Gas lobby ready to back a domestic gas reservation | 7.30

Key Concepts

LNG (Liquefied Natural Gas), domestic gas reservation, energy security, gas export contracts, sovereign risk, emissions targets, gas price intervention, social license, regulatory barriers, East Coast gas market, gas shortfall, AEMO (Australian Energy Market Operator).

Gladstone LNG Exports and Domestic Gas Supply

Ten years ago, Santos and other multinational consortiums invested $60 billion in LNG export facilities on Curtis Island, near Gladstone, transforming Australia into a major energy exporter. By last year, 75% of East Coast gas demand was being met by LNG exports from Curtis Island, leading to concerns about domestic gas shortages and rising prices. This has fueled a decade-long conflict between LNG exporters and successive governments over reserving a portion of gas production for domestic use.

Government Intervention and Industry Response

Resources Minister Meline King has emphasized the importance of a well-supplied domestic gas market at a reasonable price for the industry's social license to operate. A government review is underway to ensure affordable and transparent gas pricing for domestic customers. The Australian Workers Union has long advocated for gas exporters to reserve a portion of their production for local consumers. The industry lobby group has now agreed to a prospective domestic gas reservation linked to new supply, contingent on the government removing regulatory and environmental barriers to gas extraction.

Projected Gas Shortfalls and Industry Concerns

The Australian Energy Market Operator (AEMO) projects gas shortfalls in Victoria and other southern states from 2029. The industry insists that any reservation scheme should apply only to future gas projects to protect existing contracts and avoid retrospective interventions, which they argue have worsened the supply situation.

Political History of Gas Market Intervention

In 2017, Malcolm Turnbull introduced a mechanism to intervene in export contracts. In 2022, the war in Ukraine led to soaring energy prices, prompting the Labor government to impose a $12 per gigajoule price cap. Peter Dutton proposed an East Coast gas reservation that would have affected existing contracts, a move that outraged gas investors.

Current Government's Position and Challenges

The current government is considering options, including a reservation scheme using export licensing, to protect Australia's energy security and manufacturing sector. Critics argue that a reservation scheme applied only to new projects would be too slow and insufficient to address current price issues. The government is finalizing its 2035 emissions target, with gas playing a key role in the transition. The government faces the challenge of balancing foreign investment, energy costs, and political considerations, while avoiding actions that would damage Australia's reputation as a reliable supplier. The government has stated it will not rip up existing gas contracts.

Notable Quotes

• Meline King: "My message today is a well supplied domestic gas market at a reasonable price is fundamental to the social license of this industry to operate."
• Industry representative: "What we haven't supported is retrospective damaging interventions in the market...we know that it's actually made the supply situation worse."
• Government representative: "It's really about um protecting Australia's energy security and protecting the future of our manufacturing sector. So, this should be a bipartisan issue."
• Government representative: "It's one thing we won't contemplate is ripping up gazisting contracts, creating sovereign risk, um engaging in um behaviors which would see Australia as an unreliable supplier. We won't be doing that."

Technical Terms and Concepts

• LNG (Liquefied Natural Gas): Natural gas that has been cooled to a liquid state for ease of storage and transportation.
• Domestic Gas Reservation: A policy requiring gas producers to set aside a portion of their production for domestic consumption.
• Social License: The ongoing acceptance of a company or industry's operations by its stakeholders.
• Sovereign Risk: The risk that a government will default on its debt obligations or take actions that negatively impact foreign investments.
• AEMO (Australian Energy Market Operator): The organization responsible for operating Australia's electricity and gas markets.

Synthesis/Conclusion

The Australian East Coast gas market is facing a complex situation with rising export demand, domestic supply concerns, and political pressure to lower prices. The government is exploring options for intervention, including a domestic gas reservation scheme, while balancing the need to attract foreign investment and maintain Australia's reputation as a reliable energy supplier. The industry is cautiously open to a reservation scheme tied to new projects, but opposes retrospective measures that could disrupt existing contracts. The debate highlights the challenges of managing energy resources in a transitioning economy, balancing economic interests with domestic needs and environmental goals.