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31 May 2015

Oil and gas veteran backs domestic gas reservation policy



Oil and gas industry veteran Peter Botten has backed calls for a domestic gas reservation policy on the east coast of Australia, warning that consumers could be hit with higher electricity prices as LNG exports boom.

“My personal view is I do think that some form of domestic market obligation under certain ­circumstances is an appropriate thing to look at. That’s a view that is not shared by a large number in the industry,” the Oil Search ­managing director told The Weekend Australian yesterday.

Fears of gas prices rising on the back of the multi-billion-dollar Queensland LNG export projects — which need large volumes of gas — has sparked a debate about reserving gas for domestic use.

The idea of a gas-reservation policy was rejected last year by the Council of Australian Governments’ Energy Council, and the Business Council of Australia has previously declared that quarantining gas for domestic use will not curb the explosion in prices.

“The gas prices on the east coast of Australia will inevitably go higher as there is a relative shortage of gas and that (price) is certainly going to potentially be higher than the international market in Asia,” Mr Botten told the Annual Stockbrokers Conference in Sydney.

“The Australian consumer may well be paying for the exports that these projects are doing and paying higher gas prices.”

The petroleum industry’s peak lobby group, the Australian Petroleum Production and Exploration Association, has strongly rejected calls for a reservation policy and the government blueprint for the nation’s energy policy also recently warned against a domestic gas reservation.

Industry Minister Ian Macfarlane has previously said the government’s guiding principle was that markets should be left to ­operate freely, without unnecessary government intervention.

Mr Botten, a respected industry veteran who has run Oil Search for more than 20 years and directed the company’s involvement in the $US19 billion ($24.8bn) PNG LNG project, said there was a tight supply-demand scenario on the east coast of ­Australia.

“The reality of life is that higher energy costs in Australia is going to drive out a number of, or make some, industries challenged in terms of cost and supply,” he said.

“There are a range of new industries setting up in the US that are based on relatively cheap gas pricings. There needs to be a healthy debate about it ... there are means whereby prices in domestic markets can be appropriately managed.”

The oil and gas expert also outlined that the squeeze on efficiency and the application of technology would keep the oil price down lower for longer, but he outlined that the slump in the oil price was a prime time for the top companies to grow.

“This is a huge time when a whole bunch of oil and gas companies are actually going to go out, if they have strong balance sheets and great projects, and recalibrate their businesses with probably stressed companies and assets,” he said.

“It is a significant opportunity to rebuild your portfolio and if you are a company like ExxonMobil with a massive balance sheet, this is the time when they traditionally build their portfolio and take a long-term view and come out stronger.”

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