PERTH (miningweekly.com) – Federal Resources Minister Martin Ferguson has spoken out against restricting energy exports in a bid to lower local prices, saying that it sent the wrong signals to potential investors.
Speaking to the Committee for the Economic Development of Australia (Ceda), Ferguson said that imposing a restriction on energy exports would ultimately fail to provide Australians with energy security, adding that adequacy of supply would suffer because investors would turn away from what would become less attractive development opportunities.
“Reliability would diminish because investors may seek to recover costs by reducing maintenance and upgrades to maintain profitability. And while local energy prices may be suppressed in the short term, in the longer term, costs would eventually increase when consumers demanded improvements in adequacy and reliability.”
“Fundamentally, from an economy-wide perspective, price restrictions only lead to the inefficient allocation of resources,” he said.
Ferguson noted that while Australia’s multibillion-dollar liquefied natural gas (LNG) projects seemed to have significant margins to play with, he pointed out that projects of this scale had huge risks, particularly as many were first-of-a-kind developments.
“I believe the LNG industry has the right to become a prosperous industry in Australia, just as any other sector of the economy, not least because it is competitive in its own right.”
The minister told Ceda that as a major energy exporter, Australia benefited from the development of well-integrated international markets where producers and consumers of energy bid for the best price.
“Australia ultimately has far more to gain than lose from global trade and investment in our energy resources.”
He stated that with the country’s small population and massive resource base, Australia was just one of three net energy exporters in the Organisation for Economic Cooperation and Development, with 70% of its yearly production going onto international markets.
Australia was the world’s largest exporter of coal, the third-largest exporter of uranium, and the fourth-largest exporter of LNG. However, with the significant pipeline of investment in the sector, Australia could soon rival Qatar for first place.
Ferguson noted that the country currently hosted 10% of the world’s black coal, 33% of the uranium and 2% of the natural gas resources, and with the discovery of unconventional gas resources, this figure could increase.
Based on current production rates, black coal resources would last for 128 years, uranium resources for 134 years, and conventional gas resources for 66 years.
“We also have resources of brown coal that could last as long as 517 years and coal seam gas for 175 years based on current rates of production.”
The Minister further noted that the current level of capital expenditure on Australian resource projects amounted to some A$260-billion, which was around 17% of the nation’s 2011 gross domestic product. Energy developments, in turn, accounted for 76% of this investment expenditure, with LNG being the star performer.
“We now have seven out of ten of the world’s LNG projects under construction and the potential to be the largest exporter when they come on stream.”
Ferguson reiterated that the industry had to maintain Australia’s competitiveness in the international energy markets, saying it was for the country’s own good and for the good of its trading partners.