CSIRO warns of local oil shortfall - National - theage.com.au

AN EXPENSIVE scheme to encourage oil and gas exploration in Australia is being considered amid warnings that the nation faces a shortfall of locally refined petrol by 2012 — and even higher prices at the pump.

Federal Resources Minister Ian Macfarlane is pushing a budget plan offering millions of dollars in tax breaks to companies undertaking risky exploration for oil, gas and minerals.

Mr Macfarlane yesterday confirmed his push for a boost to exploration as the CSIRO warned Australians to prepare for higher petrol prices and fuel shortages. The science and research agency has also concluded that Australia is facing a shortage of fuel-refining capacity — meaning drivers will rely increasingly on imported petrol at a time of soaring world demand for energy.

"It would be imprudent not to prepare for the possibility of shortening supplies in the future and accompanying price rises," the CSIRO says in a submission to a Senate inquiry into Australia's oil supply.

World oil prices surged to US$70 per barrel after hurricane Katrina last year, and have remained stubbornly high, reflecting supply fears and strong business and consumer demand.

Continuing high petrol prices have caused concern among senior Howard Government ministers, business and economists because of the potential effects on the economy.

But Mr Macfarlane's efforts to subsidise new oil and gas exploration face an uncertain future before the Government's Expenditure Review Committee, otherwise known as the razor gang.

Mr Macfarlane told The Age yesterday that he favoured encouraging exploration through a so-called "flow-through" shares scheme, which would allow investors to claim a special income tax deduction — and potentially cost the Government hundreds of millions of dollars over four years.

The CSIRO says governments can tackle the looming oil crunch by investing more in research and development and investigating "alternatives to conventional onshore refining".

"Australian refining capacity will be insufficient to handle anticipated growth in demand by 2012," it says.

"The security and reliability of Australia's oil supply are of growing concern, particularly in the context of increasing world reliance on the Middle East for oil and the growing demand from developing economies such as China and India."

The CSIRO says more must be done to encourage companies to drill for oil locally. "In Australia, exploration expenditure and drilling activity has waned since the early 1980s in real terms," it says.

"Most of the large oil companies quoted on the Australian Stock Exchange spend an increasing percentage of their exploration dollars offshore."

The CSIRO also backs the use of biofuels, such as ethanol, but says their ultimate significance remains "subject to considerable uncertainty in economic, environmental and technological terms".