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Resist Pressure For Gas Reservation Policy: Macfarlane
A perfect storm is brewing that will increase pressure for more states to enforce a gas reservation policy, Shadow Minister for Energy and Resources Ian Macfarlane said.
He told the APPEA conference delegates in May that once the carbon tax hits and electricity bills rise there will be a greater "public appetite" for the idea of a gas reservation policy to take pressure off energy prices.
This push must be resisted to avoid damaging the oil and gas industry which has so far shielded Australia from the worst ravages of the global financial crisis, he said.
Macfarlane warned that such a policy would only serve as a "band-aid solution" and may drive gas exploration and development elsewhere, adding that both he and his Labor counterpart Martin Ferguson are opposed to quotas or price control.
Macfarlane believes that the "perfect storm" of factors aligning to create a period of "great risk" for the petroleum industry include:
- The new Queensland CSG-LNG projects due to start coming on line in 2014–15 will suck huge volumes of gas and reduce local availability;
- Many utilities and other major gas consumers have long term/low priced supply contracts maturing in the next few years;
- Some consumers are reporting difficulty in securing new contracts at any price;
- Electricity prices have become a totem issue of public anger and therefore political concern in recent years and there are more price rises to come;
- Conservative governments in Victoria, NSW and Queensland plan to highlight this cost issue when the carbon tax commences on 1 July; and
- The Federal Government is "deliberately fomenting resentment towards large resources industry companies" by growing public support for the Minerals Resource Rent Tax (MRRT).
Macfarlane said that in nearly a decade of his direct involvement with the energy and resources portfolio, he had heard persistent calls for a domestic gas reservation policy, but warned that there are "significant dangers in interfering with the gas market and mandating the reservation of gas, not least of which is the distortion of the price signal and undercutting the competitiveness of Australian gas projects".
"It also threatens Australia's sovereign risk status, because by mandating that a certain percentage of gas in projects already in production or development is set aside for domestic sale, the rules of the game for investors are changed midstream", he added.
"If investors have taken the risk and put in place infrastructure and completed the work to extract the gas, it is anticompetitive to take away their right to seek the best price in the market.
"The oil and gas industry has already borne the brunt of a series of Rudd/Gillard Government decisions that have undermined Australia's sovereign risk profile – including the carbon tax, Kevin Rudd's disastrous Resources Super Profits Tax, the watered down MRRT and the tax slug on condensate. It cannot absorb yet another deterioration in Australia's status as an investment destination for energy and resources projects."
He said that the energy and resources sector has been essential in helping guide Australia through the worst of the global financial crisis and it continues to offer significant potential for future investment and development.
However, "this growth, revenue and new jobs can't be taken for granted", he said.
Macfarlane's Liberal Party confrere, NSW Resources Minister Chris Hartcher, told the APPEA delegates that his government is studying the option of a reservation policy, along with changes to royalties for supply into the local market and the creation of a gas commissioner. This is in line with Recommendation 29 of the NSW Parliamentary Inquiry Into CSG, which is that the NSW Government should implement a domestic gas reservation policy, under which a proportion of the CSG produced in the State would be reserved for domestic use, similar to the policy in WA.
It also recommended a 'Royalties for Regions' program similar to that operating in WA, which Hartcher said the Government is considering for external and internal consumption.
"We also talk to our Queensland colleagues who decided not to go down the reservation route, but appointed a commissioner to balance out community needs with those of Gladstone export projects, and we would look at that", Hartcher said.
It appears that investment in WA has not abated despite the State imposing a gas reservation policy in 2006. A Deloitte Access Economics paper released at APPEA reported that around 60% of Australia's conventional gas supplies are located in the north of WA, while in 2010–11 it estimated that about $21.8 B, or 73% of petroleum sales, originated from output produced in WA. Victoria comes in second, contributing about $3.6 B.
The DomGas Alliance has noted that the 2006 reservation policy also did not prevent Alcoa and ARC Energy from entering into an agreement to expand ARC's Canning Basin exploration program.
This year, nine out of the 12 offshore petroleum exploration permits were granted in WA. In total, the 12 permits are worth $303 MM in investment over the next three years by eight companies including BHP Billiton, Bass Strait Oil Company, WHL Energy and Woodside. A total of 46 bids were received for 16 release areas of the first 2011 Offshore Petroleum Exploration Acreage round which closed in October last year.
A statement from Ferguson's office in May said that there has been an "unprecedented expansion" in the discovery and development of national energy resources in recent years, with natural gas leading the way. Most of this exploration is in WA.
While the arguments for a gas reservation policy at state level will persist with the onset of the carbon tax, it appears that it will not see the light of day at federal level, on both sides of politics.
