Australian Oil, Gas Body Welcomes ERA Call for Removal of WA Gas Reservation Policy

The Australian Petroleum Production & Exploration Association (APPEA) has said that it welcomes the Economic Regulation Authority’s (ERA) call for removal of Western Australia’s domestic gas reservation policy.

The ERA, which provides independent economic advice to government, is of the view that the policy imposes costs on the state economy that far outweigh any perceived benefits.

In a draft report to the State Government aimed at improving the efficiency, performance and productivity of the WA economy, the ERA says gas reservation:

• Increases reliance on subsidised gas prices;
• Discourages efficiency and technological innovation;
• Perpetuates the existence of industries that may not have a comparative advantage in WA at the expense of investment in other industries; and
• Discourages investment in gas projects, reducing the availability of gas for future domestic or international use.

“The ERA report has once again confirmed APPEA’s view that WA’s gas reservation policy cannot be justified on the grounds of market failure. It is protectionism, pure and simple,” APPEA Chief Operating Officer Western Region Stedman Ellis said.

According to Ellis the impact of a domestic gas reservation policy is to – in effect – place a simultaneous tax on domestic gas production and subsidy on domestic gas consumption.

“The result is that the economy forgoes export income in order to inefficiently subsidise domestic consumption by big industrial users. Like all taxes and subsidies, the gas reservation policy distorts economic decisions and generates an unequivocal economic loss – one which compounds over time as future investment decisions are affected,” he said.

Australia’s ability to develop new gas projects is already threatened by rising costs at home and growing competition abroad and policies that dictate where and how gas can be sold represent a further barrier to investment, Ellis said.

“The WA Government should heed the ERA’s advice and abolish its reservation policy and focus its efforts on attracting investment for new gas developments,” he said.

Sign-up for our free weekly newsletter update via email here