The Australian Government has introduced its Domestic Gas Reservation legislation, linking export rights to a domestic supply obligation calibrated to demand.
The federal government says its first national Domestic Gas Reservation will reserve gas for Australian industry and households, promote new investment, jobs and growth, and underpin Australia’s energy security for generations.
The new domestic supply obligation is 20% of LNG exports, calibrated to forecast domestic demand. While future gas prices are influenced by international and domestic factors, more gas supply in the market means more affordable gas for households and large energy users.
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Minister for Climate Change and Energy Chris Bowen said, “Australians deserve access to affordable gas. That’s exactly what this reform delivers.
“For too long Australians have watched our gas leave our shores while local households and businesses faced uncertainty and rising costs and despite being one of the world’s largest gas producers we still suffered shortages and price shocks at home.
“These reforms lock in more gas for Australians, strengthen our energy security, support our energy transition to more renewables and help put downward pressure on prices.”
Shell Australia chair Cecile Wake described the legislation as using a “sledgehammer to crack a nut”, calling it an “extraordinarily heavy-handed intervention into a market that is actually working well”.
Wake said the legislation’s measures would drive prices down too far and potentially “sow the seeds of tomorrow’s market failure”.
“It is such a blunt instrument. It is not talking about modest downward pressure on prices. The architecture, and that may well be the intention, but the way it would play out … is to drive prices below the long-run marginal cost of bringing new production out,” she said.
IEEFA lead analyst Australian Gas Josh Runciman said the federal government’s changes to the Domestic Gas Reservation bill would undoubtedly be welcomed by both gas producers and users.
However, he said uncertainty remained about whether Santos’s Gladstone LNG project, which has historically siphoned gas from the domestic market for exports, would be able to avoid domestic obligations in coming years.
“The bill has been amended to allow the federal minister to exempt Western Australian (WA) exporters only where there are no concerns about the level of supply.
With the Australian Energy Market Operator (AEMO) forecasting gas shortfalls in WA, and with most exporters behind on their state-based reservation commitments, this change provides government with much needed flexibility to apply the federal scheme to WA.”
“Woodside has proposed the Browse gas field as a solution for WA gas shortfalls, but the project has not yet been approved by either government or Woodside and its partners. Applying requirements for WA exporters to supply domestic gas sooner provides a much more effective option to ensure enough gas supply in WA,” Runciman said.
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“Gladstone LNG (GLNG)’s existing LNG contract with Korea Gas Corporation (KOGAS), due to expire in 2031 but extendable by five years, has been a contentious issue in the reservation debate given GLNG takes gas from the domestic market. The revised reservation bill now provides clarity that the contract will be respected only until 2031, a move likely to be welcomed by gas users and other exporters.”
“One issue government will need to watch is whether exporters now try to buy other gas projects. If they do, this will increase their own production without necessarily increasing domestic gas supply, which would undermine the intent of the scheme.”
