Australia boasts one of the single largest exploited Liquified Natural Gas (LNG) deposits in the world; with the North West Shelf Venture, as well as some significant deposits still in development such as Gorgon. These large deposits and the financial resources thus far invested to exploit them, have made LNG very political.
APPEA represents the gas producers, who believe that they should be able to get the best price for their product. In one of their key policies;
In an advanced economy underpinned by competitive markets, such as Australia, one industry should not be required to subsidise the activities of another. In all sectors of the economy – not just oil and gas – maintaining access to open and competitive markets is in Australia’s best interest.
Australian manufacturers believe that LNG should be subsidised for domestic industrial purposes. Indeed, it is one of the core policies of manufacturing lobby group Manufacturing Australia;
When we export gas at the expense of domestic users, what we’re really exporting is Australian jobs. While other countries are creating jobs by directing their energy advantages towards manufacturing, Australia is putting thousands of manufacturing jobs in jeopardy and forcing Australian manufacturers to invest offshore rather than in Australia.
The Australian Industry Group believes there should be a four-pronged ‘National Interest Test’ for any new LNG projects. These four prongs include mixing domestic and export consumption for best national prosperity, recognising existing export contracts, a seven-point approval process, and understanding the needs of both the western-state producers and the eastern-state consumers.
Natural gas supplies around one-fifth of the globe’s energy needs, compared with one-third from oil and one-quarter from coal and is the cleanest-burning fossil fuel, producing significantly lower carbon emissions than coal or oil. Qatar dominates global LNG exports with 25% of total supply, whilst Australia has increased supply over the past decade to sit at 9%. Qatar has placed a moratorium on new LNG projects, which Australian producers see as an opportunity.
Australia’s LNG reserves are exploited by various multinationals, with Woodside, Shell, PetroChina, ExxonMobil, Chevron, and BHPBilliton all heavily involved in existing projects, and all are very keen on the outcome of any political intervention on pricing restrictions. Government pricing intervention for domestic consumption has been likened to industry protection which would act both as a foreign investment demotivator and may even draw a protectionist response.
Overwhelmingly, Australian and international experiences of trying to protect domestic industries by restricting trade have damaged the broader economy… Further, there is no clear evidence that the gas reservation policy applied in Western Australia has delivered low gas prices for gas users.
The United States has tested the theory of the ‘national interest test’, with the Department of Energy contracting NERA Economic Consulting to test scenarios about LNG exports. All scenarios played out with a higher economic gain from allowing exports at market prices than protection for domestic consumption.
Australia’s manufacturing base is probably going to have to make do with local LNG going at the international market rate. The effects that this will have on Australian manufacturing will have to be considered over a longer period.
