Commission calls out impacts of reservation policy and moratoria

April 2nd, 2015

The Productivity Commission has released an interesting report looking at some of the barriers to efficient gas markets in light of the growth and transformation of the Australian gas market, driven largely by the commencement of LNG exports from Gladstone.

In the lengthy and detailed report, the Commission puts paid to calls for domestic gas reservation, pointing out that gas reservation policies could be ineffective in preventing gas prices rising in the future, and further, that implementing reservation policies would require far more market and policy intervention than policy advocates expect.

The report also examines the effect of one of the activist community’s favourites – moratoria to lock up development while yet another inquiry, examination or regulatory examination is undertaken.

On that front, the Commission says:

“The expected benefits of the moratoria must be weighed against their expected costs — higher gas prices for users and reduced royalty and taxation revenue for governments.

Sound risk management does not equate to eliminating all risk. The scientific evidence suggests that the technical challenges and risks can be managed through a well-designed regulatory regime, underpinned by effective monitoring and enforcement of compliance.”

Unsurprisingly, some industry opponents have seized on sections of the report to claim that it shows the negative impact that coal seam gas development will have on land values.

Greens MP Jeremy Buckingham highlighted this quote from the report:

“An objective and direct measure of the economic cost of gas activities to the landholder, encompassing the different types of damage, is the decline in the market value of the landholder’s property (land and any improvements).

“This market value reflects the highest value uses of the land with and without the gas activities.

“However, in most jurisdictions the decline in the market value of the landholder’s property is not recognised explicitly in legislation as an overarching principle for setting compensation.”

However, as Energy News points out in this post, it’s always useful to read the rest of the page to make sure the quote isn’t taken out of context, noting that:

However, what Buckingham didn’t mention was that the PC report went on to say there was a way forward for industry and landholders to work together.

“A sound compensation regime that helps align the relevant interests will best support the joint incentive to maintain a cooperative rather than adversarial relationship, and can reduce the costs incurred in negotiating such access agreements,” the report stated.

“Land access negotiations typically involve a large volume of technical, legal and financial information and require some expertise in undertaking negotiations.”

You can read what industry body APPEA have to say about the report here, and for an industry participant’s view, check out this piece from AGL.

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