I have a piece in the Herald Sun this morning urging the Victorian Government to lift its damaging ban on exploration and mining of “unconventional” gas.
It leverages off the report to the Victorian Premier by Peter Reith, the advice of which has been widely circulated.
The Reith report favours early termination of the ban but also wants to lubricate the political process by granting some of the royalty revenues to landowners and to regions where the gas is found. Miners are normally very generous in recompensing landowners and often buy-out land of potential value at a premium to avoid cumbersome access requests. Formalising such measures would set unfortunate precedents and would transfer rights to farmers at the expense of the wider community or of the explorer developer. Although it wold not kill off new exploration (landowners’ mineral rights in the US have co-existed with rapid development of unconventional gas), it would create a new form of reward in return for the outlay of no effort or skill.
Another article in the Herald Sun promoting lifting of the ban is jointly authored by unionist Paul Howes, Peter Reith and industry lobbyist Innis Willox. The printed version pictures Paul Howes flanked by smaller images of his co-authors!
The Reith report also favours forcing ESSO/BHP to market separately – an attempt to force down prices but one that disturbs a long-standing contact and may deter future joint investments. Further in its attempt to lower prices, the report seeks to “nudge” gas sales towards a spot rather than contract market. It is not clear that lower prices would be the outcome but those firms which have failed to contract sufficiently for gas think it might and also hope it would allow them a chance to rectify contractual strategies which they think may have been incorrect.
The key issue is to shift the Victorian Government from its pusillanimous caving in to green anti-growth pressures. Nobody knows how much gas is available in Victoria or elsewhere in Australia because the constraints on development that are in place. Many industry forecasts suggest that the gas price will have to rise but interested parties would say that wouldn’t they? Given the extraction costs of shale and coal seam gas and the haulage costs, there is every possibility that the medium and long-term price in Australia could remain around $4 per gigajoule rather than the $10 price often cited. This cannot happen if new supplies are forbidden to be found and it will happen less readily if the successful finders need to share more of their returns with those who do not contribute to the wealth discovery and production process.