Australia’s New Domestic Gas Policy: Aiming for Price Stability Amid Supply Concerns
In a move to stabilize gas prices on Australia’s east coast, the government has mandated that the country’s three largest LNG companies reserve a significant portion of their production for domestic consumption. This decision forms part of a broader gas reservation policy designed to lower energy costs for Australians.
Climate Change and Energy Minister Chris Bowen, speaking from Canberra, described the initiative as a “historic” export permit scheme. Although it will only be enforced starting in 2027, all new gas contracts signed from now until then must comply with this policy.
“Australia gas for Australian users, that’s the first priority,” Bowen emphasized. The policy stipulates that 15-25% of gas production from major exporters in Queensland—amounting to 200-350 petajoules annually—be allocated for local use.
The market faces challenges, as Bowen noted, with increasing extraction costs and declining reserves in regions like Bass Strait. “The fundamentals of the market are such that gas is getting more expensive to extract in Australia,” he stated, but this policy aims to create a slight oversupply, potentially easing domestic prices.
Despite being a leading global LNG exporter, Australia risks facing gas shortages in states such as New South Wales and Victoria by winter 2028. The shift of gas to more profitable offshore markets has led to an outcry from the heavy industry, which is struggling due to high energy costs.
The policy has been met with both support and criticism. Green groups and the manufacturing workers’ union have welcomed the initiative, while the Australian Energy Producers lobby group expressed doubts about its sufficiency. They advocate for accelerating new gas developments to ensure secure and affordable supplies.
Bowen acknowledged the need for new gas supplies to meet future demand and aimed to provide certainty to the industry. “We need to ensure adequate supply, and that does mean new supply in some instances,” he said. However, environmental groups, including the Australian Conservation Foundation, warned against using the policy as a pretext for developing new gas fields.
Industry analysts, such as Josh Runciman from the Institute for Energy Economics and Financial Analysis, support the policy, describing the export licence model as efficient and straightforward. “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 explained.
Nonetheless, some experts remain skeptical. Tony Wood, a senior fellow at the Grattan Institute, questioned the policy’s long-term implications, especially considering potential shifts towards electrification. He noted that the reserved gas volume could constitute half of the current domestic market, raising concerns about future demand dynamics.
Original Story at www.theguardian.com