The plant will turn natural gas into a synthetic product using a Sasol proprietary process, which would then deliver clean diesel to help meet an expected shortage of liquid transport fuels in Australia before the end of the decade.

It is understood that Federal Industry, Tourism and Resources Minister, Ian Macfarlane, argued that the South African energy conglomerate had not demonstrated the project had received the necessary high-level support from the WA Government.

Without that support, Mr Macfarlane said there was little point in the Commonwealth offering incentives that required co-operation between the Liberal federal government and Labor state government.

The proposed Australian GTL plant would use gas from the huge Gorgon field off the WA coast, which is subject to strict environmental controls by the WA Government. Barrow Island is a A-class nature reserve, however Gorgon partners have said without using Barrow as a processing hub, exploiting Gorgon would be uneconomic.