Gas deal drama for Rio Tinto

Rio Tinto says it is having trouble securing supply deals with Queensland’s gas proponents, fuelling speculation that an east coast gas shortage will become a reality when the Curtis Island LNG plants begin production.

Head of Rio’s bauxite and alumina, Pat Fiore, said there is concern that there will be no gas available to run its Yarwun alumina plant at Gladstone once current contracts end, The Australian reported.

"Right now we're struggling to attract anyone to the table to negotiate,” Fiore said.

"We're not asking for preferential prices or that sort of thing, we're just asking for there to be a market in eastern Australia.”

The $70 billion LNG plants being built on Curtis Island are expected to create a gas shortage and increase prices as Australian buyers are forced to compete with Asian neighbours willing to pay more for the resource.

Adding to this problem is speculation that the operations’ CSG wells are not performing well with doubts raised Queensland’s coal seam gas fields can produce enough to feed the plants.

These concerns have been rubbished by the three proponents running the LNG projects but Fiore says this may be the reason behind the delay in securing a long-term supply agreement.

"Our understanding is it doesn't seem like they have the (gas) molecules to send to us."

The calls comes as a former executive for one of the projects told The Australian that the gas fields’ "sweet spots" had not been as large as anticipated.

While it has been reported that a number of dry wells have been an issue for another proponent.

Last week Origin Energy inked a deal with BG Group’s Curtis Island LNG project which will see the company deliver 30 petajoules of gas over two years causing many to predict BG was struggling with well productivity.

Despite this, a call to reserve gas for domestic use has been rejected by major producers like Santos and Origin.

Manufacturing Australia claims that the tripling of gas exports by 2017 will cause price spikes and shortages that could cost 200,000 jobs and reduce GDP by $28 billion a year.

However Santos chief executive David Knox said this will lead to the gas being kept underground and deter investment in new projects.

The Australian Pipeline Industry Association is also opposed to the idea and says gas production needed to ramp up to battle the looming constraint.

"That price spike can be eased if there is encouragement for development of the gas resources,” it said.

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