Mining giant Rio Tinto has cast doubt on the federal government's plan to prioritise gas as a clean energy transition fuel after warning that big industry is being shut out of domestic supply deals at the expense of lucrative liquefied natural gas exports to Asia.
The miner warned that Australia's large domestic users were facing problems securing contracts as energy companies focused on the offshore sale of gas from $220 billion of LNG projects this decade.
"Rio Tinto is actively seeking gas for the Queensland market for the 2015 period, but is finding it difficult to secure firm offers for future supply, largely due to uncertainty with many producers balancing reserve growth, existing contract commitments and market expectations," Rio said in a submission responding to the federal government's draft energy white paper.
The company's comments raise questions about Labor's plan to Âpromote gas for the transition to a low carbon economy and will strengthen calls for the government to ensure Australia keeps more of its abundant gas resources for local needs over export deals.
But Australia's largest LNG exporter, Woodside Petroleum, defended the industry, arguing that offshore gas could often only be made available to local industry through the scale of mega-LNG projects.
"Much of Western Australia's offshore gas is costly to develop due to remoteness, depth and specifications and generally requires the scale of an LNG project to effectively Âmonetise the resource," Woodside said in its submission to the white paper. "Therefore it is on the back of LNG projects, particularly in the resource-based economy of Western Australia, that long-term domestic gas supplies and the transition to a lower emissions economy can be secured."
Federal Resources Minister Martin Ferguson released the government's draft energy white paper in December, saying cleaner fuel sources such as gas needed to be embraced to finance $240 billion of new power capacity needed over the next two decades.
The government-run Bureau of Resource and Energy Economics forecasts gas-fired power will make up over a third of Australia's power needs within 20 years from just 16 per cent in 2008-09.
But a squabble has been brewing since the turn of the year over Mr Ferguson's support for exporting gas supplies in the form of LNG.
In March, Dow Chemical chief executive and chairman Andrew Liveris called for a proportion of gas to be reserved for onshore processing to feed the manufacturing sector.
For large industrial users like Rio, the period after 2015 is proving problematic to secure supplies in Queensland as the first of the big coal seam gas-derived LNG projects start shipping gas supplies to customers in Asia.
Projects under construction in Gladstone include the QGC project, owned by the UK's BG Group, worth $20 billion, Santos's $16 billion Gladstone LNG development, and the Origin Energy/ConocoPhillips $14 billion Australia Pacific LNG facility. Shell and PetroChina have also laid out plans for a fourth Âventure in the Queensland port town.
In December the government noted tension between domestic gas users and export markets but said it was reluctant to intervene. "While recognising that current market conditions are particularly challenging for some large gas users, the Australian government believes that policy intervention at the present time to force domestic gas outcomes is unwarranted," it said in the draft paper.
"However, there is a need to monitor market dynamics to assess whether policy settings deliver the required outcomes given the growing domestic use of gas. This will inform government decision-making, which will be mindful of domestic gas considerations in grating production licences."
As part of its submission to the paper, Woodside hit out at Western Australia's requirement that its offshore gas industry keeps 15 per cent of production for local users, saying the policy could have consequences that "directly undermine" the intended objective. "The impact of a project's obligations under the domestic gas Âreservation policy has become one of the factors affecting the cost and thus competitiveness of a new LNG project in Western Australia.
"It is therefore fundamental that each project is treated on its own Âmerits and where a commerciality test applies the interests of the Âproponent and the state are accommodated."
Rio also used its submission to question the forecasts of available gas reserves, saying many LNG projects were short on proven plus probable reserve numbers. "This future reserve risk is material and Rio considers that many of the gas resource estimates . . . are overly optimistic."
Copyright 2012 Fairfax Media Publications Pty. Limited. All Rights Reserved.