Story In AFR Today.Probably Twigy Thinking Aloud.Fortescue...

Story In AFR Today.
Probably Twigy Thinking Aloud.
Fortescue Metals Group said it will consider a push into the West Australian gas market, as it urged the federal government to force oil and gas companies to develop or relinquish their leases.
Chief executive Nev Power said that while there were many companies better equipped to develop new gas fields for domestic use, if they did not develop the fields, Fortescue would.
“We still believe that provided there is the opportunity to develop it there will be plenty of companies lining up to develop it. Only if there was nobody else that would develop them [would Fortescue develop the fields],” Mr Power told reporters in Perth on Thursday.
He was releasing a Deloitte Access Economics report that found WA’s gas reservation policy should be abandoned in favour of a free market forced to develop retention leases or lose them.
The report argues there are commercially viable reserves that could supply the WA domestic gas market but are not being developed because WA government’s gas reservation policy links LNG exports with domestic gas industries, leaving domestic gas contracts to be priced at LNG netback prices.
By abandoning the reservation policy and applying more “rigorous” assessments of retention leases gas fields better suited to domestic supplies would be developed, the report argues.
Fortescue is one of WA’s biggest energy consumers, spending $US800 million a year. If it converted it’s entire energy use to gas, it would represent between 8 per cent to 10 per cent of the local market.
It is in the process of converting a power station at its Solomon hub from diesel to gas.
The WA government forces oil and gas companies to reserve 15 per cent of production for domestic use.
Deloitte Access Economics partner Chris Richardson said the policy was not a solution but a problem.
The report found there were plentiful gas reserves and while the gas reservation policy may potentially depress prices in the short term it was hindering the ability of markets to function effectively.
“Domestic gas reservation policies are generally likely to create adverse economic outcomes in the longer term,” the report states.
Deloitte argue the policy creates weak incentives for fresh investment in domestic supply infrastructure to and devleoping new reserves and limits competition because there are few new market entrants.
Mr Power wants the government to better enforce “use it or lose it” powers for retention leases.
The report found that developing fields for domestic use, rather than linking them to LNG export projects, could increase supplies and lower gas prices to $3.20 a gigajoule by 2020. It would generate 2,100 extra jobs and increase gross state product by $2.5 billion.