LNG exporters under fire from Australian watchdog over domestic supply

Australia’s east coast liquefied natural gas (LNG) exporters have been criticised by the country’s competition watchdog for not doing enough to help counter domestic gas supply shortages.

The government announced earlier this year a domestic mechanism under which it could restrict LNG exports, in a bid to ease domestic shortages which have been pushing prices higher in Australia.

“The federal government may be faced with a choice of pulling the trigger on the mechanism or seeing factories close and jobs lost,” Rod Sims, Chairman of the Australian Competition and Consumer Commission said in a speech in Canberra.

The government is expected to decide by November 1 whether to limit LNG exports next year, based on reports from the ACCC and the Australian Energy Market Operator.

“The gas supply outlook for 2018 now appears worse than at the time of our first gas report in March 2016,” Sims said in the speech.

According to Sims, recent domestic deals by the Curtis Island producers such as Santos GLNG joint venture and Origin Energy, the holder of a stake in the APLNG project, have not helped much to ease the gas shortfall issues.

“I said six months ago at a gas conference that if I were providing private advice to the LNG producers I would say they would be well advised to support the domestic market as much as possible at this crucial time. They have largely not done so,” he said.

Australia’s Santos and its GLNG joint venture partners have taken “some highly visible steps” under the threat of the domestic gas security mechanism, but “none of these moves have made any serious inroads into the gas supply problem,” Sims said.

Sims also criticized LNG producers for selling uncontracted volumes on the spot market overseas rather than into domestic market.

“There seem to be no attempt by the LNG producers to meet some of their contractual commitments via the low-priced international spot market so that they could divert gas to the high-priced domestic market,” he said.

“In a normal market you would expect the export and domestic markets to arrive at a similar price. This is not happening. International prices are at all-time lows; Australian gas prices are at all-time highs,” Sims added.

APPEA urges govt not to restrict LNG exports

The Australian Petroleum Production & Exploration Association (APPEA) urged the government last week not to restrict LNG exports.

According to APPEA, since the government announced the new mechanism in March, a dozen new gas contracts or new projects have been signed or announced.

“Queensland is now virtually self-sufficient, with local production 20 percent higher in the last quarter than a year ago. For the first time since November 2015, there is a net flow of gas south from Queensland,” APPEA Chief Executive Malcolm Roberts said in a statement.

“At the same time, the Gippsland basin is sustaining record output. Nevertheless, we need to bring more supply to the market to put downward pressure on prices,” he added.

Roberts said while gas producers are striving to increase supply, governments “could and should be doing more.”

“Governments should be very concerned that onshore exploration is at a 30-year low,” he said.

“It almost goes without saying that states must lift their political bans on developing local gas. New South Wales and Victoria are heavy users of gas but have blocked local projects,” Roberts said.

He urged the government not to “rush forward with export restrictions” adding that AEAMO’s revised gas supply forecast for 2018 and ACCC’s gas market review “must be made public so all parties can have their say before any determination is made.”

LNG World News Staff