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Fortescue has been making quite a bit of noise about gas in recent times...





Mining execs call for action on gas supply



Top resources executives have warned that Australia is facing a “crisis point” with the rising cost of energy, calling for urgent policies to give industry more access to domestic gas.

Fortescue Metals chief executive Nev Power called on governments to do more to give incentives for gas production, including instigating a “use it or lose it” policy with companies that did not develop their gas leases.

In an interview with The Australian yesterday, he said the federal government also needed to revise its energy policies to ease its short-term focus on emissions reduction and allow more use of gas for electricity generation.

“The focus on LNG exports has taken priority over domestic gas,” Mr Power said.

“I don’t think it was intended, but that is the way it has worked out, which has created a major issue around gas supply on the east coast.

“Focusing totally on emissions reduction is leading to very expensive, very unreasonable power costs for Australian families — and it’s going to get worse.”

His comments come as Alberto Calderon, chief executive of chemicals and explosives company Orica, said Australia was now at a “crisis point” due to the rising cost in energy.

In a speech to the Brisbane Mining Club yesterday, Mr Calderon — a former senior BHP executive — called on the government to intervene around LNG export contracts if the gas industry was not able to bring more flexibility to pricing.

Mr Calderon said Australians were facing some of the highest gas prices in the world despite the nation having abundant gas resources. “Availability of affordable gas and energy is now at a crisis point,” he said.

“Cost-of-living pressures on domestic households and unprecedented high energy costs that are making Australian manufacturing unaffordable have to be addressed for the long term, now.”

Orica is heavily exposed to gas prices, given it uses gas in the manufacture of its explosives, and has long been calling for changes in the east coast energy market.




Fortescue’s Mr Power predicted that consumers on the east coast were facing summers of sharply rising energy prices.

“What we are going to see on the east coast — come next summer or the summer after that — is load shedding and very higher prices to the detriment of Australian householders,” he said.

He said the situation was not as bad on the west coast, where Fortescue is based, but the energy crisis would also hit Western Australia in a few years for the same reasons.

Mr Power said Fortescue was paying to import diesel fuel for its operations in the Pilbara as there was not enough domestic gas — despite the fact that WA had large offshore gas reserves.

He said governments should instigate a “use it or lose it” policy in which companies that did not develop the gas reserves in their leases would lose them.

“There are a lot of gas leases which have been rolled over under the retention system. Some of them have been rolled over for up to 30 years,” he said.

“They are typically held by large multinationals. If they don’t want to develop them, let the leases be developed by someone else.”

Even so, on the east coast, spot and, anecdotally, contract gas prices have come down since the federal government in April called emergency meetings with gas producers to address the crisis, ordered three years of competition watchdog scrutiny and put in a mechanism to restrict exports if there was a shortage of reasonably priced gas.

“More gas is coming into the domestic market,” Santos managing director Kevin Gallagher told The Australian yesterday.

“Whether it’s government or market pressure, I wouldn’t like to speculate, but we’re seeing it contribute to gas prices coming down to a more tolerable level.”

Santos, whose Gladstone LNG project will feel the full brunt of any export restrictions, yesterday said it would cap exports from the project (the only one of three built at Gladstone that exports some of its gas from third parties) until around the mid-2020s.

It also said it was close to signing domestic gas projects for 30 petajoules of gas and would try to produce more gas from Queensland acreage outside the GLNG venture.

Mr Calderon said he supported calls from the Minerals Council of Australia for the government to penalise states that blocked gas development by cutting their distributions of the GST.

He said the government should be encouraging the nation’s LNG producers to introduce clauses in their gas export contracts that added flexibility around the origin and destination of their gas. The current absence of such clauses meant many Australian LNG exporters were compelled to sell gas to Asia at a lower price than they would achieve if they supplied the same gas domestically.

“If I were in government, I would insist that within two years the prices I see in Sydney are related to international prices,” he said.

“Ideally you should not have the government to intervene, but I’d prefer the government to have those types of conversations (around contract terms) rather than have gas reservations or price controls, which is worse.”

He said gas prices in Sydney were regularly shooting as high as $15-$16 per gigajoule compared to LNG prices to Japan of about $7.

The comments by business leaders yesterday follow comments earlier in the week by BlueScope Steel chief executive Paul O’Malley, who cited rising energy costs as one of the biggest challenges facing his successor, Mark Vassella.