It may look like reservation, but Queensland gas exploration land release is still positive

January 27th, 2017

The Queensland Government is to be applauded for its move to release 58square kilometres of land for onshore gas exploration in the Surat Basin, even though the release has a big proviso hanging over it:  Any gas-production from the area is for domestic use only.

Most industries oppose ‘reservation’ policies because they distort the market and can undermine investment intentions.

But Australia’s East Coast gas market is getting very tight, so the Queensland move is understandable, particularly when Victoria has a complete ban and New South Wales has locked up large swathes of territory – about two thirds of the State at last count.

With escalating prices and supply worries ahead, the Queensland Government has moved to try to restore some confidence that it is thinking about the customers.

Former Federal Resources Minister and now Queensland Resources Council chief executive Ian Macfarlane put his customarily direct opinion on the table quickly:

This is an innovative response by the Queensland government to the lack of political backbone shown by the governments of NSW and Victoria.”

Western Australia already has a mandate that 15% of the total gas production must be kept for state supply; however, the Queensland arrangement differs slightly in that it targets the ground before it is explored, rather than using the already active supply.

There are arguments for both sides of this quasi-restrictive policy, with clear support for new exploration, but concerns also voiced by the industry.

APPEA’s chief executive Malcolm Roberts notes that “unlike other States which are playing politics with Australia’s gas supply, the Queensland government understands the urgent need to develop new gas reserves.  [However] Australian market conditions are unnecessary. Queensland’s LNG projects are the leading suppliers to the local market. Supply to domestic customers from the projects is upwards of twothirds of Queensland’s demand. Customers do not need regulation to obtain gas.”

In our view, the new acreage being opened up is a key opportunity. The East Coast energy market is in desperate need of more supply, and this new acreage presents an opportunity for expansion.

Since 2015, the ACCC has been foreshadowing supply uncertainty, and through its landmark report  last year, pointed out that Australia’s eastern states sit atop immense gas reserves – conventional and unconventional – that, if developed responsibly, could fuel domestic and export markets for decades to come.

It may not be perfect, but at least the Queensland move is a step in the right direction.

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