This is despite actual royalty receipts being expected to grow by 10.9% in 2015-16, in real terms, thanks to ramped-up export volumes and a depreciating exchange rate, after LNG-related royalties dropped by 13.7% in 2014-15.
However, the good news is the surge in LNG exports is set to strengthen its gross state product by 4.5% in both this and the next financial year.
Last year, in rosier times for the oil and gas industry, the government forecast petroleum royalties would reach $636 million in 2017-18, but this too has been cut to a still ambitious $467 million.
Across the forward estimates, a modest recovery in commodity prices, combined with growth in export volumes – especially from CSG – is expected to see royalty revenue pick up.
The dramatic drop in oil prices that started just over a year ago means Queensland’s most optimistic royalty return will be $518 million in 2018-19, down from the more than $900 million figure forecast by the Anna Bligh’s last Labor government.
Queensland Treasurer Chris Pitt conceded that there were “serious issues in the economy” that the Budget needed to address, starting with the state needing to write down about $3 billion in projections for resources royalties.
He pointed out that when Labor was last in government, it worked with industry to facilitate an investment of $60 billion to develop the state’s LNG industry.
An APPEA spokesperson told Energy News this morning that LNG projects were still forecast to contribute almost $1.5 billion to the Queensland government over the next four years and “farmers will still earn revenue regardless of royalty payments to government”
“Just like any commodity, whether it be wool, wheat or iron ore, prices will fluctuate in tune with the forces of supply and demand,” the spokesperson said.
“These [LNG] projects will continue to deliver significant royalty streams for spending on schools, hospitals and other public services for decades to come.
“Thankfully, Australia has the gas resources to underpin significant future development and global demand for LNG remains strong.
“As such, the present price situation provides an additional incentive to policymakers to ensure petroleum investors continue to view this country favorably.”
While Energy News understands the Santos-led joint venture is still negotiating the royalties with the government for its Gladstone LNG project, BG Group’s Queensland Curtis LNG facility has shipped 27 cargoes since the start of the year and is forecast to make 10 a month from mid-2016.
“Royalties are expected to be lower in the early stages of production when claimable capital costs are spread across a lower production volume,” the Budget papers said.
“While expectations for the total export capacity of these projects once fully operational is largely unchanged, their contribution to royalty revenue is now expected to be more prominent in 2016-17.”
The papers also noted that although the first exports of LNG occurred in January 2015, the construction and commissioning of these projects took longer than previously anticipated.
“This has caused delays to the commencement of LNG production, and consequently, a slower ramp up in coal seam gas (CSG) production and royalty revenue,” the papers said.
GLNG, along with the Origin Energy and ConocoPhillips-led Australia Pacific LNG project, are expected to enter production during the second half of this year.
Capital expenditure for construction of QCLNG, QCLNG and GLNG is in excess of $60 billion, with all three LNG processing plants to have a combined capacity of 25.3 million tonnes per annum.
In Queensland, royalties are calculated at the rate of 10% of the wellhead value of CSG produced as LNG feedstock and for other purposes.
Calculating the wellhead value of CSG involves determining the market value of the CSG at the first point of disposal, and then deducting from this the value of certain expenses related to getting the CSG from the wellhead to that point.
Most of the LNG produced by these three plants will or have been sold under long-term contracts to Asian customers with prices linked to oil prices.
While there is no single global LNG price and they vary across regions, East Asian market LNG contracts can be linked to the Japanese Customs Cleared (JCC) price and Brent – and there has been a historical correlation between the two.
In this case, the Brent outlook is an “important input” for the 2015-16 Budget assumptions regarding LNG prices and in turn the expected CSG-related royalties, Queensland’s Budget papers said.
In its latest updated analysis issued earlier this month, the US Energy Information Administration said North Sea Brent crude oil spot prices decreased by $US3/barrel in June to a monthly average of $61/bbl.
The EIA projects the Brent crude oil price to average $60/bbl in 2015 and $67/bbl in 2016, both unchanged from its Short Term Energy Outlook issued last month.