Energy producers reject reserving gas for domestic use
Gas producers have warned the government not to intervene in the export market to help local users.
Australian energy producers have slammed a move by the Coalition to consider domestic gas reservation, arguing the interventionist measure wouldn’t lower prices for local users but would significantly increase the nation’s sovereign risk profile.
The government is mulling Centre Alliance senator Rex Patrick’s calls to replicate Western Australia’s reservation policy on the east coast, potentially tightening the LNG export trigger to free up more supplies for users. Its deliberations come as the minor party weighs its support for the Coalition’s income tax cuts.
The Kerry Stokes-controlled Seven Group Holdings said slapping a new mechanism on the industry was the wrong way to bring on new supply.
“With respect to tax policy and reservation, all of these single mechanisms and instruments that government come up with as a panacea are really difficult to implement,” Seven Group’s head of energy Margaret Hall told the Credit Suisse Australian Energy conference in Sydney.
“And I’m not sure they really address the core of the issue, which is about getting more gas into market and delivering pricing that is palatable — not only to producers to get a return — but also for the buyers.”
A surge in gas prices to $12 a gigajoule, three times the level historically paid, and an outcry by big manufacturers over difficult in securing supplies for their operations has reignited calls for a form of government intervention in the hope of providing tariff relief and resetting the market.
Cooper Energy, which is building the Sole gas project off the Victorian coast, said a reservation policy would fail to bring lower prices to the market.
“A reservation policy might make supply available to a market sector but I don’t think it is going to change prices, because prices are going to be determined by cost fundamentals. That’s the start and the end of it,” Cooper chief executive David Maxwell told the conference.
“The opportunity to supply gas into a domestic market is up against putting it into LNG and people are still going to make commercial decisions.”
Gas producers should not be forced into actions that fail to make sense from a commercial perspective, Mr Maxwell added.
“I don’t think you can force a commercial entity to make an uncommercial decision, because the uncommercial decision will be ‘do nothing’, which actually makes it even harder. So you do have to let the market work. If you want to maximise supply into the market, then do what you can to support more supply and then the lowest cost gas will always find its way to the customer.”
The oil and gas lobby group Appea said any move by the government would ultimately hit investment.
“Things like reservation are short-term, and then we’d come back to exactly the same problem, but we’ve done some irreparable damage to the investment framework in Australia,” Appea director of economics Damian Dwyer told the conference. “That’s a spiral I don’t think anybody is helped by.”
Small-cap explorer Strike Energy struck a contrary view, arguing there was insufficient gas exploration underway in Australia and prices on the east coast were likely to stay high in the long-term.
“All of the very high-risk, high-reward opportunities are not being pursued by people with very large balance sheets and the ability to raise debt or self-fund these things,” Strike managing director Stuart Nicolls said.
More Coverage
