The Commonwealth’s plans to reduce gas prices for households and businesses by boosting domestic supply are facing a last-minute challenge from one of the largest gas exporters. Ahead of a federal cabinet meeting set for Monday to discuss a national gas reserve, manufacturers are urging the Albanese government to resist pressure from an east coast exporter to abandon its preferred policy.
Authorities have warned that millions of gas-connected homes in Victoria and New South Wales could face shortages unless more local gas is made available. Meanwhile, businesses caution that they might be forced to close due to skyrocketing energy costs rendering their operations unviable.
Government’s Response and Potential Policy Changes
In response to these concerns, Canberra is reviewing gas exports and considering how to reserve gas for Australian consumers. The government is expected to announce its gas reservation policy before the holiday season begins. Energy Minister Chris Bowen emphasized the need for local availability, stating, “Australian gas should be available to Australian users at reasonable prices.”
Manufacturers, unions, and the Victorian government are advocating for an east coast reservation scheme. Such a scheme would require exporters to reserve a portion of their supply for the local market, aiming to mitigate the impact of global markets and exert downward pressure on local energy costs.
Impact of Domestic Supply Increase
Independent analysis suggests that a 6 percent increase in domestic gas supply could reduce wholesale gas prices by up to 20 percent. This reduction would benefit millions of households in New South Wales and Victoria, as well as manufacturers reliant on the fuel.
The price of wholesale gas on the east coast has tripled from $4 a gigajoule to more than $12 since 2015.
This surge in prices coincides with the commencement of three massive liquefied natural gas (LNG) hubs in Gladstone, Queensland, which have tied local prices to the global market.
Historical Context and Global Influences
Global prices surged in 2022 following Russia’s invasion of Ukraine, which led to sanctions on Russian gas exports and a global energy crunch. Concurrently, Australia’s cheapest domestic gas reserves, including the Bass Strait oil and gas fields, have begun to deplete rapidly, adding to supply uncertainty and price increases.
Innes Willox, chief executive of the Australian Industry Group, highlighted the urgency of the situation, stating, “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.”
Export Permitting and Industry Reactions
The federal government, which owns the gas and sets the conditions for its export, is considering an “export permitting” model for its reservation scheme. This model would require LNG producers to guarantee a certain volume of supply to the local market to obtain the right to export.
One of the three major exporters, the Santos-led GLNG joint venture, has been lobbying against this scheme, as it would significantly impact its operations. GLNG, which includes international partners such as Malaysia’s Petronas, French TotalEnergies, and South Korean Kogas, prefers a model where only uncontracted gas is reserved for domestic use.
“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,” said Willox.
Industry and Government at a Crossroads
Manufacturing Australia, representing companies like BlueScope Steel and Brickworks, insists that prices must drop urgently to sustain manufacturers. They advocate for targeting uncontracted gas and new supplies for local reservation.
Ben Eade, CEO of Manufacturing Australia, stressed the importance of increasing the domestic market’s gas supply, stating, “Gas reservation will only work if we put enough gas into the local market to see prices fall.”
The ongoing debate highlights the complex balance between domestic needs and international trade obligations. As the government prepares to finalize its policy, the outcome will be pivotal for both the energy sector and the broader Australian economy.
