Australia to curb LNG exports to protect domestic supply

The Australian government is planning to restrict liquefied natural gas (LNG) exports in case there is not enough gas supply to domestic markets.

Australia is on its way to becoming the world’s largest exporter of the chilled fuel. The country has currently seven operating LNG export developments and three more under construction.

However, domestic gas shortages and rising natural gas prices have prompted the Australian government to “secure domestic gas supply with the introduction of export restrictions to ensure the Australian market has adequate supplies before exports are permitted,” Prime Minister Malcolm Turnbull announced on Thursday.

“The shortage of domestic gas supplies has resulted in dramatically higher prices in Australia – higher than prices paid in the markets to which Australian gas is being exported,” according to  Turnbull.

By ending the shortage, and ensuring the domestic market has adequate supplies, “we will ensure gas prices in Australia are lower and fairly reflect international export prices as they should.”

This announcement follows recent meetings between the Federal Government and the country’s biggest gas companies, during which the east coast LNG exporters agreed to be a net contributor to the domestic market.

“While good progress has been made, these requirements have not been met. It is unacceptable for Australia to become the world’s largest exporter of liquefied natural gas, but not have enough domestic supply for Australian households and businesses,” Turnbull said.

That is why the government is introducing the “Australian Domestic Gas Security Mechanism” which will give the government the power to impose export controls on companies when there is a shortfall of gas supply in the domestic market, he said.

The Minister for Resources, in consultation with relevant ministers, will impose export controls based on advice from the market operator and regulator. The new regulations are expected to be in place by July 1.

“If an exporter is not a net contributor to the domestic market, that is, they draw more from the market than they put in, they will be required to outline how they will fill the shortfall of domestic gas as part of their overall production and exports,” Turnbull said.

The government will not prescribe how the exporter must respond, giving companies considerable flexibility in finding commercial solutions – such as swapping cargoes out of portfolios or on the spot market, he said.

LNG exporters who are drawing from the domestic market will be ordered to limit exports to ensure local supply, Turnbull added.

Industry response

The government’s move drew a swift rebuke from gas producers, who called instead for restrictions on onshore gas exploration to be lifted to help boost supply.

“Restricting exports is almost unprecedented for Australia,” said Malcolm Roberts, chief executive of the Australian Petroleum Production and Exploration Association.

“There is no doubt the east coast gas market today is tight. For years, APPEA has been warning governments that the political and regulatory barriers to developing new gas supplies must be addressed urgently,” he said.

However, over the last five years, the industry has tripled east coast gas production, creating an entirely new supply from coal seam gas, according to Roberts.

He said that the main obstacle to developing more supply has been the opposition of some state governments.

“Queensland and South Australia have shown the political courage and economic common sense to support gas production… but government failure in New South Wales and Victoria has prevented projects that could have averted the current market conditions. The current moratorium in the Northern Territory is also preventing the development of new gas supplies,” Roberts said.

One of the projects that could be most affected by this decision is the Santos-operated Gladstone LNG project on Curtis Island that is drawing gas out of the domestic market to help meet its export contracts.

Santos said on Thursday that moving forward, it would supply more gas into the domestic market than it purchases for its share of LNG exports.

“Santos will seek clarification of how the new policy will work in practice in order to understand from government the terms on which it is proposing to introduce this mechanism and how proposals that have been put to government to address the domestic market situation are being considered,” the company said in its statement.

On the other side, manufacturers welcomed the government’s announcement.

“With the introduction of the gas security mechanism the government has given themselves a bigger stick to ensure the gas industry balances the needs of their international customers and their obligation to supply the domestic market with gas at a fair price,” Energy Users Association of Australia CEO Andrew Richards said in a statement after the announcment.

LNG World News Staff