VZCZCXYZ0000
PP RUEHWEB

DE RUEHBY #0630/01 1890704
ZNY CCCCC ZZH
P 080704Z JUL 09
FM AMEMBASSY CANBERRA
TO RUEHC/SECSTATE WASHDC PRIORITY 1734
INFO RUEHBJ/AMEMBASSY BEIJING 9527
RUEHJA/AMEMBASSY JAKARTA 5476
RUEHKL/AMEMBASSY KUALA LUMPUR 2596
RUEHOT/AMEMBASSY OTTAWA 2354
RUEHUL/AMEMBASSY SEOUL 9845
RUEHKO/AMEMBASSY TOKYO 3606
RUEHWL/AMEMBASSY WELLINGTON 0037
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RHEHAAA/THE WHITE HOUSE WASHINGTON DC

C O N F I D E N T I A L CANBERRA 000630 
 
SIPDIS 
NOFORN 
 
STATE FOR EEB/ESC/IEC/ENR MONOSSON, WHITE HOUSE FOR USTR 
BISBEE 
 
E.O. 12958: DECL: 07/09/2019 
TAGS: ENRG ETRD ECON AS
SUBJECT: GOA MULLS CHANGES TO LNG LEASES, IMPACT ON U.S. 
COMPANIES 
 
REF: A. 2008 PERTH 93 
     ¶B. 2008 CANBERRA 1003 
 
Classified By: Economic Counselor Edgard Kagan, Reasons 1.4(b)(d) 
 
¶1. (C/NF) Summary:  Energy and Resources Minister Martin 
Ferguson is concerned about possible complaints about 
Australian energy policy by major U.S. energy companies. 
Ferguson wants to reassure the U.S. that he seeks cooperative 
work on any conflicts before they become bilateral irritants. 
 The most likely candidate for potential problems are "use it 
or lose it" limits on gas holdings off the Northwest Shelf of 
Australia and possible requirements that oil and gas 
developers set aside products for sale in domestic markets. 
End Summary. 
 
ENERGY MINISTER'S DOOR OPEN 
--------------------------- 
 
¶2. (C/NF) Ferguson's chief adviser, Tracy Winters, requested 
a meeting with Econ counselor on June 26.  In that meeting, 
Winters first said that her purpose for seeking the meeting 
was to ensure that the U.S. Embassy understood that 
Ferguson's office was open to discussions at any time on 
energy policy, and that the Minister wanted to work with the 
U.S. government to avoid any friction between U.S. companies 
and the GOA before they became larger problems.  When pressed 
on what issues might arise, Winters said that both 
Exxon-Mobil and Chevron were major investors in LNG 
development on the Northwestern Shelf, and that as both were 
"gas heavy but infrastructure light" there could be concerns 
on how quickly they could exploit their resources.  The Rudd 
government has contemplated enforcing "use it or lose it" 
requirements to resource leases under Commonwealth control. 
Ferguson signaled intent to do so on a case-by-case basis in 
a June 12 ABC radio interview.  The GOA has had that option, 
in the form of "retention leases" intended to allow currently 
"non-commercial" gas fields to be held under tenure for five 
years, since 1985.  These leases have generally been allowed 
to roll over to the same owner at the end of their five-year 
terms.  Ferguson said on June 12 that a "fair" amount of time 
to hang onto a lease without developing it "would vary from 
lease to lease," but decisions would be biased towards 
ensuring rapid development of gas resources that could supply 
the domestic market.  Ferguson added that the GOA is focusing 
on development of Australia's energy resources, not only in 
LNG, but also in uranium, despite the effects of the economic 
downturn. 
 
¶3. (SBU) Moving ahead with the GOA's push to change the way 
retention leases are handled, the Department of Resources, 
Energy and Tourism (DRET) released a draft paper titled 
"Review of Policy Relating to the Grant and Renewal of 
Retention Leases - Options Paper" on June 12.  That paper 
lays out a range of options for changing the way retention 
leases could be handled, including maintaining the status 
quo, abolishing retention leases, or modifying parameters and 
administration of such leases.  The paper solicits responses 
from interested parties before August 14, and states that 
conclusions in the draft are for the purposes of stimulating 
discussion and do not reflect the final views of the GOA or 
other jurisdictions.  The Commonwealth Ministerial Council on 
Qother jurisdictions.  The Commonwealth Ministerial Council on 
Mineral and Petroleum Resources (MCMPR) would have the final 
say on changes to the way leases are administered, and would 
require changes to legislation, including the 2006 Offshore 
Petroleum and Greenhouse Gas Storage Act of 2006, to enforce 
them. 
 
¶4. (SBU) DRET Acting General Manager for Offshore Resources 
Martin Squire told econoff that the GOA would review and 
synthesize submissions after the August 14 deadline for 
consideration by Ferguson, who would then present a position 
to the MCMPR.  Once endorsed by the MCMPR, if legislative 
changes were required, they would likely take place next 
year.  Squire said that it was certain that any changes 
pushed by Ferguson would still only be applied on a 
case-by-case basis and in consultation with industry.  He 
noted that Australia is already the most expensive location 
in the world to develop LNG resources, and that it made 
 
little sense to try and spur development of gas resources by 
reducing incentives to explore and produce.  The GOA takes a 
broad view of force majeur, and understands well the 
complicated and slow pace of development of any major gas 
project, Squire said.  No government would take lightly a 
decision to revoke a retention lease from a company that had 
invested hundred of millions already.  That said, some 
changes are likely, as the GOA feels the best time to 
increase investment in LNG is during the downside of a cycle, 
and would need some spur to encourage more rapid development 
where possible. 
 
THIRD PARTY CLAIMS KEY ISSUE 
---------------------------- 
 
¶5. (C/NF) Of key concern to major multinational energy 
companies like Exxon-Mobil or Chevron would be the 
possibility that third parties could challenge their tenure 
over gas fields they are not currently exploiting. 
Australia's Woodside, for example, is generally considered to 
be "infrastructure heavy and gas poor" (in Winters' words) 
due to shortfalls in expected gas exploration in their leased 
territory.  If large multinationals were considered to be 
sitting on gas that Woodside could exploit, it could provide 
a tempting target for a "use it or lose it" decision by the 
Commonwealth that would appeal to Australians' concerns over 
foreign investment in resources, energy security, and 
domestic energy prices.  Other companies like Apache and Hess 
Oil have large exploration holdings, and we have heard, 
through media and recent conversations with Hess, that they 
are carefully watching how closely government tries to hold 
them to exploration (vice production) time commitments.  Hess 
told econoff on June 22 that they were meeting Ferguson to 
discuss extending existing three-year deadlines on 
exploration drilling because the drill rig they have 
contracted was damaged while working on another company's 
holdings and their schedule had been delayed.  Hess has not 
since requested further assistance from U.S. mission. 
Ferguson did cause some grumbles from U.S. and Australian LNG 
companies in 2008 when he suggested that companies could be 
forced to set aside a fixed percentage of gas for the 
domestic gas market, which would have the effect of driving 
down price by boosting supply.  Ferguson and the WA 
government pushed the requirement following the significant 
disruption to WA gas supplies caused by an explosion at 
Apache's Varanus Island LNG operation, and billed it an 
energy security measure. 
 
¶6.  (C/NF) Comment: The U.S. mission, including the Embassy, 
Consul-General Perth, and Foreign Commercial Service, have 
not been formally approached by any U.S. companies expressing 
concerns over the impact of changes to the retention lease 
system.  However, as this push is in its early phases, should 
Australia indicate it is tacking towards a more restrictive 
policy, we could see requests for assistance from U.S. 
companies.  That Ferguson's staff is seeking to keep a 
channel open for resolving any problems quickly is 
reassuring, but probably signals that changes are likely and 
that the GOA expects some push back from major players.  End 
Comment. 
 
CLUNE