rio admits gas shortage

The heat's on as fears grow domestic gas supplies will drop by 2015.
RESOURCES giant and one of Queensland's biggest employers Rio Tinto has joined the list of companies who have admitted the booming LNG industry is creating a gas shortage after 2015.

The admission follows claims by major manufacturers such as Incitec Pivot that they can't even buy gas and that an energy crisis is looming unless the State Government steps in and forces gas companies to reserve gas for domestic use, a move it is refusing to do.

The shortfall in available gas will also flow on to households through higher prices, according to energy suppliers.

But the major impact will be on manufacturers because gas prices are a far higher component of their business, ESAA managing director Matthew Warren said.

In a submission to the Federal Government's energy white paper Rio said the issue was largely due to uncertainty with many producers in balancing reserve growth, existing contract commitments and market expectations.

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Other manufacturers claim that it is because the three LNG projects are fiercely protecting their gas reserves which can command three times the price on the export market.

The Major Energy Users submission to the white paper also said the potential loss of domestic gas supplies and competitive gas pricing would "be another significant failure in public policy that will have enduring national consequences". It said the view Australians should pay a global price meant "that we are giving away our national competitive advantage in energy resources for the short-term gain achieved by a few gas producers".

But Mr Warren said rushing to a reservation policy was masking a more important debate about energy and industry policy. "The attractiveness of it (domestic reserves) is to help energy intensive operations remain viable. That is an important discussion we need to have, but we have learnt painful lessons from the car industry.

"We can spend a lot of money on an industry that no matter what we do they are never going to be viable again as opposed to prudent investment because of the strategic role it plays in the national economy.

"All we may do is kill the goose that laid the golden egg to weaken a crucial and growing part of the export economy and have a short-term fix for trade-exposed sectors."

He said a reservation policy may not work on the east coast like in had in Western Australia. "If you reserve gas and make them take $3.50 from domestic customers those projects won't proceed," he said.

"The concern we have is if we have a reservation policy is that only the businesses that are reliant on gas