Australian federal government rules out domestic gas reservation

Sydney (Platts)--16 Aug 2012 533 am EDT/933 GMT

The Australian federal government has ruled out domestic gas reservation as part of its response to a report by Prime Minister Julia Gillard's Manufacturing Taskforce, a decision which has dismayed the major local gas consumers' lobby.

"Manufacturing can prosper and grow in Australia if the sector takes advantage of emerging opportunities in the Asian region," according to the taskforce, which represents business, unions and the research sector. The taskforce Thursday presented its report, dubbed Smarter Manufacturing for a Smarter Australia.

The Australian manufacturing sector currently faces challenges such as the high Australian dollar, the strength of the resources boom in terms of capital and labor, more intensive global and regional competition, and the continuing fallout from the global financial crisis, the taskforce reported.

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It made more than 40 recommendations aimed at strengthening local companies as they adapt to global economic change.

"The government is supportive in principle of most of the report's recommendations," Gillard said in a statement. "However, the government does not support recommendations in the report to further investigate a sovereign wealth fund and a domestic reservation policy for gas."

According to Gillard, the Australian economy is strong, with solid growth, low unemployment, contained inflation and a record pipeline of investment. A big chunk of that investment is more than A$175 billion ($183.5 billion) worth of LNG projects around the country.

The emergence of a major coalseam gas-based LNG industry in the state of Queensland has prompted increasing calls by consumers for a domestic gas reservation policy in the nation's eastern market over recent months, although the clamor has been ignored by Canberra. The state of Western Australia, which hosts two producing and two developing conventional LNG projects, already has a 15% gas reservation policy in place.

In May, a report into the coalseam gas industry released by a parliamentary committee in the eastern state of New South Wales called, among 35 recommendations, for a domestic reservation policy. Coalseam gas development in New South Wales is currently stalled while the state government nuts out the details of its policy on the industry.

"Australia is the only country in the world where international oil companies can openly access and export gas without prioritizing the local economy," said Tony Petersen, chairman of the DomGas Alliance gas consumers' lobby group. "It is also the only major gas producing country facing serious shortages and sharply rising prices."

According to the Domgas Alliance, domestic gas prices have risen to as high as A$10/gigajoule in the eastern state of Queensland and around A$8-12/Gj in Western Australia, despite a massive expansion in gas production.

"This compares to around $2.60/Gj in the United States and just over $2 in Canada. Both the United States and Canada have policies that prioritize supply to local industry and households over gas exports," the group added.

"Most of Australia's gas resources are now controlled by a handful of very large international oil companies with multi-billion dollar LNG contracts to fulfill," Petersen said. "Selling to local Australian companies is not in their business model so will not happen voluntarily."

--Christine Forster, --Edited by Jonathan Dart,

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