19 January 2013
Clash looms as supply contracts unsecured
The Australian
LOOMING gas shortages for industry and households will create a sharp political divide in the coming federal election, with the Coalition advocating government intervention while Labor says market forces will address the problems.
Executives from major industrial users have told The Weekend Australian they have been unable to secure new supply contracts from 2015 onwards because gas producers are devoting all their available resources to the export market.
They predict the eastern states will literally run out of gas within two years. The pressures will intensify from next year when the first of the big three liquefied natural gas plants at Gladstone begins exporting.
Brickworks, Australia's largest brick and tile manufacturer, has already been hit with a 100 per cent increase in its gas costs and now faces the prospect of not being able to renew supply contracts from 2015.
Another major gas user, which asked not to be named, said Australia's main domestic producers had steadfastly refused to renew existing supply contracts over the past three years because they were switching to the export market.
Brickworks managing director Lindsay Partridge said the prospect of running out of gas amounted to a massive public policy failure by governments, especially when compared with the US, which reserved gas for the domestic market.
"The failure in public policy wouldn't be so bad if there wasn't such a glaring success in public policy on the other side of the Pacific," he said. "How is it that America has so much abundant cheap gas for its local manufacturing, whereas Australia is effectively shutting down manufacturing to export gas?"
Major gas user Incitec Pivot, which makes fertiliser and ammonium nitrate, has already flagged an expansion in the US rather than Australia because of that country's cheap gas.
The Coalition's resources spokesman Ian Macfarlane says that in government he would promote "acreage reservation" which would involve setting aside new fields for the domestic market.
Resources Minister Martin Ferguson says the market will respond to higher prices by developing new fields. He said Australia's vast resources of shale gas could be a new source of gas supply and predicted a shale gas boom like the one under way in the US.
Mr Ferguson is vehemently opposed to a reservation policy for Australia.
Western Australia has had a reservation policy since 2006 and which has gained strong support from industry.
The power to introduce such a policy lies with the state governments. NSW and Queensland, which face the most acute shortages, have flatly ruled out the need for such a policy.
Queensland Energy Minister Mark McCardle said he saw "no need for a reservation policy", but said the government was closely watching developments in the market
Mr McCardle said he understood that gas supply at competitive prices was critical for the state's economy. "The value-add to the domestic market is very high," he said.