Who owns Australia's gas?

Calls for 'local use' quotas on Australian gas are putting the heat on government in sensitive electoral areas. But others warn quotas will risk massive LNG investment.

It’s on for young and old between the gas supply industry and the major gas users, with the latter continuously ratcheting up the heat.

In fact, it is a three-cornered contest now because both the federal government and the Coalition have signalled that they don’t want to intervene to reserve gas supplies for domestic use while the users are enlisting heavy hitters, such as Dow Chemical’s main man, Andrew Liveris, to tell them they are wrong.

In a new fusillade, the Perth-based DomGas Alliance, which started life as a Western Australian lobby group but is now chasing its concerns nationwide, has launched a report claiming that Australia is the only country in the world allowing "international oil companies to access and export natural gas without prioritising local supply.”

It sharpens its thrust by adding that Australia is also the only gas exporting country to experience shortages and sharply rising prices.

In a national economic environment where, no matter how often Wayne Swan exhorts us all to be happy, there are a large number of people unconvinced that they are sharing in the creation of new wealth and where manufacturers are obviously in strife, DomGas is pressing hard to get political knees to jerk at the state and federal level.

The cost-of-living button is always a good one to push in these disputes and DomGas has given it a good nudge with a claim that we are confronted with a rise of $5.3 billion in mainland state annual gas bills. (Why did they ignore poor Tassie, I wonder?)

DomGas bases this assertion on multiplying current gas demand by businesses and households with projected price rises – of $3 per gigajoule in the east and $5.50 in Western Australia.

The debate about higher gas costs (and higher electricity prices flowing from the use of gas by power stations) is not new in the West. It has been ongoing for several years.

However, driving this tale in to the media on the east coast is calculated to really pour on the pressure for the pollies, with a federal election looming and the big three states (in terms of consumers and consumption) all now in Coalition hands and manifestly jumpy about energy bills.

Put eastern gas prices up to $6 per GJ, says DomGas, and households and businesses in Queensland will cop an extra $597 million a year in direct gas use costs.

In New South Wales, where there are 1.2 million household and business customers, the annual increase will be $477 million. In Victoria, where cheap gas has been a given since the days of crafty Sir Henry Bolte and where gas usage is high, the cost increase will be $789 million.

Plus $399 million in South Australia.

This adds up to a $2.26 billion hike in gas bills on the east coast – and its affects 3.6 million customers, of whom just 1,624 are large commercial and industrial users, according to the Energy Supply Association yearbook.

DomGas argues that there is a bigger cost still when you take in to account the multiplier impacts of high gas prices leading to lost investment and jobs, business closures and falling tax revenues.

It sees further cause for alarm in reports that talks are going on about exporting Bass Strait gas through Queensland.

The lobby group is building some of its case on the coat-tails of Wayne Swan’s rants about big, rich, foreign exploiters of our resources.

"Most of Australia’s gas resources are controlled by the world’s biggest oil and gas companies,” DomGas chants. "Their preference is to conclude multi-billion dollar LNG contracts with a handful of overseas customers rather than to sell to many smaller Australian companies.

"While this might be legitimate commercial practice, it does not equate to Australia’s national interest.”

DomGas wants a national reservation policy setting aside a proportion (15 per cent has been suggested) of LNG resources for local use.

(Western Australia has imposed a requirement for Chevron's Wheatstone gas project to supply domestic gas equivalent to 15 per cent of the LNG production.)

The DomGas argument is that a national reservation policy will not discourage investment or make Australia a less attractive place to invest.

Its views have been strongly echoed by Dow’s Liveris, who, despite being based in the US, seems to be on a personal crusade on this issue in his homeland.

His central point is that Australia is wasting a huge opportunity to benefit from its gas resources by exporting most of them at the low end of the value chain.

Liveris says gas prices are now uneconomic for new chemical manufacturing investment here.

The upstream petroleum industry is returning fire by arguing that Australia needs to be protected from protectionism and, if we want the long list of LNG developments currently being considered to be built, we should not be suckered in to a policy that will "deliver some companies an artificially favourable price.”

Taking up the DomGas policy, the Australian Petroleum Production & Exploration Association warns, runs the risk of discouraging the second tranche of massive LNG investments.

Politics is going to play a huge part in the decision making on this issue.

Just how Julia Gillard, or whoever takes her job in a late-year coup, according to the current Canberra scuttlebutt, will position Labor on such an emotive issue as energy prices is probably the key to the outcome – and how will Tony Abbott and the Coalition react as they strive to sustain the huge support their parties garnered in the recent New South Wales and Queensland state elections?

The next federal election essentially is going to be won and lost north of the Murray and this is exactly where the energy costs issue is at its hottest – and where the gas supply industry is embroiled in a big row about coal seam gas development.

Keith Orchison, director of consultancy Coolibah Pty Ltd and editor of Powering Australia yearbook, was chief executive of two national energy associations from 1980 to 2003. He was made a Member of the Order of Australia for services to the energy industry in 2004.