We gave away the gas

Australia is one of the three largest exporters of liquefied natural gas on earth, competing with the United States and Qatar for the top positions. In 2024 it exported approximately 81 million tonnes of LNG. In 2025, that figure was around 82.5 million tonnes. LNG exports earn Australia around A$66 billion a year at current prices. At the peak of the Ukraine war energy price spike in 2022, that figure reached A$92 billion.

To understand the scale: Australia produces so much gas that 83 per cent of everything it extracted in the first half of 2025 went to LNG exports. The eastern coast of Australia alone produces three times more gas than it consumes domestically. Existing gas projects have enough capacity to power Australia’s domestic needs for 64 years.

The gas industry has grown enormously since exports began from Queensland in 2015. In that time, production has tripled. The number of LNG projects has multiplied. The revenue has ballooned. And yet, by the government’s own accounting, not a single LNG project had paid any of the special resource tax designed to capture the wealth from all this extraction until Chevron made its first-ever Petroleum Resource Rent Tax payment — in August 2025. After sixteen-plus years of Australian LNG exports.

Compare this to the gas industry’s workforce. With A$66 billion a year flowing through it, Australia’s oil and gas extraction sector employs 16,200 people. That is 0.11 per cent of Australia’s 14.4 million jobs. The health sector employs 2.2 million. Manufacturing employs 902,900. The gas industry is a revenue machine for its owners. It is not an employment machine for Australians.

When a mining or gas company extracts a resource from the ground, the standard arrangement in most countries is that they pay the public something for it — a royalty. The resource belongs to the public. You pay to take it.

In Australia, that principle is applied inconsistently and, in the case of offshore LNG, largely abandoned.

Australia Institute analysis found that 56 per cent of all gas exported from Australia attracts zero royalty payments. In a single four-year period, multinational gas companies exported A$149 billion worth of Australian gas royalty-free.

To be precise about what this means: the gas is extracted from Australian territory, or from Australian Commonwealth waters. It belongs to Australians. The companies that take it — predominantly foreign-owned — are allowed to take more than half of it without paying the owner anything for the resource itself.

The Western Australian government has a domestic reservation policy that requires 15 per cent of LNG production to be set aside for WA consumers. WA also collects royalties from the North West Shelf project. But the WA Government is expected to receive only A$522 million in total gas royalties in 2024–25 — from a state that hosts some of the world’s largest LNG operations.

The east coast of Australia — where three LNG export terminals operate in Queensland, processing gas from coal seams — has no equivalent domestic reservation requirement. The consequences are visible in energy prices, which we will come to.

The clearest single illustration of how the system works is INPEX — a Japanese gas company, majority-owned by the Japanese government — and its Ichthys LNG project, operated out of Darwin.

Ichthys is one of Australia’s largest LNG developments. INPEX exports approximately 9 million tonnes of LNG per year from Darwin — more gas than is used in New South Wales, Victoria, and South Australia combined. Every cargo it ships goes to Asian markets. INPEX sells no gas to Australians, except in declared supply emergencies.

Australian Taxation Office transparency data shows that INPEX’s Australian entities recorded more than A$36 billion in total revenue over eleven financial years. Over that same period, they paid less than A$500 million in corporate income tax. In the 2023 financial year alone — when global energy prices surged — INPEX entities recorded over A$9 billion in Australian revenue. Their taxable income that year was A$23.5 million.

The Ichthys LNG project has never paid corporate income tax in Australia. INPEX does not expect to pay the special gas resource tax — the Petroleum Resource Rent Tax — until at least 2030.

INPEX is not a rogue operator defying Australian law. It is a company behaving exactly as Australian law permits — using the deductions, exemptions, and tax treatment that the Petroleum Resource Rent Tax framework makes available to it. The problem is the framework, not the company.

To put it bluntly, if we can reduce our income tax expense by 1% out of the ¥900 billion, profit will increase by around ¥10 billion.INPEX, February 2025 shareholder presentation

INPEX is doing what is legal. The question is why Australian law makes it legal.

Here is the fact that requires the most explanation, because it sounds impossible: Australians pay more for their gas than the Japanese buyers of Australian gas.

Before Australia’s LNG export industry took hold, gas on the east coast typically traded at A$3 to A$4 per gigajoule. It was affordable, stable, and priced on domestic supply and demand.

Since Queensland began exporting LNG in 2015, the domestic east coast market has been fundamentally transformed. LNG exports became the largest single use of Australian gas, consuming more than half of all east coast supply. The pipeline between what’s produced and what’s available for domestic use tightened. Prices rose.

Since 2017, the Australian Competition and Consumer Commission has repeatedly documented domestic gas buyers paying A$8 to A$12 per gigajoule. During the 2022 Ukraine energy price shock, east coast prices spiked as high as A$20 to A$30 per gigajoule. This happened even when gas was physically available in Australia. The ACCC found that in multiple years, domestic Australian buyers were paying export parity prices — that is, what an overseas buyer would pay — regardless of whether there was actually a shortage.

The consequences are documented and measured. Domestic gas prices have tripled since LNG exports began. Manufacturers pay 50 per cent more for gas in 2025 than they did in 2019. The total annual residential gas bill across eastern Australia grew by 44 per cent — from A$5.4 billion to A$7.8 billion — between FY2014–15 and FY2023–24. Victorian households bear the largest share, with a gas bill of approximately A$5 billion per year.

Higher gas prices flow through to higher electricity prices, because gas-fired power stations set the marginal price in the electricity market on high-demand days. Australians pay for the gas rort on their energy bills, and then again on their power bills.

Japan has long been Australia’s largest or second-largest LNG export market. The relationship was built on a premise: Japan needs the gas for energy security, Australian gas keeps the lights on in Tokyo.

That premise is now demonstrably outdated.

Japan’s domestic LNG consumption peaked in 2014 and has fallen 25 per cent since. Japan is transitioning from a buyer to a trader. A JOGMEC survey found that 40 per cent of LNG managed by Japanese companies is now on-sold to other countries — up sharply from 16 per cent in FY2018.

IEEFA analysis found that Japanese companies on-sold as much as 812 petajoules of Australian gas in 2024 — more than the total annual gas use across eastern Australia — for profits estimated at more than A$1 billion. Japanese companies bought Australian gas, which Australians gave away at near-zero royalty rates, and sold it to third countries for a profit that exceeded what the Australian government collected from the entire Petroleum Resource Rent Tax.

This is the Japan paradox stated plainly: the country that buys our gas makes more money from on-selling it than we collect from taxing the companies that extract it.

When overseas buyers can on-sell Australian gas at a profit while those same corporations pay almost no tax for our gas, you know something needs to be fixed.Australia Institute, 2025

IEEFA’s analysis further found that Japanese companies could reduce their LNG purchases from Australia by one third without impacting Japan’s energy security. The gas is not critical to Japan. It is profitable for Japan.

Australia’s current gas export and taxation framework did not emerge by accident. It was constructed over decades through deliberate policy choices.

From the 1980s onwards, successive Australian governments encouraged the development of LNG export infrastructure. The Petroleum Resource Rent Tax, introduced in 1987, was designed as a profits-based mechanism to capture a share of super-profits from offshore oil extraction. It was later extended to LNG — but as we will document in Article 2 of this series, its design was fundamentally unsuited to the economics of LNG, creating deduction mechanisms that allowed companies to accumulate offsetting credits for decades before paying anything.

The east coast export projects — three LNG terminals on Curtis Island near Gladstone, Queensland, built between 2015 and 2016 — were approved without the domestic reservation requirement that Western Australia had adopted. The consequence was predictable: once the terminals were built and long-term export contracts were signed, there was no mechanism to ensure domestic supply kept pace with domestic demand at reasonable prices.

When the Ukrainian war spiked global LNG prices in 2022, Australian producers had every commercial incentive to maximise exports and minimise domestic supply. Domestic prices tracked global markets. Australian families and manufacturers paid global prices for Australian gas — because the policy framework provided no effective protection against that outcome.

The contrast with Western Australia is instructive. In 2006, when the North West Shelf LNG project was being expanded and new projects approved, the WA state government negotiated a condition: 15 per cent of LNG production had to be reserved for domestic consumption. This ‘domestic gas reservation policy’ has since been extended to cover all WA LNG projects.

Western Australia also collects royalties from LNG production.

The result: WA consumers pay roughly half what east coast consumers pay for gas. The policy difference — reservation plus royalties — partially explains the pricing gap.

The east coast has no equivalent national reservation policy. Labor’s Future Gas Strategy, released in 2024, declined to impose one. Both major parties have governed the east coast gas market without the tool that WA used to protect its own consumers.

The case for taxing resource extraction is straightforward in democratic theory: the resource belongs to the public. When a private company extracts it, they pay the public for the right to do so. The payment is commensurate with the value of what is taken.

In Australia’s LNG industry, the complication is that most of the companies doing the extracting are foreign-owned. Profits flow offshore. Tax obligations, such as they are, flow through complex international corporate structures.

INPEX is majority-owned by the Japanese government through JOGMEC. Chevron — operator of the Gorgon and Wheatstone LNG projects in WA — is an American company listed on the New York Stock Exchange. Shell has major interests in the QGC project in Queensland. Of the new offshore gas capacity that came online in Australia in the 2010s, only 13 per cent was owned by an Australian-based company.

What this means in practice: when the Australian government allows gas to be extracted royalty-free, or when the PRRT fails to collect meaningful revenue, the shortfall is not absorbed by Australian shareholders. It is a transfer from Australian citizens — who own the resource — to foreign shareholders, who own the companies.

Japanese and Korean public finance institutions have invested A$70 billion (A$20.5 billion from public lenders alone) in Australian gas export projects since 2008. This is not investment in Australian energy security. It is investment in Australia’s capacity to export Australian gas to Asian markets at terms favourable to Asian buyers.

It is easy to say the gas industry pays too little. It requires more effort to say what more would have meant in concrete terms.

Australia Institute analysis found that a 20 per cent royalty on the A$149 billion of gas exported royalty-free over four years would have generated A$53 billion for the public. That is more than the total cost of the National Disability Insurance Scheme in the same period.

The Australia Institute has also found that replacing the broken PRRT with a flat 25 per cent export tax — a rate still well below Norway’s 78 per cent — would raise more than A$17 billion per year. That is enough to quadruple Commonwealth spending on housing.

We will examine the Norwegian comparison in detail in Article 3 of this series. For now, one number: Norway’s sovereign wealth fund — built from oil and gas revenues since 1996 — is worth US$1.9 trillion. That is US$340,000 for every Norwegian citizen.

Australia’s equivalent fund — the Future Fund — holds A$226 billion. It is not resource-linked. It does not grow from gas revenues. The LNG boom that made Australia one of the world’s largest exporters produced no equivalent accumulation of public wealth.

This is the opening article of The Rort’s Gas Rort series. It is the establishing chapter — the one that maps the basic architecture of a problem that extends, across eight articles, from the mechanics of gas extraction to the political donations that keep the system intact, from the history of reform attempts that failed to the media coverage that lets the failure go largely unreported.

The facts in this article are not disputed by any credible institution. The Australia Institute’s figures come from ATO data. The ACCC has documented the domestic pricing problem in successive reports. INPEX’s tax record is drawn from ATO transparency publications. The Japanese resale figures come from IEEFA and JOGMEC survey data.

What is contested — vigorously, expensively, and with access to both Parliament House and prime-time television — is whether the situation needs to change. The gas industry argues it pays A$22 billion in taxes and royalties per year. The Australia Institute documents that this includes all taxes paid by all companies — company income tax, payroll tax, fringe benefits tax — and that the PRRT component, the resource-specific tax designed to ensure Australians benefit from their gas, is below A$2 billion and falling.

Australians collect more from beer excise than from the petroleum resource rent tax.

We will come to beer in Article 2.