APPEA: Energy Policy Must Encourage Investment, Not Subsidies (Australia)

Long-term energy security for Western Australia is best delivered through efficiently operating markets and by encouraging new entrants and competition, says the gas industry’s peak body.

In its submission on the State Strategic Energy Initiative Directions Paper, the Australian Petroleum Production & Exploration Association (APPEA) said WA’s move to market-reflective gas prices in recent years had triggered an increase in exploration and project development, including the state’s biggest domestic gas development effort in almost three decades.

“The gas industry welcomes the policy principles in the Directions Paper that recognise that an efficiently operating market – rather than government intervention that masks price signals – is the key to ensuring that West Australians have access to long-term, secure supplies of competitively priced energy,” said APPEA’s WA Director Stedman Ellis.

“Contrary to the claims of some large industrial users, mandated gas reservation is not required to secure domestic gas supply. SEI projections show forecast supply is sufficient to meet the demand.

“The domestic gas reservation policy is not only unnecessary, it is counterproductive. Imposing a large economic cost on gas producers by requiring one industry to subsidise the input costs of others can only lead to less investment, less supply and higher gas costs in the longer-term.”

The gas industry is disappointed that the Directions Paper seeks to retain mandatory domestic gas reservation contrary to the principles outlined and in the absence of any evidence of market failure in relation to gas supply.

“Given that a domestic gas reservation obligation equates to a substantial tax on the gas industry, its continuation must be supported by economically credible and robust analysis, including its ability for delivering on the SEI’s ultimate objectives,” Mr Ellis said.

“The keys to achieving WA’s energy objectives are periodic and independent review of the market’s commercial functioning, incentives to increase exploration, encouraging competition and diversification, and addressing transmission competition and capacity.”

Mr Ellis welcomed the SEI’s move to consider more realistic gas demand and supply projections in its scenario planning.

“The more realistic projections of gas demand and supply contained in the Directions Paper expose claims by the big industrial consumers of gas that demand will double by 2015 for what they are. Profitable companies are seeking subsidisation through a government mandated supply overhang and uneconomic prices.”

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Source: APPEA, May 16, 2011;