Commonwealth plans to slash gas prices for households and business by shoring up domestic supply face a last-minute attempt by one of the biggest gas exporters to sidestep the scheme.
Before a federal cabinet meeting on Monday to consider a national gas reserve, manufacturers are demanding the Albanese government ignore pressure from an east coast exporter for Labor to ditch its preferred policy.
Authorities warn that millions of gas-connected homes in Victoria and NSW face shortfalls unless more local gas is made available, while businesses warn they could be forced to close because of soaring energy costs making their business unprofitable.
Most of the gas produced on the east coast is converted into LNG and exported. The federal government is developing a scheme to force producers to reserve some for the domestic market.Credit: Getty Images
In response, Canberra has been reviewing gas exports, and will consider details of how to reserve gas for Australian consumers. The government is expected to announce its gas reservation policy before breaking for the holiday season.
“Australian gas should be available to Australian users at reasonable prices,” Energy Minister Chris Bowen said on Saturday.
Manufacturers, unions and the Victorian government are pressing the federal government to impose an east coast reservation scheme, forcing exporters to hold back a certain amount for the local market to help limit the impact of global markets and put downward pressure on local energy costs.
Independent analysis has found that a 6 per cent increase in domestic gas supply could lower wholesale gas prices up to 20 per cent, which would help lower the prices millions of NSW and Victorian households pay, as well as manufacturers relying on the fuel.
The price of wholesale gas on the east coast has tripled from $4 a gigajoule to more than $12 since 2015. In that time, three massive liquefied natural gas (LNG) hubs in Gladstone, Queensland, began their lucrative export trade – and tied local prices to the global market.
Global prices surged in 2022 when Russia invaded Ukraine, resulting in sanctions on Russian gas exports and a global energy crunch. Meanwhile, the cheapest domestic gas reserves, including vast Bass Strait oil and gas fields that have supplied the south-eastern states for decades, have begun rapidly drying up, causing uncertainty of supply, which has also pushed prices up.
“Given our increasingly crippling energy issues with price and supply, we have reached the point that conditions on gas producers to ensure viable domestic supply are becoming necessary,” said Australian Industry Group chief executive Innes Willox, who represents manufacturers and other large gas users.
Gas, like minerals, is owned by the Commonwealth, and companies pay royalties for the right to sell it. The federal government sets the conditions for exports of the fuel, and it would use this power to force exporters to send more to the local market.
This masthead has reported that the government’s preferred model for its reservation scheme is “export permitting”, in which LNG producers would have to guarantee a certain volume of supply to the local market to gain the right to send shipments overseas.
One of the three exporters, the Santos-led GLNG joint venture, has been in Canberra over the past week lobbying against an export permitting scheme because it would hit its operations the hardest. Along with Australian company Santos, GLNG members include Malaysia’s Petronas, French TotalEnergies and South Korean Kogas.
A model GLNG favours would force gas producers to draw their supply for a domestic reservation only from what is known as uncontracted gas, which means supplies that are excess to demands for long-term contracts with Australia’s Asian trading partners.
This model would hit GLNG’s two rivals. That is because GLNG has not developed enough of its own reserves to fulfil long-term contracts, meaning it has to buy domestic gas to convert into LNG for export, and therefore does not have any spare uncontracted gas to sell.
Brisbane-headquartered GLNG withdraws more gas from the domestic market than it puts in, while Shell’s QCLNG and Origin Energy’s Australia Pacific LNG venture (APLNG) produce gas that supplies the local market.
A scheme that targeted only uncontracted exports would leave APLNG and QCLNG providing all the gas for the reservation.
Shell’s QCLNG rejected moves to nobble the export-permitting scheme and said the burden should fall evenly across all three gas ventures.
“All three exporters should contribute equally to the reservation, right from the start,” a Shell spokeswoman said.
Management at APLNG also hit back at Santos’ lobbying.
“All exporters should contribute to Australia’s domestic gas supply with no exceptions, and no loopholes,” an APLNG spokeswoman said.
AI Group has backed an export-permitting scheme, which does not force gas producers to break existing supply contracts.
However, Willox urged government to resist any moves by gas companies to tweak the scheme to shift the cost burden, arguing gas prices have risen due to the creation of an export industry that tied Australian gas to international prices.
“The obligations should sit very clearly with gas exporters. They have transformed the market and control the vast bulk of gas in the ground. They should bear the onus for ensuring that Australian gas users and the broader economy aren’t left high and dry.”
Manufacturing Australia, a coalition of chief executives of companies including BlueScope Steel, Brickworks, Tomago Aluminium and Dulux Group, said prices must fall urgently to keep manufacturers in business and urged government to target uncontracted gas and new supplies for a local reservation.
“Gas reservation will only work if we put enough gas into the local market to see prices fall,” Manufacturing Australia chief executive officer Ben Eade said.
“We need to see Australia’s LNG industry meet and increase its ‘net contribution’ to the domestic market, both by individual companies and on an industry-wide basis. Simply trading gas volumes between existing projects will be insufficient.”
Santos was contacted for comment.
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