Is the Australian government’s gas reservation move far-reaching enough?
After repeated calls for the introduction of a national gas reservation scheme, the Australian federal government has now indicated that it would work with the states and territories over the next 12 months to establish a prospective reservation scheme.
“We can’t repeat the mistakes of the past in just letting our gas be shipped overseas with no thought to our domestic requirements,” Minister for Resources and Northern Australia Matt Canavan said in a statement on Friday.
Western Australia’s domestic gas reservation policy, which requires liquefied natural gas exporters to supply the equivalent of 15 per cent of their export volumes to the local market, has been credited with keeping the state’s gas prices low in comparison with the east coast.
Wholesale gas prices in WA are typically priced below $4 per gigajoule (GJ) while short-term prices on the east coast averaged above $8/GJ in 2019 before easing to $5/GJ this year.
However, this little bit of catch-up with Western Australia drew criticism from the Institute for Energy Economics and Financial Analysis (IEEFA), which said it would not go far enough to bring domestic gas prices back under control.
IEEFA energy finance analyst Bruce Robertson was critical of the proposal for a “prospective reservation”, saying that this would allow gas companies to sell expensive new coal seam gas (CSG) to domestic customers while exporting cheaper traditional sources of gas.
“IEEFA maintains any reservation needs to be on both prospective and existing gas production. This is not ‘retrospective’ as the gas companies gave undertakings not to affect the domestic market, something they clearly have done,” he told Stockhead.
He quoted ACCC chairman Rod Sims as telling the AFR that many industrial buyers remained locked into long-term contracts for gas at between $10 and $12 per GJ.
International gas prices have crashed due to weak demand and oversupply with much re-selling of contracted volumes going on.
This point was recognised by Canavan, who said that some businesses were still finding it difficult to get longer-term gas offers and that “some price offers remain higher than I want to see, especially when international LNG prices are low”.
“That is why we will keep the ADGSM (Australian Domestic Gas Security Mechanism) in place until its scheduled end in 2023 and the ACCC (Australian Competition and Consumer Commission) will continue to monitor the gas sector out until 2025,” Canavan said.
The review of the ADGSM also recommended that the government strengthen the Total Market Security Obligation while including the ACCC’s LNG netback price series as a signal of how well a market is functioning in estimating any potential supply shortfall.
This was supported by Robertson, who said that the IEEFA welcomed strengthening the ADGSM with a firm price target.