Domestic Australian gas users are upset. When the gas export plants currently being developed in Queensland are up and running then they will have to pay world prices for their gas. No more getting cheap energy by the good fortune of being located in a country with large gas supplies but without the facilities to export.

Good!

As a major gas exporter, Australia will play a significant role in meeting the energy demands of the developing world while limiting green house emissions - at least compared to the coal and oil alternatives. The calls by domestic companies to ‘help them out’ (perhaps a ‘quantity reserved for domestic use’ like in WA?) is simply a call for a subsidy. So far the government has rejected this – and let’s hope they continue.

3 Responses to Gas users ask for a handout – and the government should clearly say ‘no’!

  1. Bruce Mountain says:

    Stephen

    Seems to me that this merits more thought.

    It is a fantastic opportunity for Australia that its gas resources may now be available to international markets. This brings the prospect of trade benefits, employment and so on. All good.

    But, accessing international markets in gas requires very great capital investment in extraction, processing and shipping. This creates a substantial barrier to entry and has resulted in the concentration of Australia’s gas resources in the hands of a few global oil and gas majors.

    These companies operate across global markets and their investment and production decisions in any one country is subject to the optimisation of their global portfolios. This can result in a difference between the national interest that Australia might have in the exploitation of its gas resources, and the interests of those companies that have bought leases over Australia’s gas resources. In extremis lets imagine a scenario where these oil and gas majors wished to sit on their Australian resources waiting for global conditions to improve, and in the meanwhile not producing gas for sale to Australian users for fear that this will diminish their future options. Would this really be in the national interest?

    As you know better than me, governments spend lots of time considering this in the definition of mining leases and in the constraints they place on times that leases may be held before production and so on. It is also reflected in investment approvals – for example the constraint on Shell’s attempt to control Woodside.

    Major gas users in Australia are part of the Australian economy and their interests are part of the national interest. Of course they are pressing sectional interests, but it seems to me that there would be no harm done giving their concerns careful examination, so that we may all be clear that unfettered access to international LNG markets is in indeed in the national interest

  2. Stephen King says:

    Bruce

    There may be all sorts of issues relating to gas exports. But I cannot think of a single situation where it would be desirable to have domestic firms in Australia pay less than the export parity price of gas (which is what they want) rather than to have an alternative policy. The policy the gas users want is effectively a tax on the gas exporters (which may be a good thing) PLUS a subsidy on gas purchases to a specific group of Australian gas users (which is probably not a good thing in any real world situation).

    Maybe you can think up a situation where a selective subsidy to a particular group of manufacturers purely on the basis of their fuel use would be good policy. I can’t.

  3. [...] industry continue. But it is simply protectionism in disguise. I have briefly discussed this before, but Bruce’s comment on that post has led me to develop the argument further. The full [...]

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