The country’s three major LNG companies will be forced to set aside as much as a quarter of their gas for domestic use, as part of the government’s long-awaited gas reservation policy aimed at lowering prices on Australia’s east coast.
Chris Bowen, the climate change and energy minister, in Canberra said the “historic” export permit scheme would only apply from 2027, but would need to be reflected in any new contracts made by the gas companies between now and then.
“Australia gas for Australian users, that’s the first priority,” Bowen said.
“The fundamentals of the market are such that gas is getting more expensive to extract in Australia – [the amount of gas available to extract in] Bass Strait is declining, that fundamental remains – but this is the way that the government can put the maximum downward pressure on prices by engineering a slight oversupply of Australian needs.”
Under the policy, the trio of major east coast exporters in Queensland would be required to set aside 15-25% of their gas for domestic consumption, the equivalent of 200-350 petajoules a year.
As green groups and the manufacturing workers’ union welcomed the announcement, Bowen said further details will be hashed out in coming months with industry and other stakeholders.
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Despite Australia being the third-largest LNG exporter in the world, the energy regulator has warned that states such as New South Wales and Victoria could face gas shortfalls by the winter of 2028.
As a huge amount of gas has been diverted to more lucrative offshore markets, heavy industry has complained that it faces an existential crisis without access to cheaper energy.
Victorian households’ gas costs have nearly doubled in the past decade, roughly coinciding with the start of the country’s LNG exports.
The gas lobby group, Australian Energy Producers, said the reservation policy would not be enough to deliver secure and affordable gas on the east coast, and redoubled its calls for the fast-tracking of new gas developments.
Bowen flagged that new gas supply, not just diverted existing exports, would likely be required to meet the needs of the east coast.
“We need to ensure adequate supply, and that does mean new supply in some instances. And that’s why we want to provide certainty to the industry going forward,” he said.
Green groups backed Labor’s proposal but immediately said the introduction of the scheme must not be used as an excuse to develop gas fields in NSW’s Narrabri and the Beetaloo Basin in the Northern Territory.
“It will be important that a reservation scheme re-directs gas from existing export projects to the domestic market, not facilitates new climate-heating gas projects,” said the Australian Conservation Foundation’s national climate and energy policy adviser, Annika Reynolds.
Josh Runciman, the lead gas analyst for Australia at the Institute for Energy Economics and Financial Analysis, said the proposed export licence model was “clearly the best option”, as it would be easy to implement and so provide certainty to the industry.
“By targeting the LNG exporters, who have most of the [gas] reserves anyway, the government is getting bang for buck without complicating the market more than it needs to,” Runciman said.
“The moment that additional gas comes into the market, we’d expect to see that price impact fairly quickly – and that would flow through to lower electricity prices.”
But Tony Wood, a senior fellow at the Grattan Institute and energy expert, said the policy “raises a lot of questions”.
Wood said electrification over the coming decade could mean exporters will be asked to sell into a market where there was little demand, noting that the 200-350 petajoules that could be set aside annually was “half of the current domestic market”.
