Iron ore miner Fortescue Metals Group's call for stricter enforcement of the Federal Government's retention lease regime for oil and gas companies has sparked a war of words between suppliers and their biggest customers and could drive a wedge between WA's biggest gas users.
Fortescue yesterday confirmed a report in _WestBusiness _that it would urge Canberra to enforce the "use it or lose it" regime to ensure gas fields off WA covered by retention leases were developed as quickly as possible.
Citing a Deloitte Access Economics report, which it commissioned, Fortescue said a stricter enforcement of the retention lease regime could deliver sufficient new supplies to the market to drop the long-term WA domestic gas price to $3.20 a gigajoule by the end of this decade.
The prevailing gas price is about $7/GJ.
Fortescue has forecast energy costs of more than $800 million next year and is in the throes of switching from diesel to gas-fired electricity at its Pilbara operations to achieve savings.
"In a competitive market, where users had long-term security of supply, we would expect domestic gas prices to reflect the cost of development, rather than LNG net-back prices," Fortescue chief executive Nev Power said.
Fortescue did not endorse WA's domestic gas reservation policy, possibly putting it at odds with the State's biggest gas user Alcoa and its other fellow members of the DomGas Alliance.
DomGas' thrust is enforcement of the gas reservation policy.
DomGas executive director Matt Brown pointed out the Deloitte report had been commissioned by Fortescue, and not the alliance, though he welcomed the focus on a stricter enforcement of retention leases.
"There is no justification for Canberra to allow producers to sit on the fields when WA industry is crying out for additional natural gas to help drive our economic growth and generate employment opportunities," he said. However, DomGas "queried some aspects" of the report, principally Deloitte's claim the reservation policy had forced higher gas prices on customers.
It was a point not lost on the Australian Petroleum Production and Exploration Association. APPEA chief executive David Byers said the Deloitte report from "one of the key members of the DomGas Alliance" highlighted that "the gas reservation policy is not working".