Industry Minister - companies should extract "every molecule" of gas to boost exports

Use it or lose it, miners warned by Coalition 

The Australian | September 18, 2013

David Crowe
Political Correspondent
Canberra

RESOURCE giants will be told to step up their spending on mammoth new projects or risk losing their rights to tap the deposits, under an Abbott government plan to accelerate investment and kill off fears of an end to the boom.

The incoming government aims to use its power over the vast gas deposits to bring forward up to $180 billion in new investment, sending a blunt message to companies to develop rather than hoard the nation's resources.

As Tony Abbott and his ministers prepare to be sworn into office today, the resource plan marks another stage in an economic agenda that promises to lift growth, but will depend on stronger business investment to deliver results.

The policy is also set to reignite debate on the cost burdens - including high salaries - that global companies blame for stalling Australian projects and diverting their investments into cheaper projects in Africa and Asia.

Incoming industry minister Ian Macfarlane told The Australian that companies should extract "every molecule" of gas to boost exports and supply the domestic market.

Incoming industry minister Ian Macfarlane told The Australian that companies should extract "every molecule" of gas to boost exports and supply the domestic market.

Mr Macfarlane warned that companies that shelved their projects could lose the "retention leases" they held over the reserves, given the commonwealth's power to revoke the rights as they came up for renewal over the next few years. "I want to put the industry on notice that if the deposits are able to be developed they've got to be developed," he said yesterday as he arrived in Canberra for briefings.

"We've got to make sure that every molecule of gas that can come out of the ground does so. Provided we've got the environmental approvals right, we should develop everything we can."

The policy is expected to be put into place in coming days as Mr Macfarlane meets officials to review a list of retention leases that expire during this term of parliament, triggering talks with companies over their plans.

The priority is expected to be Woodside Petroleum's enormous Browse project, which is on hold as the company seeks approval from federal and West Australian governments to build an offshore "floating" LNG facility rather than build a hub at James Price Point north of Broome. Woodside's requirements include a variation in the retention leases over the Browse reservoir.

West Australian Premier Colin Barnett objects to the offshore plan on the grounds that more jobs will be created if the gas is pumped through pipes to James Price Point, but Mr Macfarlane supports the floating LNG plan and is preparing for talks to reach a compromise.

"I'd expect Colin to speak up for Western Australia, but I'd expect there to be some middle ground," said Mr Macfarlane, who returns to a portfolio he held during the Howard government.

In his first interview since the election on the outlook for the resources sector, Mr Macfarlane rubbished Kevin Rudd's claims during the election campaign that the "China boom" was ending.

Mr Macfarlane argued instead that Labor had slowed the sector by imposing the carbon tax, the mining tax and a tax on oil condensate, as well as launching personal fights with industry leaders such as Gina Rinehart and Andrew Forrest.

"That whole chapter's been slammed shut," Mr Macfarlane said. "We're opening a new chapter about working with the industry, creating jobs and making Australia an energy superpower."

Companies across the sector are prepared for the talks over project timeframes and their retention leases, given pressure from former Labor resources minister Martin Ferguson to develop their deposits.

Companies across the sector are prepared for the talks over project timeframes and their retention leases, given pressure from former Labor resources minister Martin Ferguson to develop their deposits.

"I want to do this in a structured way so we don't affect our investment profile," Mr Macfarlane said. "We don't want to scare the horses. I've got no targets, no hit list, but no sacred cows and everything is on the table."

The plan to spur investment depends, however, on overcoming cost barriers that companies blame for delaying their plans.

About $200bn is being spent on seven LNG facilities across the country, according to the Australian Petroleum Production and Exploration Association.

Another $180bn would be invested if companies signed off on a further list of projects, according to a study for APPEA by consulting firm McKinsey, although this includes coal-seam gas projects as well as the offshore deposits covered by retention leases.

Chevron Australia managing director Roy Krzywosinski, Origin Energy chief executive Grant King and former Shell Australia country manager Ann Pickard told The Australian in May that "significant national leadership" was needed to speed up projects by lifting productivity and improving industrial relations.

While unions dispute the cost claims, company executives insist that most of their workers in Australia earn more than equivalent workers in the US and that it can be more cost-effective to develop LNG in other countries.

APPEA external affairs director Michael Bradley said urgent steps had to be taken to fix the nation's "sliding international competitiveness".

"It is critical that steps are taken to ensure Australia secures its share of the next wave of global oil and gas projects," Mr Bradley said yesterday.

Mr Macfarlane said the Coalition was acting to cut industry costs by removing taxes that Labor imposed on the industry.

He also intends to work with incoming environment minister Greg Hunt to streamline the green tape that companies must comply with to get environmental approval for their projects.