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Tuesday, 19 August 1980
Page: 299

The Appendix to Statement No. 4 attached to the 1979-80 Budget Speech detailed the development of crude oil pricing and levy arrangements in Australia to that time. This summary describes developments since the last Budget and indicates the pricing and excise arrangements currently applicable to liquefied petroleum gas.

CRUDE OIL

On 30 December 1979 and 30 June 1980, the Minister for National Development and Energy announced new determinations of import parity prices and associated crude oil levy rates to apply from 1 January 1980 and 1 July 1980, respectively. Those determinations were in accordance with the policy announced by the then Minister for National Development on 4 July 1978, which is to base the import parity price for domestically produced crude oil on the official Saudi Arabian Light 'marker' price, converted to Australian dollars, and adjusted to reflect allowances for quality differentials, freight, wharfage and credit terms. Australian refiners pay the resultant import parity prices for indigenous crude oil. Producers receive those prices less the levy payable to the Commonwealth.

The official prices of Saudi Arabian Light 'marker' crude and the equivalent Australian import parity prices for Bass Strait crude oil are shown below:

(a)   Prices (and levy rates) are set in dollars per kilolitre but, for purposes of comparison, are converted to dollars per barrel equivalents. (A) Unchanged from 1 July 1977.

(c)   Increased to SUS14.55 per barrel with effect from 1 April 1979, and to SUS 18. 00 per barrel with effect from 1 June 1979.

(d)   Increased to 5US24.00 per barrel with effect from 1 November 1979.

(e)   The increase to JUS26.00 per barrel was announced in February 1980, with retrospective effect to 1 January 1980. (/) Based on SUS24.00 per barrel, see footnote (e). vThe Commonwealth Government's excise 'take' in 1979-80 was equivalent to about 70 per cent of the average price to refineries, for domestically produced crude oil, of $21.44 per barrel. (In addition to the levy proceeds, the Commonwealth receives a share of the royalties paid by the producers, which in 1979-80 amounted to $43 million; those offshore petroleum royalties are recorded in 'Other Receipts'.)

The excise rate varies according to the date of discovery and size of each field. In 1979-80 producers of oil discovered prior to 14 September 1975 received parity related returns (i.e. import parity prices less the appropriate levy) on 35 per cent of their production or 6 million barrels per annum, whichever was the greater, for each field or new development within a field.* In 1980-81 the proportion of such oil attracting parity related returns will be 50 per cent or 6 million barrels, whichever is the greater. For the balance of their production from such fields, producers receive a controlled return, i.e. the Government determined price which applied at the time of the 1977-78 Budget, adjusted for changes in the costs incurred by producers in extending credit to refiners.

Producers of oil from fields discovered on or after 18 August 1976 are not subject to any levy and receive the import parity price on the whole of their production.

The Government has taken an 'in principle' decision (announced originally in the 1977-78 Budget) to continue the phasing in of parity related returns to apply after 30 June 1981 for all fields other than those producing more than 15 million barrels per annum. The nature of this phasing is to be considered during 1980-81. For fields producing more than 15 million barrels per annum the proportion of production attracting parity related returns is to be held at 50 per cent.

When the import parity price of oil rises, the following revenue sharing arrangements apply in respect of parity related oil: o for fields with an annual production of less than 2 million barrels (small fields) the levy remains at $3 per barrel and the increase in price accrues entirely to producers; o for fields with an annual production greater than 2 million but less than 15 million barrels (medium fields), the levy is $3 per barrel plus 75 per cent of increases in the import parity price after 30 June 1979; producers therefore receive 25 per cent of any increase in the import parity price after that date; and o for fields with an annual production greater than 15 million barrels (large fields), producer returns from 1 January 1980 were determined by indexing the 31 December 1979 return of $9.59 by the cumulative increases in the Consumer Price Index after the December quarter 1978 or cumulative increases in import parity prices after 1 July J 979, whichever is the lesser. (This arrangement was subsequendy reviewed and the September quarter 1978 became the starting point for calculating increases in the Consumer Price Index from the 1 July 1980 adjustment.) Both 1980 adjustments have been based on movements in the Consumer Price Index, with the levy taking up the balance of the increase in the import parity price.

* Formally, the effect of the present excise by-laws is that this basis applies to oil discovered prior to 18 August 1976; this machinery provision reflects the fact that at this stage no discoveries between 14 September 1975 and 17 August 1976 have been identified.

The import parity prices for crude oil, levy rates and (gross) returns to producers applicable to the different categories of oil during 1980 are set out below:

Parity-related Oil

(a)   Small fields (less than 2 million barrels per annum)

Bass Barrow Strait Island Moonie

S per barrel S per barrel $ per barrel

From 1.1.80 to 30.6.80-

Import parity price....... 24.77 25.21 26.44

Lew levy......... 3.00 3.00 3.00

Return to producers...... 21.77 22.21 23.44

From 1.7.80 to 31. 12.80-

Import parity price....... 27.50 27.83 28.42 lew levy......... 3.00 3.00 3.00

Return to producers...... 24.50 24.83 25.42

(b)   Medium fields (2-15 million barrels per annum)

Bass Barrow Strait Island $ per barrel S per barrel

From 1.1.80 to 30.6.80-

Import parity price......... 24.77 25.21

Lewlevy........... 11.33 11.60

Return to producers........ 13.44 13.61

From 1.7.80 to 31.12.80-

Import parity price......... 27.50 27.83

Lesstevy........... 13.38 13.56

Return to producers........ 14.12 14.27

(c)   Large fields (over 15 million barrels per annum)

Bass Strait $ per barrel

From 1.1.80 to 30.6.80-

Import parity price............ 24.77

Less levy.............14.54

Return to producers(a).......... 10.23

From 1.7.80 to 31.12.80-

Import parity price............ 27 . 50

Lesskvy............. 16.49

(o)   Derived by indexing the December 1979 return of $9.59 by the movement in the Consumer Price Index from the December quarter 1978 to the September quarter 1979. As noted in the text, subsequent adjustments (including the 1 July 1980 adjustment) take the September quarter 1978 as the base for calculating Consumer Price Index movements.

Controlled Oil

Bass Strait

Barrow Island

From 1.1.80 to 30.6.80- Import parity price Less levy

Return to producers From 1.7.80 to 31.12.80- Import parity price Less levy

Return to producers $ per barrel $ per barrel

24.77 22.27 2.50

27.50 24.98 2.52

25.21 22.16 3.05

27.83 24.76 3.07

LIQUEFIED PETROLEUM GAS (LPG)

Some significant changes in the pricing and excise arrangements for LPG were announced during the first half of 1980.

On 24 January 1980, the Minister for National Development and Energy announced that a subsidy of $80 per tonne would be provided in respect of LPG used for household purposes for a period of three years. On 8 April the Minister announced that this subsidy would be extended to include LPG used by non-profit residential institutions and schools. The subsidy is being paid through State Governments to registered distributors of LPG, backdated to 28 March 1980.

On 8 April the Minister also outlined further pricing measures and revised levy arrangements for LPG. The effect of the pricing arrangements is to control the price of LPG sold for domestic, automotive and traditional uses, while leaving prices for petrochemical and non-traditional usage to be determined by commercial negotiation between the parties concerned. As part of the pricing arrangements, a common maximum wholesale price of $205 per tonne (before allowance for the subsidy, where appropriate) was set for naturally occurring and refinery produced LPG. This price implied, at the time of its inception, a differential of approximately 50 per cent between the Melbourne retail price of automotive LPG and that of 'super' grade petrol; the precise differential could vary from place to place, and time to time, because of differences in distribution costs and retail margins.

For naturally occurring LPG, the new arrangements provide for the price to be increased by the same percentage movement as the import parity price for indigenous crude oil but, if world price movements result in the export parity price for LPG falling below the oil related domestic price, the export parity price is to be adopted for domestic purposes. The Prices Justification Tribunal has been directed to follow these arrangements in setting prices for refinery produced LPG. (Prior to the introduction of these new arrangements the domestic price for refinery produced LPG was set by the Prices Justification Tribunal having regard to the export parity price of butane and propane; naturally occurring LPG was not subject to price control but producers elected to make sales at the prices recommended for refinery produced LPG.)

Under the new excise arrangements announced on 8 April, producers of naturally occurring LPG from fields in production prior to 17 August 1977 pay excise at a rate equivalent to 60 per cent of the excess of the weighted average of domestic and export prices over $147 a tonne; this resulted in an increase in the equivalent excise rates from $27.55 per tonne to $77.00 per tonne. Naturally occurring LPG from fields brought into production on or after 17 August 1977 remains free of levy.

Total excisable production of naturally occurring LPG in 1980-81 is estimated to be marginally higher than in 1979-80.

Recent movements in the controlled domestic price, levy and (gross) return to producers from domestic sales of naturally occurring LPG are shown below:

Return to

Price Levy(a) producers

S tonne S tonne $ tonne

From 25.1.80 to 8.4.80

From 9.4.80 to 30.6.80 . From 1.7.80

(a)   Approximate dollars per tonne conversions of levy rates which are set in dollars per kilolitre.

(b)   Propane, (e) Butane.

(d)   The prices for domestic sales of propane and butane were unified as a result of the policy changes announced on 8 April. The prices charged to households, non-profit residential institutions and schools will be reduced by the $80 per tonne subsidy to be paid by the Commonwealth, through the States, to registered distributors of LPG.

/ 252.00(6) 27.55 224.45

\ 301.00(c) 27 .'55 273.45. 205.00(d) 77.00(e) 128.00 227.63(d) 80.40(e) 147.23







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