Fortescue Metals Group Says Gas Reservation Policy Not Working in Australia

Fortescue Metals Group (FMG) has in a report highlighted the negative impact of a domestic gas reservation policy in Western Australia.

The Deloitte Access Economics (DAE) report titled, Western Australia Gas Sector Analysis, released by FMG on Thursday provides yet more support for the case against gas reservation.

“Higher prices and the looming market tightness have spurred many market participants to champion the need for an expansion of the gas reservation policy. Domestic gas reservation may relieve supply shortages and potentially depress prices in the short term. However, we consider that in hindering the ability of markets to function effectively, domestic gas reservation policies are generally likely to create adverse economic outcomes in the longer term,” the report states.

According to the report, reservation policies generally results in weak incentives to invest in new domestic supply infrastructure and develop new reserves and few (if any) new market entrants, resulting in limited competition between only a few major suppliers.

“For these reasons we do not advocate domestic gas reservation policies,” the report said.