Western Australian Natural Gas Proposal May Pose Risk to LNG


May 7 (Bloomberg) -- Western Australia's proposal to require LNG projects to reserve a share of their natural gas for use within the state may threaten Australia's reputation as a supplier, the nation's oil industry body said.
The proposal, put forward for discussion by the Western Australian state in February, would result in increased prices and fewer rather than more gas suppliers, Belinda Robinson, chief executive officer of the Australian Petroleum Production and Exploration Association, said. It may also exacerbate supply shortages, she said.
Australia's output of liquefied natural gas may jump almost fourfold to about 50 million metric tons a year by 2015, the government said in March. The A$19 billion ($15 billion) North West Shelf venture is expanding its Karratha plant, while ConocoPhillips is seeking to expand its Darwin plant and new LNG projects are proposed by Chevron Corp., Inpex Holdings Inc. and others.
``We do not believe that mandating gas reservation is the answer,'' Robinson said in an address to be given tomorrow on the opening of the Australian oil industry association's 2006 conference on the Gold Coast, Queensland. ``It could affect Australia's reputation as a reliable supplier of LNG. It will inevitably lead to higher-than-necessary prices in the long-term and potential shortages.''
LNG is natural gas chilled to liquid form, reducing it to one-six-hundredth of its original volume, for transportation by tanker to destinations not connected by pipeline. On arrival it is turned back into gaseous form for delivery to users such as power plants. A copy of Robinson's address was e-mailed in advance to Bloomberg News.
Australia, which currently lags Indonesia and Malaysia in LNG production, has the potential to become the largest producer of the fuel in the Asia-Pacific region, Citigroup Inc. said in an October report.
Indonesia won't extend some contracts to sell LNG after 2010 because it wants to use the gas domestically to reduce industries' dependence on imported oil, President Susilo Bambang Yudhoyono said in March. That may discourage investors from expanding their gas operations in the country, Christopher B. Newton, chairman of the Indonesian Petroleum Association, said in a March 29 interview in Jakarta.
The Western Australian proposal ``would create another market distortion and disincentive to domestic gas exploration and development,'' Australia's petroleum industry association said in a report released today.
To contact the reporter on this story:
Angela Macdonald-Smith through the Sydney newsroom at (61)
amacdonaldsm@bloomberg.net.
Last Updated: May 7, 2006 01: