Gas reservation? Not possible unless the states do it, says expert
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The federal government is negotiating with its crossbenchers to reserve gas for domestic use, but one experienced hand says this may not actually be possible.
The federal government is considering implementing a gas reservation policy, similar to one proposed by Labor three years ago, with the Centre Alliance crossbench in order to get its $158bn worth of tax cuts through, according to the AFR newspaper.
The Labor version proposed a national interest test to any new or expanded gas projects that would be assessed by an independent body in the style of the Foreign Investment Review Board. That body would then recommend if or how much gas should be reserved for the local market.
But EnergyQuest boss and long time oil and gas consultant Graeme Bethune says the federal government doesn’t have any powers in relation to onshore resources.
That is all in the hands of the states.
The federal government’s powers are limited to environmental approvals and offshore exploration and production permits, he told Stockhead.
Resources minister Matt Canavan said this morning the government would “take any action necessary that’s reasonable” to bring down east coast gas prices, but refrained from saying how.
“I’ve said previously that we do need to consider in the future when new gas is developed how we make sure that Australian gas developed here in Australia benefits Australian jobs,” he said during a doorstop interview.
They are also looking at changing the Domestic Gas Security Mechanism to force the east coast LNG producers to divert more gas into the domestic market.
The only method for gas reservation will be via agreements with the states.
Canavan said they signed an MoU in November last year with the Northern Territory confirming that any gas from the highly speculative Beetaloo shale gas fields will include Darwin in any gas development, although it did not specifically mention gas reservation.
Queensland already has a gas reservation policy, which has meant some new exploration and production permits are limited only to supplying the domestic market.
Winners of these tenders have been the small and mid-tier players in east coast gas, as the acreages involved tend to be small. About a quarter of the 39,000 km2 of land released for gas exploration since 2015 has been guaranteed for Australian buyers, and seven domestic-only tenders have been awarded. Another tender is underway now, which includes 1000 km2 for domestic use only.
Armour Energy (ASX:AJQ) was awarded a total of 775 km2 in the Surat Basin, one in November specifically designated for local supply and this month more acreage near Chinchilla which has even tighter conditions: any production must be sold to gas users in the manufacturing sector.
Central Petroleum (ASX:CTP) has 77 km2 near Miles and Senex (ASX:SXY) have also won Queensland domestic tenders in the last year totalling 211 km2.
Western Australia “clarified” its 15 per cent gas reservation policy in 2012, after the big LNG export projects sent prices up to $10 a gigajoule (GJ), Frontier Economics energy economist Andrew Harpham recently told Stockhead.
Prices in the west are now around $5-6/GJ.
“The West Australian system has worked, it has delivered large investments in projects alongside significant amounts of gas for domestic gas in West Australia,” Canavan said.
He added that any application in the east would necessarily be different to that used by WA.