A long-awaited scheme to compel east coast energy giants to reserve gas for Australian use is nearing completion, with cabinet ministers engaged in intense negotiations. The plan aims to address soaring power prices, but there are concerns it may not deliver the expected relief.
The federal government is racing to meet its self-imposed Christmas deadline for implementing an east coast gas reservation policy. This initiative is inspired by Western Australia’s successful scheme, which has been lauded by its architect, former WA premier Alan Carpenter. He warns that without such measures, Australia risks becoming a “laughing stock of the energy-producing world.”
“The whole east coast of Australia is facing gas shortages, consumers are suffering, and it should never ever have happened,” said former WA premier Alan Carpenter. “No other jurisdiction allows foreign companies to come in, write the rules, export the gas and give you nothing in return.”
Government’s Urgent Response to Looming Gas Shortage
Faced with a potential gas shortage, the government commissioned a six-month review of the market, led by Energy Minister Chris Bowen and Resources Minister Madeleine King. They are balancing demands from the gas sector, manufacturers, unions, and key trading partners.
In 2006, Western Australia faced a similar crisis, prompting Carpenter to implement the nation’s first comprehensive reservation scheme. This policy required exporters to allocate 15 percent of their gas production for the WA market, despite resistance from industry giants like Woodside and Chevron.
“We had a federal government years ago which was stupid enough to allow these companies to export any amount of gas they wanted from Australia without reserving any of it for our own people,” Carpenter stated. “Those days are over. The game has changed.”
Challenges of Implementing a New Scheme
Australia is one of the world’s largest LNG exporters, yet the Australian Competition and Consumer Commission warns that east coast gas supplies could fall short by 2028. This is despite having sufficient reserves for the next decade. Gas prices on the east coast have tripled, threatening industries such as aluminium smelters, which are on the brink of closure.
Under pressure to avert shortages and reduce prices, the Albanese government is finalizing an east coast reservation scheme. This policy would compel exporters to increase domestic supply, but it faces complexities due to Queensland’s established LNG export market.
Price Concerns and Industry Reactions
The potential impact on gas prices remains uncertain. One source suggested that while there is hope for price reductions, returning to $4 per gigajoule is unlikely. The Australian Workers Union advocates for government intervention to set prices for industrial users.
Saul Kavonic from MST Financial commented, “The government is going to be looking to achieve a ‘goldilocks’ price range which is probably around the $8 to $12 a gigajoule price, which should be enough to provide some price relief for people at home and to keep most of Australia’s manufacturing going.”
The WA gas reservation policy, which accounts for 62 percent of the state’s domestic gas supply, has maintained prices around $7 per gigajoule, according to the AWU.
LNG Exporters and Policy Options
The government is considering options such as requiring Queensland LNG ventures to supply gas to the domestic market in exchange for export permits. The goal is to replace the current patchwork of policies with a streamlined system that maximizes supply.
While the LNG industry was initially opposed, it now broadly supports an east coast gas reserve to end years of ad-hoc interventions by successive governments. The big three exporters, however, differ on timing and implementation details.
Origin’s APLNG stated it is open to “an export licensing and permitting regime” provided “all east coast LNG producers equitably contribute to the domestic market.” Shell’s QCLNG agreed, emphasizing equal contribution from all exporters.
Future Outlook and Strategic Implications
Despite it being “unthinkable,” eastern Australia may soon import gas from interstate and overseas. Victoria is developing LNG import terminals, and Andrew Forrest’s company Squadron is building a terminal at Port Kembla, expected to supply gas by 2027.
This development follows a decline in Bass Strait reserves, which have historically supplied the southern states. New gas fields have not been developed due to moratoriums and opposition in Victoria and NSW.
Santos’ Narrabri project, which could meet half of NSW’s gas needs, faces regulatory delays. Meanwhile, the Queensland government is not keen on a gas reservation scheme, as it earns significant revenue from petroleum royalties.
“A market intervention designed nationally to deliver benefits across multiple states and territories should not unduly penalise or burden any particular state or territory,” stated the Queensland government in its submission.
As the federal government navigates these challenges, the outcome of the east coast gas reservation policy will have significant implications for Australia’s energy landscape and economic stability.
