COVER STORY:
COMMONWEALTH-STATE RELATIONS: Will Howard override WA on natural gas?

by Joseph Poprzeczny

News Weekly, October 14, 2006
A major dispute has arisen between the WA Government and Canberra over plans by the WA State Premier, Alan Carpenter, to reserve 20 per cent of the state's natural gas output for use in Western Australia. The Federal Government, which writes export permits, wants the natural gas to be sold overseas.

The battle centres upon contracts, soon to expire, which give assured domestic access to a portion of the trillions of cubic feet of natural gas beneath the North-West Shelf off the Pilbara and Kimberley coasts.

Although the first shots in this coming fight were fired in Perth at August's Energy in Western Australia Conference by Howard Government Resources Minister Ian Macfarlane and WA Energy Minister Fran Logan. However, the opening gambit came last April when Howard was quizzed, also in Perth, on his federalist credentials.

Federalism

Howard was specifically asked why he had dumped his party's long-time defence of Australia's federalist arrangements.

"I'm not a centralist, I'm a nationalist," he claimed. Few expected such a sprightly reply.

The coming energy dispute has complicating nationalistic dimensions, some of which will conflict starkly with state needs, something Howard may not have expected when declaring himself a nationalist.

Options now before Howard will force him to choose between declared national needs and internationalist ones being lobbied by a big Perth-based offshore gas producer, and supported by Federal Resources Minister Ian Macfarlane.

Since the 1980s WA has had access, via the single 1,300km-long Pilbara to Perth pipeline, to abundant energy in the form of cheap, as well as environmentally preferable natural gas.

That market arrangement was created through long-term gas contracts, most of which were renegotiated in 2004-05 but expire at undisclosed and confidential dates before 2010.

Signatories include Rio Tinto, BHP-Billiton, Alcoa, all major employers, and Verve Energy, the state government's electricity-generating arm.

Transformed

Since the initial contracts - that underwrote the development of the North-West Shelf and thus Australia's offshore gas sector beyond Bass Strait - and the 2004-05 round were finalised, the world's gas-extracting sector has been further transformed.

That transformation has put gas at the forefront of the domestic energy debate.

Rapidly industrializing China has entered the world's energy market on an unimagined scale; India is set to follow; oil prices have more than quadrupled; Russia temporarily turned off Ukrainian gas supplies, prompting Europeans to consider diversifying energy sources; and gas prices have more than tripled.

Understandably, companies like the Californian-based Chevron, which is set to invest $11 billion on the North-West Shelf's Gorgon gas project, and those that have already outlaid huge sums, like the Woodside joint venture, wish to further boost return on capital by entering the newly-emerged lucrative international gas market on a large scale.

But where does that leave Western Australian consumers who underwrote the North-West Shelf gas project, and thereby helped kick-start this new industry? Will local gas requirements take precedence over international demand?

Here Howard's adoption of nationalist-centralism may come into play. Will he, for instance, go down the path of ensuring access to natural gas for Western Australian consumers ahead of international ones?

Will local industry and consumers get precedence of access or just be others in the queue, and perhaps even come after China, India and California?

In other words, will Howard give priority to global demand and substantial foreign exchange earnings over our national requirements? And if the former, how will he square his claims to being a nationalist?

Howard is therefore in something of a bind.

Clearly, all his political skills will be called upon to manage the situation without undesirable electoral ramifications, especially across WA where the Liberals have up to four marginal federal seats.

- Joseph Poprzeczny is a Perth-based freelance journalist and historical researcher.