AWU launches ‘price explosion’ fightback

Launching the Reserve Our Gas coalition (reserveourgas.com.au) with the Australian Council of Trade Unions, Alcoa and Australian Paper, an AWU source told Energy News that while it would be active targeting the November 29 Victorian state election, the main game was federal.The Australian Petroleum Producers and Explorers Association called the AWU’s launch “protectionism dressed up as energy policy”.AWU national secretary and ROG spokesman Scott McDine said that while “of course our abundant natural gas can and should be exported to the world … a portion of it also needs to be providing a competitive advantage to our local industry, and a cost of living benefit to Australian consumers”. “We can have both, just like every other gas-exporting nation,” McDine said. It all comes down to pricing. The AWU believes the new gas export industry linking Australia to the high global price for gas means local gas prices will rise dramatically in the coming years. While Australian gas has traditionally cost around $3-4 per gigajoule domestically, it can sell for up to $18 per gigajoule on Asian markets. APPEA, on the other hand, said only new gas supplies, not new government interventions, would put downward pressure on prices and drive sustainable employment opportunities for AWU members.McDine pointed out that Australia was the only nation that “allowed exporters to extract our gas without restriction and sell it back to us at the global price”. He noted that Australia was the only gas-exporting nation in the world without laws to ensure its domestic consumers are not damaged by the linking of gas to global markets, with Israel, Indonesia, Egypt each having laws requiring that a percentage of gas extracted must stay within their domestic markets. In the US, the Department of Energy must decide whether gas exports are in the “public interest”, which the AWEU said was “deliberately loose” and allowed the US to maintain control over its export volumes and ensure that any increase in LNG demand does not outstrip available supply and create shortages in domestic markets. Canada has similar “public interest” laws around the export of its gas; while Norway, Qatar, Russia, Algeria and Malaysia also ensure domestic advantage from their gas reserves by having state-owned companies taking the role of dominant producer, the AWU said.APPEA CEO David Byers said international experience offered lessons for Australian policy-makers, “but not the kind described by those calling for gas reservation”. “We should also heed the lessons of crude oil pricing in Australia, which saw import parity pricing introduced back in 1978 and the previous ‘local pricing’ policy abandoned due to the fact it was creating an incentive for exploration outside Australia,” Byers said.”It failed to maximise the true value of local crude or the tax revenues produced; and the policy created a perverse incentive for excessive local oil consumption.”In the case of Western Australia’s gas reservation policy – which mandates the reservation of 15% of WA’s gas – a BIS Shrapnel report found that it had not hindered gas investment, with $88 billion invested in WA gas production since reservation was introduced in 2006. The federal government has, thus far, flatly rejected a domestic reservation policy. But both the AWU and the DomGas Alliance, of which Alcoa is also a member, have expressed concerns about what effect exposing Australia to international markets might have.Federal Department of Industry Energy White Paper Taskforce head Margaret Sewell told the AIE Conference in Perth last month that analysts were certain there was enough gas to supply both the domestic and export markets. “In line with the findings of the Eastern Australian Domestic Gas Market Study released in January by the Department of Industry, rising prices do not automatically mean that the market has failed, or that intervention is necessary,” she said. She noted federal Industry Minister Ian Macfarlane’s stated belief that the linkage to international markets had been inevitable and that the government was not considering gas reservation or similar policies, on the basis that any intervention in the market could stall investment required to sustain the economy’s growth.The central platform of the AWU’s campaign launch was a BIS Shrapnel report into the impact of exposing Australia to international pricing with the LNG ramp-up over the next two years.The report said one in five heavy manufacturers would close within five years, reducing production by 15.4% by 2023, costing the Australian economy $101 billion, taking into account the economic benefits of LNG exports.It also predicted household gas bills would rise by 26% over the next three years from 2015, while just 18% of Australia’s gas would be extracted by Australian-owned firms, including BHP Billiton which is only 58% Australian.As expected, APPEA came out firing at AWU’s announcement.”Rather than seeking a hand-out, those concerned by rising prices should instead join the natural gas industry in seeking the removal of the regulatory burdens currently stopping the industry from producing gas,” APPEA said.”The AWU’s simplistic notion that ‘Aussie gas should be cheap for Aussies’ reflects a populist form of ‘resources nationalism’ that in defiance of Australia’s experience and best interests. “The reality is this that reserving gas is a ruse and evidence showing the consequences of gas reservation to be both negative and profound is consistent and mounting.”

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