Australian upstream industry welcomes market-based energy policy
Sydney (Platts)--8Nov2012/434 am EST/934 GMT
The Australian upstream petroleum industry has welcomed the release of
the Australian government's new energy policy, which it said recognized the
critical importance of a market-based approach at a time when some interest
groups were seeking a return to protectionism and industry development
subsidies in order to unsustainably reduce input costs.
The long-awaited policy, known as a White Paper, was unveiled Thursday
by Minister for Resources and Energy Martin Ferguson. The development of
Australia's gas resources was one of four priority areas identified in the
paper, alongside delivering better energy market outcomes for consumers,
accelerating clean energy outcomes, and strengthening the resilience of
Australia's energy policy framework.
The new policy "faces up to major challenges such as rising energy
prices, pressures in Australia's gas markets, remaining competitive in the
development of our energy resources, maintaining our liquid fuel security and
bringing new clean energy technologies to market," Ferguson said. "To meet
these challenges, the Australian government is committed to open and
transparent markets that allow competitive pricing, efficient resource
allocation and innovation."
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That stance was welcomed by gas producers, who have faced a clamor from
from consumer groups seeking domestic gas reservation policies over recent
years. "Intervention in domestic gas markets would be counter-productive for
both supply and prices, as they would discourage innovation and investment
especially in dedicated domestic gas projects," Shell Australia Country Chair
Ann Pickard said in response to the White Paper.
Shell also welcomed the paper's recognition of growing international
competition for liquid fuel production, with new "mega refineries" in Asia
providing competitive pressure to local refineries. Shell recently converted
one of its two Australian refineries into an import terminal and Caltex
Australia has similar plans for one of its two facilities.
"The company is confident the existing robust supply chain will ensure
security of supply at internationally competitive prices," Pickard said,
echoing recent comments made by Ferguson. The latest two closures will reduce
Australia's refining sector to five plants, each with capacity of about
"Only a market-based energy policy framework can enhance Australia's
attractiveness as a place to do business and encourage the tens of billions
of dollars worth of gas industry investment still to be approved," said
Australian Petroleum Production and Exploration Association Chief Executive
David Byers. "It is important that gas is seen no differently to other major
export commodities such as iron ore, coal and wheat in that the benefits
associated with development are maximized through links to international
NEED TO ADDRESS LOOMING GAS PRICE 'BUBBLE'
The Australian Pipeline Industry Association said there was still a need
to address a looming gas price "bubble" in eastern Australia due to LNG
exports and a slowdown in coalseam gas development. Domestic gas prices in
eastern Australia are widely forecast to as much as triple from the current
level of $3-4/gigajoule over the next five years.
"There remains the fundamental challenge facing Australia's energy
industries, and that is, the cost to the domestic economy of linking national
gas prices to LNG export prices," APIA Chief Executive Cheryl Cartwright
"The solution is to address gas supply -- and ensure that businesses
threatened by a short-to-medium term price hike can survive until the price
levels out," Cartwright added. "With the vast resources of natural gas in
Australia, improved access will address supply issues -- which will in turn
assist in bringing prices down. In the meantime, government should seriously
consider whether it wants a short-term gas supply crisis to permanently
damage some sectors of the economy."
Prices are also the main concern of Western Australia-based gas user
lobby group DomGas Alliance, which said the new policy "effectively
surrenders Australia's competitive advantage in energy." DomGas Alliance said
Australia now has some of the highest domestic gas prices in the world, at
around $8-12/Gj, compared with $3.50/Gj in the US and $3.20/Gj in Canada.
"The US has taken a strategic approach on energy security and requires
LNG exporters to prioritize the local economy," DomGas Alliance Chairman Tony
Petersen said. "Canada also applies a national interest test on exports to
ensure the domestic market is not disadvantaged in any way. It makes no
economic sense for Australia to link our domestic gas prices to the world's
highest prices in Japan."
The user group added that Australia was the only country in the world
where international oil companies could openly access and export gas without
prioritizing the local economy. "It is also the only major gas producing
country facing serious shortages and sharply rising prices," DomGas Alliance
Australia is currently enjoying a $180 billion LNG investment boom, with
seven major projects under construction around the nation. The new plants are
expected to raise Australia's LNG capacity from around 24 million mt/year to
more than 80 million mt/year by 2017, potentially making it the world's
biggest producer, ahead of current leader Qatar.
A next wave of LNG projects could lift Australia's total LNG capacity to
as much as 130 million mt/year by 2035, according to government estimates.
APPEA welcomed the White Paper's advocacy for reducing red and green
tape that continues to limit the development of Australia's gas resources.
"Establishing more effective regulation, including less duplicative planning
processes and more timely approvals processes, is a very important step in
securing future supplies of gas," the association said.
Australia has 819 Tcf of natural gas, APPEA said. In 2009-2010, the
entire Australian economy consumed only 0.9 Tcf, with a further 0.9 Tcf
exported. One Tcf is enough gas to power a city of 1 million people for 20
--Christine Forster, email@example.com
--Edited by Haripriya Banerjee, firstname.lastname@example.org