the politics of gas lobbying…

Gas prices are still dropping, in the US to a quarter of what they were. This must cause a huge impediment to developing the high cost Browse field by Woodside Petroleum. Thankfully this would mean no LNG plant near Broome, although the State and Federal Governments may try offering even bigger incentives. The protesting Broome Community however, will continue to delay and obstruct until they leave.

This excellent column reports on Dow Chemicals lobbying to add value-adding manufacturing and industry to LNG processing in favour of exports.

Dow Chemicals: snouts in the trough

What is it about Dow Chemicals?
Its CEO, Australian born Andrew Liveris, has written a book that reprises the 1970s winner picking philosophy. His view is that if we chose the right industries and give them tax breaks and special government purchasing favours then all will be hunky dory. Among the gee wiz sectors he has specified are solar panels, and he considers the demise of Solyndra after its $500 million government hand-out as simply proving his point – the firm failed because industry has been so successful in reducing costs of panels. He is not discouraged by the fact that even with the cost reductions it costs in subsidies and regulatory enforcements at least $5 to earn $1.

Nobody will be surprised to learn that President Obama made such a sage chairman of his Advanced Manufacturing Partnership that aims at discovering and promoting hi tech job opportunities.

Now we have the local arm of Dow lobbying Canberra. According to today’s AFR,
Australia should give domestic users of natural gas tax breaks rather than exporting the gas as liquefied natural gas and shipping jobs offshore, according to a senior executive for US petrochemical firm Dow Chemicals. Dow’s vice-president energy and climate change, George Blitz, was in Canberra yesterday to deliver a submission to the federal government’s draft white paper on energy policy, and questioned a key conclusion that there was no need to restrict gas exports in favour of domestic customers.


He said Australia was losing the opportunity to attract high value-added manufacturing and shift to low-carbon gas power generation. “Relying heavily on export provides an immediate one-time benefit to an economy but neglects the long-term additional value that these resources could provide if prioritised for domestic manufacturing purposes,” Mr Blitz said. He said the multiplier effect for the economy from using gas locally to develop industries such as fertilisers, glass making and petrochemicals and keeping power prices low for all customers was eight times bigger than simply exporting.

Maybe we should reserve for domestic use and processing a proportion of local supplies of raw wool, iron ore and mineral sands. The multiplier effects must be far in excess of the puny eightfold increase Dow claims for its gas reservation policy! Come to think of it we could ban all trade and solve our unemployment problems immediately.

Domestic reservation means that a share of the gas must be sold at lower prices ex-mine than would be available if exported – and that is the goal of Dow and other users. But the market for gas is shifting tectonically with the technology developments in coal seam and shale gas extraction and US prices have fallen to a quarter of their former levels (only a small part of which is due to the recession).

And if a project is obliged to reserve, say 20 per cent of its output for domestic use and this sells at 30 per cent below the ex-mine export parity price the revenue is off by six per cent. Though politicians might think this is relatively small, businessmen should understand that a six per cent revenue haircut all comes off the bottom line and might therefore be a 50 per cent profit rate haircut. That would kill most prospective projects.

When the Queensland Government flirted with a gas reservation policy, the industry swiftly made these realities known to them and the Bligh Government backed off. But the protectionist forces are powerful and even the mostly reliable Martin Ferguson in his draft White Paper on energy did not totally reject the notion of a domestic reservation policy.

This is a very competitive industry. There is stacks of the new gas available worldwide (and Australia’s CSG alone is greater than our conventional gas reserves and we also have shale gas). Australian firms and users are likely to see lower gas prices than those found overseas because of savings in transport and liquefaction. To force even lower prices means wasted resources and an industry base that will not be sustainable.

(my bold)

About Tom Harley

Amateur ecologist and horticulturalist and CEO of Kimberley Environmental Horticulture Inc. (Tom Harley)
This entry was posted in Broome/Kimberley, energy, Environment, Oz politics, Resources and tagged , , , , , , . Bookmark the permalink.

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