. However, as the expected collection of tight-gas royalties is estimated to be only a very small percentage of the overall royalty take for the state, the impact of any negative effect on the Commonwealth Grants Commission calculation would be minor. It is important to note that the Commonwealth Grants Commission process is under periodic review to ensure fairness between the states. (3) Potential royalty revenues from tight-gas developments are in line with royalty revenues collected from conventional gas fields when considering the additional costs involved for tight-gas development. Also, the flow-on effect from such a development would provide benefits to the state other than the additional royalties. For example, tight-gas operations employ a relatively much higher number of personnel compared with regular gas fields. This is because of the greater number of wells that need to be drilled with associated well stimulation. The tight-gas industry, therefore, presents new economic opportunities for regional Western Australia on a small yet potentially significant scale. The tight-gas industry also presents new employment opportunities for Western Australian small businesses, including general retail, transport, food preparation and local manufacturing. This is particularly beneficial in the current economic environment and also presents the fiscal benefit of additional state payroll taxes. Considering these factors, it is expected that there would be no negative impact on planned government projects, due to the application of a lower royalty rate to the development of tight-gas fields.
(3) What services or government projects would be cut back as a result of the loss of this revenue? Hon NORMAN MOORE replied: I thank the honourable member for some notice of this question. I suggest that he should have read the article more carefully. (1) The recently announced lower royalty rate for gas projects referred only to those projects that meet the criteria for unconventional gas fields—that is, tight gas. Tight gas is natural gas that is produced from difficult to extract reservoirs that require extensive drilling and stimulation to extract gas at commercial rates. Gas resources currently viewed as tight gas in the south west region of the state could potentially hold enough gas to satisfy much of the state’s needs far into the future. Together with the added cost of drilling a large number of wells to assist the extraction of the tight gas, pre-wellhead costs for this type of development are considerably higher than those for conventional gas fields. After considering the specific factors affecting tight-gas development it has been determined that a five per cent royalty rate for WA production from a hydrocarbon pool that meets the tight-gas definition is comparable with a 10 per cent wellhead royalty rate applied to a conventional gas field after allowing for the additional drilling and extraction costs. (2) Through the operation of the commonwealth grants process, the calculation would be based on the state collecting its royalties on a gas project at the current rate of 10 per cent per wellhead. Therefore, there would be a negative effect on the state’s grants due to this decision. However, as the expected collection of tight-gas royalties is estimated to be only a very small percentage of the overall royalty take for the state, the impact of any negative effect on the Commonwealth Grants Commission calculation would be minor. It is important to note that the Commonwealth Grants Commission process is under periodic review to ensure fairness between the states. (3) Potential royalty revenues from tight-gas developments are in line with royalty revenues collected from conventional gas fields when considering the additional costs involved for tight-gas development. Also, the flow-on effect from such a development would provide benefits to the state other than the additional royalties. For example, tight-gas operations employ a relatively much higher number of personnel compared with regular gas fields. This is because of the greater number of wells that need to be drilled with associated well stimulation. The tight-gas industry, therefore, presents new economic opportunities for regional Western Australia on a small yet potentially significant scale. The tight-gas industry also presents new employment opportunities for Western Australian small businesses, including general retail, transport, food preparation and local manufacturing. This is particularly beneficial in the current economic environment and also presents the fiscal benefit of additional state payroll taxes. Considering these factors, it is expected that there would be no negative impact on planned government projects, due to the application of a lower royalty rate to the development of tight-gas fields.
Hon NORMAN MOORE replied: I thank the honourable member for some notice of this question. I suggest that he should have read the article more carefully. (1) The recently announced lower royalty rate for gas projects referred only to those projects that meet the criteria for unconventional gas fields—that is, tight gas. Tight gas is natural gas that is produced from difficult to extract reservoirs that require extensive drilling and stimulation to extract gas at commercial rates. Gas resources currently viewed as tight gas in the south west region of the state could potentially hold enough gas to satisfy much of the state’s needs far into the future. Together with the added cost of drilling a large number of wells to assist the extraction of the tight gas, pre-wellhead costs for this type of development are considerably higher than those for conventional gas fields. After considering the specific factors affecting tight-gas development it has been determined that a five per cent royalty rate for WA production from a hydrocarbon pool that meets the tight-gas definition is comparable with a 10 per cent wellhead royalty rate applied to a conventional gas field after allowing for the additional drilling and extraction costs. (2) Through the operation of the commonwealth grants process, the calculation would be based on the state collecting its royalties on a gas project at the current rate of 10 per cent per wellhead. Therefore, there would be a negative effect on the state’s grants due to this decision. However, as the expected collection of tight-gas royalties is estimated to be only a very small percentage of the overall royalty take for the state, the impact of any negative effect on the Commonwealth Grants Commission calculation would be minor. It is important to note that the Commonwealth Grants Commission process is under periodic review to ensure fairness between the states. (3) Potential royalty revenues from tight-gas developments are in line with royalty revenues collected from conventional gas fields when considering the additional costs involved for tight-gas development. Also, the flow-on effect from such a development would provide benefits to the state other than the additional royalties. For example, tight-gas operations employ a relatively much higher number of personnel compared with regular gas fields. This is because of the greater number of wells that need to be drilled with associated well stimulation. The tight-gas industry, therefore, presents new economic opportunities for regional Western Australia on a small yet potentially significant scale. The tight-gas industry also presents new employment opportunities for Western Australian small businesses, including general retail, transport, food preparation and local manufacturing. This is particularly beneficial in the current economic environment and also presents the fiscal benefit of additional state payroll taxes. Considering these factors, it is expected that there would be no negative impact on planned government projects, due to the application of a lower royalty rate to the development of tight-gas fields.
I thank the honourable member for some notice of this question. I suggest that he should have read the article more carefully. (1) The recently announced lower royalty rate for gas projects referred only to those projects that meet the criteria for unconventional gas fields—that is, tight gas. Tight gas is natural gas that is produced from difficult to extract reservoirs that require extensive drilling and stimulation to extract gas at commercial rates. Gas resources currently viewed as tight gas in the south west region of the state could potentially hold enough gas to satisfy much of the state’s needs far into the future. Together with the added cost of drilling a large number of wells to assist the extraction of the tight gas, pre-wellhead costs for this type of development are considerably higher than those for conventional gas fields. After considering the specific factors affecting tight-gas development it has been determined that a five per cent royalty rate for WA production from a hydrocarbon pool that meets the tight-gas definition is comparable with a 10 per cent wellhead royalty rate applied to a conventional gas field after allowing for the additional drilling and extraction costs. (2) Through the operation of the commonwealth grants process, the calculation would be based on the state collecting its royalties on a gas project at the current rate of 10 per cent per wellhead. Therefore, there would be a negative effect on the state’s grants due to this decision. However, as the expected collection of tight-gas royalties is estimated to be only a very small percentage of the overall royalty take for the state, the impact of any negative effect on the Commonwealth Grants Commission calculation would be minor. It is important to note that the Commonwealth Grants Commission process is under periodic review to ensure fairness between the states. (3) Potential royalty revenues from tight-gas developments are in line with royalty revenues collected from conventional gas fields when considering the additional costs involved for tight-gas development. Also, the flow-on effect from such a development would provide benefits to the state other than the additional royalties. For example, tight-gas operations employ a relatively much higher number of personnel compared with regular gas fields. This is because of the greater number of wells that need to be drilled with associated well stimulation. The tight-gas industry, therefore, presents new economic opportunities for regional Western Australia on a small yet potentially significant scale. The tight-gas industry also presents new employment opportunities for Western Australian small businesses, including general retail, transport, food preparation and local manufacturing. This is particularly beneficial in the current economic environment and also presents the fiscal benefit of additional state payroll taxes. Considering these factors, it is expected that there would be no negative impact on planned government projects, due to the application of a lower royalty rate to the development of tight-gas fields.
(1) The recently announced lower royalty rate for gas projects referred only to those projects that meet the criteria for unconventional gas fields—that is, tight gas. Tight gas is natural gas that is produced from difficult to extract reservoirs that require extensive drilling and stimulation to extract gas at commercial rates. Gas resources currently viewed as tight gas in the south west region of the state could potentially hold enough gas to satisfy much of the state’s needs far into the future. Together with the added cost of drilling a large number of wells to assist the extraction of the tight gas, pre-wellhead costs for this type of development are considerably higher than those for conventional gas fields. After considering the specific factors affecting tight-gas development it has been determined that a five per cent royalty rate for WA production from a hydrocarbon pool that meets the tight-gas definition is comparable with a 10 per cent wellhead royalty rate applied to a conventional gas field after allowing for the additional drilling and extraction costs. (2) Through the operation of the commonwealth grants process, the calculation would be based on the state collecting its royalties on a gas project at the current rate of 10 per cent per wellhead. Therefore, there would be a negative effect on the state’s grants due to this decision. However, as the expected collection of tight-gas royalties is estimated to be only a very small percentage of the overall royalty take for the state, the impact of any negative effect on the Commonwealth Grants Commission calculation would be minor. It is important to note that the Commonwealth Grants Commission process is under periodic review to ensure fairness between the states. (3) Potential royalty revenues from tight-gas developments are in line with royalty revenues collected from conventional gas fields when considering the additional costs involved for tight-gas development. Also, the flow-on effect from such a development would provide benefits to the state other than the additional royalties. For example, tight-gas operations employ a relatively much higher number of personnel compared with regular gas fields. This is because of the greater number of wells that need to be drilled with associated well stimulation. The tight-gas industry, therefore, presents new economic opportunities for regional Western Australia on a small yet potentially significant scale. The tight-gas industry also presents new employment opportunities for Western Australian small businesses, including general retail, transport, food preparation and local manufacturing. This is particularly beneficial in the current economic environment and also presents the fiscal benefit of additional state payroll taxes. Considering these factors, it is expected that there would be no negative impact on planned government projects, due to the application of a lower royalty rate to the development of tight-gas fields.
(2) Through the operation of the commonwealth grants process, the calculation would be based on the state collecting its royalties on a gas project at the current rate of 10 per cent per wellhead. Therefore, there would be a negative effect on the state’s grants due to this decision. However, as the expected collection of tight-gas royalties is estimated to be only a very small percentage of the overall royalty take for the state, the impact of any negative effect on the Commonwealth Grants Commission calculation would be minor. It is important to note that the Commonwealth Grants Commission process is under periodic review to ensure fairness between the states. (3) Potential royalty revenues from tight-gas developments are in line with royalty revenues collected from conventional gas fields when considering the additional costs involved for tight-gas development. Also, the flow-on effect from such a development would provide benefits to the state other than the additional royalties. For example, tight-gas operations employ a relatively much higher number of personnel compared with regular gas fields. This is because of the greater number of wells that need to be drilled with associated well stimulation. The tight-gas industry, therefore, presents new economic opportunities for regional Western Australia on a small yet potentially significant scale. The tight-gas industry also presents new employment opportunities for Western Australian small businesses, including general retail, transport, food preparation and local manufacturing. This is particularly beneficial in the current economic environment and also presents the fiscal benefit of additional state payroll taxes. Considering these factors, it is expected that there would be no negative impact on planned government projects, due to the application of a lower royalty rate to the development of tight-gas fields.
(3) Potential royalty revenues from tight-gas developments are in line with royalty revenues collected from conventional gas fields when considering the additional costs involved for tight-gas development. Also, the flow-on effect from such a development would provide benefits to the state other than the additional royalties. For example, tight-gas operations employ a relatively much higher number of personnel compared with regular gas fields. This is because of the greater number of wells that need to be drilled with associated well stimulation. The tight-gas industry, therefore, presents new economic opportunities for regional Western Australia on a small yet potentially significant scale. The tight-gas industry also presents new employment opportunities for Western Australian small businesses, including general retail, transport, food preparation and local manufacturing. This is particularly beneficial in the current economic environment and also presents the fiscal benefit of additional state payroll taxes. Considering these factors, it is expected that there would be no negative impact on planned government projects, due to the application of a lower royalty rate to the development of tight-gas fields.
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