Crisis drives subsidy for LPG fitouts

CAR owners may receive generous subsidies to convert petrol engines to cheaper liquefied petroleum gas, as the Howard Government braces for a further spike in fuel prices.
The Australian has learned that the Government is considering ways to increase the use of LPG by offering subsidies of at least $1000, or more, for new and existing vehicles.
A range of measures are being considered as part of an urgent fuel action plan, designed to take some of the heat off an issue John Howard says is his greatest worry.
But as experts warn petrol prices will rise to more than $1.50 a litre, the Prime Minister came under pressure in parliament to defend a weekend prediction that petrol will drop back to $1.15.
Motoring group the NRMA even predicts car owners could face costs of $1.80 a litre following BP's announcement that it was suspending supplies from Alaska.
BP officials said yesterday the extraordinary action of shutting down operations at Prudhoe Bay oilfield came after inspections had found corrosion in seals and a leak in the pipeline carrying crude oil out from the facility.
The Government is examining a range of options to lower fuel costs, as part of the plan to be announced within weeks.
Senior officials are costing a range of options, including more generous subsidies to convert engines to LPG. The eco-friendly fuel retails for less than half the price of standard petrol.
The Government is considering accelerating a planned $1000 subsidy for new vehicles, due from 2011. As well, the subsidy could be extended to existing vehicles. A "retrofit" for LPG costs about $3000.
Motorists could save $30 a week and up to $1500 a year using LPG. However, these savings could be short-lived as the Excise Equalisation Program - which makes certain fuels such as LPG exempt from the 38.5c a litre excise on petrol - is set to introduce a tax on these fuels from 2012. Excise would be applied in annual increments of 2.5c a litre until it reached a ceiling of 12.5c a litre in 2015.
In an effort to increase the take-up of ethanol, the Government is also considering subsidising the cost of installing storage facilities in service stations for E10 blended fuel.
The action plan on fuel has been made more urgent with motorists likely to see pump prices head back above $1.50 a litre after world oil benchmarks soared to a fresh record of $US82.38 a barrel.
CommSec economist Craig James yesterday predicted the rise would flow through to motorists within a fortnight.
"Motorists enjoyed some relief from high prices at the petrol pump over the past week, but it is likely to prove fleeting," he said.
"A new problem has surfaced on the oil market, this time with a disruption of supplies from a major Alaskan field."
This added to other supply problems and the risk of ongoing violence in the Middle East.
He said the Reserve Bank might be pushed to make another move on interest rates.
NRMA motoring and services president Alan Evans said the announcement that BP would shut down its Alaskan oilfields for repairs was further proof Australia needed to wean itself off highly volatile international oil supplies.
"Australia needs to act now to develop an economically sustainable alternative fuel industry," Mr Evans said. "Apart from ethanol, we must also consider a range of options such as other biofuels, LPG, natural gas and renewable options."
British entrepreneur Richard Branson said he was investigating the possibilities of getting into ethanol fuels for his aircraft and general commercial purposes.