ACCC chairman Rod Sims has called on state governments to free up regulations around gas exploration, in order to spur more investment in the sector.

In an implicit criticism of Victoria and NSW, which have effective moratoriums on onshore natural gas exploration, Mr Sims said governments need to allow access to gas resources and encourage development of infrastructure.

“We continue to urge state governments to adopt policies that consider and manage the risks of individual gas development projects, rather than implementing blanket moratoria and regulatory restrictions,” Mr Sims said at the Australian Domestic Gas Outlook conference in Sydney today.

“This is particularly critical for gas users in the southern states, who are likely to become increasingly reliant on gas from interstate or overseas, due to substantially smaller quantities of uncontracted reserves in the south and little prospect of new developments in the near term.”

He said more supply and more suppliers are needed in the southern states to bring gas suppliers there down, rather than buying it all from Queensland.

Research by consultancy Energy Quest says the southern states will face a shortfall in supply from their domestic production by 2022, and supply from Queensland will have rise by a third to fill the gap, creating in turn major pipeline bottlenecks.

About 3,000 petajoules (PJ) of 2P reserves in Queensland were written off this period, according to Energy Quest. Mr Sims says these and downgrading reserves is delaying development which governments need to be watchful for.

Richard Fenton, head of corporate affairs at the small cap leaders in the Queensland, Armour Energy (ASX:AJQ), told Stockhead he believes an uptick in exploration spending is coming.

“Given the significant slump in exploration expenditure over the last five to eight years in Queensland, it is not hard to feel like any increase in exploration as a boom,” he said.

“However, I do believe that we will be in another upward trend in the exploration cycle commencing over the next one to two years based on the significant volume of exploration acreage that the Queensland Government has released to market.”

Generally exploration starts in the second year of exploration tenure – after the company has completed desktop geological appraisal in the first year and planned the seismic or drilling program for year two and three.

“We will see the 2017 land release tenure starting to build this year and the 2018/19 in 2020.”

Who is taking on infrastructure risk? Not many, if any

The ACCC chairman said slowing production was the fact that companies didn’t want to commit to long-term infrastructure deals, such as pipeline expansion, or build extra storage capacity on the east coast.

About 80 per cent of proved and probable reserves are in the hands of the large LNG players.

Small caps such as Blue Energy (ASX:BUL) in the Bowen Basin and Senex (ASX:SXY) in the Surat Basin are “willing to take the risk”, while Jemena has just finished its new Northern Pipeline from the Northern Territory, but little activity is occurring around new lines into NSW or Victoria.

Mr Sims also warned suppliers not to push domestic gas users into penury.

He said RemaPak, a producer of polystyrene coffee cups in Sydney, went into administration in January and Coogee Chemicals closed down its Laverton plant in 2016, all because of too-high energy prices.

“Suppliers should also be mindful how they engage with prospective customers. Refusing to respond to requests for offers, and instead insisting that users participate in the supplier’s own expression of interest processes, does not create an impression that a gas supplier is actively participating in the domestic market.”

Featured Companies

You might be interested in