Too Big To Tax: North West Shelf and lessons for sharing in our sovereign wealth

Sometimes, economics is kind enough to offer a controlled experiment in the real world. Australia and Qatar both possess ample reserves of natural gas, a colourless, highly flammable hydrocarbon used extensively in electricity generation, heating and cooking, and the manufacture of plastics, fertilisers and dyes, and as a fuel for some vehicles. Both countries have sophisticated plants that strip the gas of carbon dioxide and cool it to minus 160 degrees Celsius so that in its liquefied form it occupies only one-six hundredth of its original volume. In the past decade, Australia has sometimes overtaken Qatar as the world’s largest exporter of liquefied natural gas (LNG).

That’s where the similarity ends. In 2016, a comparative study of estimated revenues found that by 2021 the government of Qatar would receive $26.6 billion in royalties from 100 billion cubic metres of LNG exports, equivalent to a share of more than 23 per cent. By contrast, the Australian government would receive around $800 million in annual revenues from exactly the same quantity of LNG—less than 2 per cent of LNG export sales.[1] Qatar would receive a significant dividend, its rightful share, while Australia would get around 3 per cent of what Qatar would get—the equivalent of spare change.

Naturally, the 2016 study did not factor in the energy implications of Russia’s invasion of Ukraine. By June 2022, natural gas prices in Europe had tripled from the previous year, creating a bonanza for the companies extracting and processing natural gas in the North West Shelf, the Bass Strait and north Queensland. Most of these corporations pay no tax. As the ABC’s Business Editor reported,

The majority have never paid any tax and, in some instances, have made it clear they never will. Despite promising billions of dollars in tax and royalty revenues while seeking regulatory approval, a combination of accommodative tax regimes on our part and tax avoidance strategies have allowed them to extract vast profits in recent years while contributing almost nothing to the nation.

How all this occurred is a case study in the way power is wielded in Australian politics.

Effort, risk, reward

One of the core principles of capitalist economics is the connection between risk and reward: those who take the risks and put in the efforts should get the rewards. That is not the way the Australian economy actually works, at least not in the vital natural gas sector.

Beginning in 1970, the Australian government organised underwater scientific explorations of Australia’s offshore geology that continued for two decades. Geoscience Australia, then known as the Bureau of Mineral Resources, Geology and Geophysics, conducted the biggest single systematic marine survey ever done anywhere in the world. A specially designed ship with advanced seismic equipment circumnavigated Australia for years, detecting iron-rich objects, measuring water depths, and revealing the locations of rifts, faults, basins, and other features of Australia’s underwater structure.

Geoscience Australia went from knowing almost nothing about Australia’s offshore features—not even what kind of features existed—to having a good idea of where its underwater plateaus, terraces, trenches, canyons and other features were located, what their dimensions were, where they were steep and where shallow, and how they were all organised offshore. Many years of data processing took place after the surveys. As Australia has substantially more sea floor (12 million square kilometres) than it does land (7.69 million square kilometres), these were huge, publicly funded undertakings. The surveys established that most of Australia’s oil and gas reserves lay offshore in the seabed under the waters. The offshore oil and gas discoveries added to the land-based resource booms that made minerals and energy one of the strongest and most internationally competitive sectors of the Australian economy.

As the 1970s came to a close, The Washington Post called Australia ‘a promised land of the 20th century … With extensive indigenous oil reserves, extensive deposits of natural gas, coal, bauxite, diamonds, copper, uranium and iron ore and an abundance of arable land to grow grain and cattle, it promises to become a sort of one-nation OPEC of the 21st century’.[2] But Australia was also marked by a low level of domestic ownership and a low level of taxation, resulting in an economic system that socialises the costs of mining and privatises the profits.

Australian ownership of the resources industry

Some Australian governments recognised the problem of a low level of Australian ownership in the resources industry and sought to provide remedies. In 1970 the Gorton government set up an Australian Industry Development Corporation (AIDC) to help Australian mining companies achieve higher levels of ownership in the industry. The Whitlam Labor government tried unsuccessfully to expand the powers of the AIDC. It also set up a National Investment Fund to help ordinary Australians invest in the development of their own resources and industries ‘instead of subsidising to the tune of millions, foreign investors and multi-national corporations’.[3]

The Whitlam government’s difficulty in expanding the powers of the AIDC led it to create an entirely new government corporation: a Petroleum and Minerals Authority (PMA). This was the brainchild of Rex Connor, Whitlam’s Minister for Minerals and Energy. The PMA would be a government oil company involved in all activities, from exploration to the distribution of petroleum and natural gas. It would be a government mining company empowered to perform the full range of activities from exploration to the refining of metals. It would also be an entity, much like the AIDC, that was equipped to help Australian mining companies engaged in any of the activities under the PMA’s sphere of operation.

By early 1974, the planned PMA had become the government’s basic instrument for maximising Australian ownership and control of energy and mineral resources. Connor’s initial idea was that the legislation to establish the PMA would also forbid foreign equity in mining exploration and development. It would use the corporations power, which the High Court had construed expansively in the Concrete Pipes case of 1971.[4] The PMA would fill the gap by investing in private Australian mining companies, or by engaging in exploration and mining itself.[5] It might allow foreign exploration and exploitation of some areas that it had discarded, or in areas such as deep-sea drilling that required foreign expertise. In the end, Cabinet would not go as far as completely ruling out foreign investment in new mining projects, but it endorsed Connor’s essential blueprint.

Connor wanted the PMA to promote Australian ownership and raise revenue for Australians:

I conceived of the Authority both as a vehicle for increased Australian ownership and control of our resources and also as a revenue producer for Australia. A major national objective of the Authority is the creation and development of export opportunities for participation in future discoveries which will lead to financial returns for Australia as well as to increased ownership of the industries based on these discoveries.[6]

The PMA Bill passed the House of Representatives in December 1973, but the Opposition in the Senate postponed consideration until sittings were resumed in 1974. In March 1974, the House of Representatives once more submitted the Bill to the Senate, which rejected it the following month. Following the double dissolution election in 1974 and the Senate’s further rejection of the Bill, the PMA Act was eventually passed by a joint sitting of both houses of parliament that was convened in August 1974. Although the new authority began its operations under the Act, the state of Victoria immediately challenged its legal validity. To Connor’s chagrin, the High Court agreed with Victoria’s argument that the Act was invalid because the required length of time had not elapsed between the Senate’s first rejection of the law and its being passed a second time by the House of Representatives.[7] Except for the government’s establishment of a national pipeline authority for natural gas, all of the Whitlam government’s significant legislative measures for control of Australia’s natural resources were defeated.[8]

Peter Ellery reminds us of the political significance of this judgement:

Historians spend much time examining the causes and effects of ‘The Dismissal’ and ‘The Loans Affair’ and the characters and motives of the main players in those events, Gough Whitlam, Rex Connor, Sir John Kerr and Malcolm Fraser, but they frequently overlook the fact that the main trigger for ‘The Loans Affair’ was Connor’s failed attempt to nationalise gas production from the North West Shelf.[9]

One of Connor’s main motives in establishing the PMA was to develop an Australian-owned petroleum company to develop natural gas reserves off the north-west coast of Western Australia. To allow this, the Seas and Submerged Lands Act, passed by parliament in 1973, sought to ensure that sovereignty in and above the territorial sea and coastline surrounding Australia would be vested in and exercisable by the Commonwealth, and that the Commonwealth would have the rights to develop the natural resources therein.

In 1975 the High Court determined in the Seas and Submerged Lands case that the Commonwealth had sovereignty over waters to the edge of the territorial sea, including the seabed between those waters.[10] The judgment paved the way for a government petroleum company to operate in Australia’s offshore waters—but only if such a national company could be established. Rex Connor wanted the Australian pipeline authority to buy North West Shelf gas at the wellhead and transport it across Australia for industrial uses including providing motor spirit for vehicles and powering alumina plants and iron ore pellet plants in Western Australia. Connor also believed that when the exploration permits for the North West Shelf expired they would revert to the Crown in right of the Commonwealth, and that some of these would then be available for his planned PMA.

Had the PMA withstood legal challenge, an Australian government petroleum company might have been able to operate as one of the North West Shelf Partners, a mix of Australian and foreign-owned companies that established the North West Shelf Gas Project off the coast of Western Australia, near the Pilbara town of Karratha. The PMA could have maintained Australian equity in Australia’s petroleum and natural gas resources. That is not what occurred. The Project was operated by a then little-known company called Woodside Petroleum. It began exporting LNG in 1989. The Project has today become one of the largest LNG producers in the world. The participants include BHP, BP, Chevron, Shell, a Japanese company owned by Mitsubishi Corporation and Mitsui & Co., and Woodside, which is now one of the top twenty companies in the Australian Stock Exchange (ASX) by market capitalisation.

In 2002, the North West Shelf Project signed what was then the biggest export contract in Australia’s history—a $25 billion deal to supply China’s Guangdong Province with more than three million tons of LNG a year for a period of twenty-five years. Prime Minister John Howard called it ‘a major and exciting development’ involving ‘a great Australian team effort’. He took credit for it, saying that it was ‘a major focus of my own visit to Beijing … I especially appreciated the manner in which my strong support for and representations … were received by the Chinese leadership’.[11] In reality, however, the contract set a baseline price that could not be raised regardless of market developments. It was, as Tony Wright put it, ‘the deal of a lifetime’—for China, which kept paying historically low prices in perpetuity. By 2015, China was paying about one-third as much for Australian gas than Australian consumers themselves had to pay. ‘As world gas prices rose and rose’, Wright noted, ‘Australia’s gas exports of three million tonnes a year from that single agreement were contracted to stay at basement prices until 2031’.[12]

The no-tax regime

Meanwhile, the Australian Tax Office (ATO) demonstrated how one of the North West Shelf partners structured its affairs. The US parent of Chevron borrowed cash at about 2 per cent and lent it on to its Australian subsidiary at about 9 per cent, thus ‘ensuring all profits from the local business were being shuffled out of the country’.[13] Chevron wasn’t the only energy company to engage in this practice. Shell has paid no income tax since 2015, although it has large stakes in many new LNG fields and owns one of the three big exporting facilities off the coast of Gladstone in Queensland. The ATO database shows that five of the industry’s biggest operators paid no income tax for the past seven years between 2015 and 2022. The ATO discovered that loans from the head offices of major petroleum multinationals to their Australian subsidiaries—essentially loans to themselves—had doubled from $52 billion to $107 billion in the previous four years. As a result, the world’s biggest resource companies earned around $138 billion in revenue in Australia over the past seven years but paid nothing at all in corporate income tax.

The big energy companies do pay royalties, and are quite vocal about this, but royalties aren’t taxes. They are an ordinary cost of doing business—the required compensation paid to the ‘Crown’ (governments) for the transfer of publicly owned natural resources to private sector interests. Australians own the resources and the energy companies buy them from the Commonwealth. Relatively low rates of taxation are a characteristic not just of Australia’s energy resources but of the whole mining sector, which is now preponderantly foreign-owned. In the interest of ‘Australianising’ mining, the Whitlam government (1972–75) and the Fraser government (1975–83) established the Foreign Investment Review Board to advise the Treasurer on foreign takeovers, stipulated minimum levels of Australian equity in new mining projects, and made resource exports subject to federal controls.

In the era of neoliberalism, from the 1980s onward, these controls have been progressively dismantled, and the mining sector has become increasingly globalised. This was symbolised by BHP, the ‘Big Australian’, merging with Billiton in 2001. BHP became a foreign-owned multinational corporation with interests all over the world. Key Australian-registered corporations are largely US-owned, with obvious implications for where the dividends go. Ownership data submitted as evidence to the Senate Economics Committee in 2020 and 2021 show that BHP was 70 per cent US-owned. Woodside was 66 per cent US-owned. Rio Tinto was 65 per cent US-owned.

Australia’s mining sector became too big to regulate, as was illustrated by the successful mining industry campaign against the Rudd/Gillard governments’ mining super profits tax from 2010 to 2013. In 2021 the Greens estimated that our budget coffers could be boosted by $17 billion in two years and $112 billion by the start of the next decade if Rudd’s super profits tax on the mining sector were put in place.[14]

The road not taken

Had Rex Connor’s vision succeeded, Australia could have taken the road taken by Norway. The Norwegian state is the largest shareholder in Equinor, formerly known as the Norwegian State Oil Company. It owns two thirds of Equinor’s shares and its interests in the company are managed by Norway’s Ministry of Trade, Industry and Fisheries. Equinor’s employees elect three of its eleven directors. The Norwegian government created the Government Pension Fund Global in 1990 to invest Norway’s oil revenue. The Ministry of Finance owns the fund on behalf of the Norwegian people and determines its investment strategy. The fund held more than 12 trillion kroner (more than $1.7 trillion Australian dollars) at the end of 2021. This is a significant future fund for a country with 5.5 million people.

The Commonwealth could have insisted on equity in the North West Shelf Project at the very beginning, when share prices were affordable. It could have insisted on income-contingent loans, in the same way that it insists Australian students are required to pay back their university fees once their incomes exceed some amount. It could have insisted on a golden share of any future property rights arising from the project over its lifetime. These alternatives would reward private entrepreneurs while also giving society a more equitable share of the profits.

Connor’s vision remains relevant. The Albanese government and state governments have made it clear that Australia will continue to extract fossil fuels in the face of strong environmental arguments against doing so. Our argument is that as long as fossil fuels are being extracted, the Australian people should receive an equitable share of the profits from the sale of non-renewable natural resources. This will help them to adapt to climate change and manage the transition to a renewable economy. Mechanisms should therefore be established to ensure that the Australian people share equitably with foreign corporations in the profits from the sale of non-renewable natural resources such as natural gas, coal and iron ore, as well as critical minerals necessary for the transition to renewable energy.

The Australian government has tools available to it to achieve this objective. It could establish a sovereign mining company, as was proposed in 1973. The Petroleum and Minerals Authority Act was thwarted by the High Court on a technicality and its legality was never tested. An Australian mining company could be established as a miner of critical minerals and a vehicle to increase Australian equity in its offshore petroleum and gas resources. The eastern states and the Commonwealth could establish a natural gas reservation scheme, as the Western Australian state government has done since the 1980s, possibly by use of the Commonwealth power over exports. Parliament can consider more equitable taxation of the resources industry by reviving the Rudd government’s proposed Minerals Resource Rent Tax. The government could also establish a sovereign wealth fund to establish a mechanism by which the Australian people can share permanently in the profits from the sale of the country’s natural resources. Finally, parliament should regulate political donations such that only those who vote in Australian elections can donate to political parties. That would prevent large fossil fuel companies and large mining companies from holding the kind of sway that they have held with governments over the last three decades. These initiatives would strengthen Australia’s ability to act independently—a matter of no small importance as the world transitions away from a US-dominated ‘rules-based international order’.


[1] International Transport Workers Federation, ‘Australian LNG exports to boom, tax revenue is a bust’, ITF Briefing Paper, September 2016. Cited in The Treasury, Review of the Petroleum Resource Rent Tax, 20 December 2016.

[2] Peter Costigan, ‘Australia faces 1980s uneasily despite riches’, Washington Post, 28 December 1979.

[3] Gough Whitlam, Speech Delivered at Blacktown, NSW, 29 April 1974, https://electionspeeches.moadoph.gov.au/speeches/1974-gough-whitlam

[4] Brian Galligan, The Politics of the High Court, St. Lucia: University of Queensland Press, 1987, p. 221.

[5] David Lee, The Second Rush: Mining and the Transformation of Australia, Redland Bay: Connor Court, 2016, pp. 234–5.

[6] David Lee, Second Rush, p. 235.

[7] Colin Howard, Australian Federal Constitutional Law, 3rd edn., Sydney: The Law Book Company Limited, 1985, p. 103.

[8] Michael Sexton, Illusions of Power: The Fate of a Reform Government, Sydney: Allen & Unwin, 1979, p. 129.

[9] Peter Ellery, ‘Born in fire: The discovery and development of Australia’s North West Shelf natural gas resources’, Early Days: Journal of the Royal Western Australian Historical Society, 102, 2018, pp. 93–107.

[10] Howard, Australian Federal Constitutional Law, pp. 510–12.

[11] John Howard, Media Release, 8 August 2002. Transcript ID 12872.

[12] Tony Wright, ‘How Australia blew its future gas supplies’, The Age, 29 September 2017.

[13] Ian Verrender, ‘How your spiking energy bills are making foreign investors rich’, ABC News, 13 June 2022, https://www.abc.net.au/news/2022-06-13/ian-verrender-column-on-electricity-bills/101146926.

[14] Shane Wright, ‘Reviving original mining tax would deliver billions in extra revenue: Greens’, Sydney Morning Herald, 26 March 2021.

About the authors

David Lee

David Lee, an associate professor in history at the UNSW, Canberra, is author of The Second Rush: Mining and the Transformation of Australia, (Connor Court 2016).

More articles by David Lee

Clinton Fernandes

Clinton Fernandes is in the Future Operations Research Group and is a Professor at the University of New South Wales. His research focuses on emerging war technologies and advanced materials and manufacturing methods. His most recent book is Sub-Imperial Power: Australia in the International Arena, published by Melbourne University Press in 2022.

More articles by Clinton Fernandes

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