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Australian federal government rules out domestic gas reservation

Highlights

The Australian federal government has ruled out domestic gas reservationas part of its response to a report by Prime Minister Julia Gillard'sManufacturing Taskforce, a decision which has dismayed the major local gasconsumers' lobby.

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"Manufacturing can prosper and grow in Australia if the sector takesadvantage of emerging opportunities in the Asian region," according to thetaskforce, which represents business, unions and the research sector. Thetaskforce Thursday presented its report, dubbed Smarter Manufacturing for aSmarter Australia.

The Australian manufacturing sector currently faces challenges such asthe high Australian dollar, the strength of the resources boom in terms ofcapital and labor, more intensive global and regional competition, and thecontinuing fallout from the global financial crisis, the taskforce reported.

It made more than 40 recommendations aimed at strengthening localcompanies as they adapt to global economic change.

"The government is supportive in principle of most of the report'srecommendations," Gillard said in a statement. "However, the government doesnot support recommendations in the report to further investigate a sovereignwealth fund and a domestic reservation policy for gas."

According to Gillard, the Australian economy is strong, with solidgrowth, low unemployment, contained inflation and a record pipeline ofinvestment. A big chunk of that investment is more than A$175 billion ($183.5billion) worth of LNG projects around the country.

The emergence of a major coalseam gas-based LNG industry in the state ofQueensland has prompted increasing calls by consumers for a domestic gasreservation policy in the nation's eastern market over recent months,although the clamor has been ignored by Canberra. The state of WesternAustralia, which hosts two producing and two developing conventional LNGprojects, already has a 15% gas reservation policy in place.

In May, a report into the coalseam gas industry released by aparliamentary committee in the eastern state of New South Wales called, among35 recommendations, for a domestic reservation policy. Coalseam gasdevelopment in New South Wales is currently stalled while the stategovernment nuts out the details of its policy on the industry.

"Australia is the only country in the world where international oilcompanies can openly access and export gas without prioritizing the localeconomy," said Tony Petersen, chairman of the DomGas Alliance gas consumers'lobby group. "It is also the only major gas producing country facing seriousshortages and sharply rising prices."

According to the Domgas Alliance, domestic gas prices have risen to ashigh as A$10/gigajoule in the eastern state of Queensland and aroundA$8-12/Gj in Western Australia, despite a massive expansion in gas production.

"This compares to around $2.60/Gj in the United States and just over $2in Canada. Both the United States and Canada have policies that prioritizesupply to local industry and households over gas exports," the group added.

"Most of Australia's gas resources are now controlled by a handful ofvery large international oil companies with multi-billion dollar LNGcontracts to fulfill," Petersen said. "Selling to local Australian companiesis not in their business model so will not happen voluntarily."

--Christine Forster, christine_forster@platts.com--Edited by Jonathan Dart, jonathan_dart@platts.com