Domestic gas reservation and high project costs top energy discussion



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Retrospective domestic gas reservation policies were ruled out but increased regulation and prospective gas reservation were both raised during CEDA’s State of the Nation 2013 energy options and security discussion.
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Retrospective domestic gas reservation policies were ruled out but increased regulation and prospective gas reservation were both raised during CEDA's State of the Nation 2013 energy options and security discussion.

Both the Minister for Resources and Energy, Gary Gray AO, and Shadow Minister for Energy and Resources, Ian Macfarlane, ruled out retrospective gas reservation policies.

However, Mr Macfarlane said the Coalition would consider a prospective policy for new projects.

"While the Coalition is clearly opposed to a mandatory blanket gas reservation policy, we are open to investigating alternative ideas," he said.

"Instead of a gas reservation policy applied retrospectively to existing projects it would be far more effective and less destructive to the industry - let alone the sovereign risk profile - to promote the idea of acreage reservation prospectively for domestic gas production (from) new projects where by certain areas are set aside wholly or in part for the extraction of gas for the domestic market.

"Under such a policy investors on both sides would know exactly where they stand and obviously it wouldn't apply to existing projects."

Mr Gray said the Australian Government did not agree that a domestic gas reservation would keep gas prices down.

"In keeping with our belief in open and competitive markets, the Australian Government does not agree that domestic gas reservation would keep gas prices down, or put more gas in the market," he said.

"In our view it would create uncertainty and deter investment in new gas supply."

However, he said that "without adequate access to gas for domestic users, governments will face increasing pressure to use the stick of regulation".

The cost of doing business in Australia and productivity was another key issue discussed, with Shell Australia incoming Country Chair Andrew Smith saying high costs pose a direct risk to the current pipeline of investment.

"We expect Australia to underpin the next phase of growth for our LNG portfolio," he said.

"This investment will generate considerable employment, national income and tax revenue.

"But while Australian has potential of 100 million tonnes per annum of proposed projects in development, a range of challenges including high infrastructure and labour costs and environmental constraints pose direct risks to the pipeline of this investment.

"With seven LNG projects currently in construction, we have become the highest cost nation to build the next LNG plant, in fact we are now 20 to 30 per cent more expensive than the United States and Canada."

"Competing demand for our workforce means we are paying people as young as 20 around $200,000 a year. Their bosses can be as young as 25 and get paid even more.

"We worry about how sustainable this is, how much longer can we afford to do this and can we afford to miss the window of opportunity Australia has for constructing new projects?

"How much time do we have before our competitors in North America and East Africa catch up and start stealing our customers?"

Mr Smith said we need to recognise that we may need help building these projects and skilled migration will be important.

Read more articles from the 2013 State of the Nation