Global energy giant Shell has slammed the Albanese government’s proposed east coast gas reservation policy, likening it to using a “sledgehammer to crack a nut” for an already functional market.
Labor will introduce the contentious legislation to parliament on Wednesday, implementing its plan to force liquefied natural gas producers to reserve a portion of their output for domestic use.
Under the national reservation policy that comes into effect in July 2027, Queensland’s three main LNG exporters will be required to sell a fifth of any new gas they produce into the domestic market, similar to an existing scheme in Western Australia.
The new measures will apply to spot-market and uncontracted gas but will not affect existing long-term contracts that exporters have with major international buyers, including key Asian trading partners which Australia depends on for fuel supplies.
Cecile Wake, chair of Shell Australia, which exports gas from the Queensland Curtis LNG project, said that while she did not oppose the concept of a domestic gas reserve, there were major flaws in the current policy’s design.
“Fundamentally, it’s a sledgehammer to crack a nut. And it is an extraordinarily heavy-handed intervention into a market that is actually working well,” she told a conference in Sydney on Tuesday.
Ms Wake also strongly criticised the prospect of requiring producers to supply 110 per cent of forecast domestic demand and the obligation to sell gas regardless of prevailing prices.
“We don’t have a market failure today, but we will sow the seeds of tomorrow’s market failure if we don’t fix those two elements: the permanent material structural oversupply and a completely asymmetrical contracting market,” she said.
“It is such a blunt instrument. It is not talking about modest downward pressure on prices. The architecture, and that may well be the intention, but the way it would play out … is to drive prices below the long-run marginal cost of bringing new production out,” she said.
Shell’s intervention came on the same day as Woodside Energy also warned it would abandon a proposed Bass Strait gas drilling campaign if the Albanese government’s planned reservation scheme pushes domestic prices too low.
“We’re looking at an opportunity that ties into our Bass Strait assets, which is 200 petajoules of gas. So that’s enough to supply Sydney here or Melbourne for about two years of gas, and we’re considering that opportunity right now,” Woodside chief operating officer Breyden Lonnie said.
“Now, if the (domestic gas) reservation scheme comes out and particularly influences pricing, then that development — I can say with a high level of confidence — will not be commercial.”
On Wednesday, Federal Resources Minister and Minister for Northern Australia Madeleine King is expected to tackle concerns over Labor’s gas policy when she addresses the National Press Club in a speech focussed on the importance of LNG for critical minerals and rare earths.
During a caucus meeting on Tuesday Labor MPs quizzed Minister King over details of the government’s gas reservation bill, to which she assured them: “we do not subsidise the gas industry” and “our priority is to get more affordable gas to Australian consumers”.
When further questioned about the impact on Western Australia’s existing gas reservation scheme, Minister King said there was no direct exemption for her home state.
“While it’s not a direct exemption, there is a structural difference between the gas markets, so it’s not an exemption as such, but there is within the bill an acknowledgement of the structural difference,” the Resources Minister told Labor MPs.
In a recent submission to the domestic gas reservation scheme’s exposure draft, the Chinese embassy in Canberra also warned the Australian government against meddling too heavily with the local gas sector.
“We hope that the Australian government will make efforts to keep domestic gas prices at a reasonable level and moderately relax domestic supply obligations where appropriate,” the embassy’s submission said.
“The Australian government has previously introduced a series of policy interventions in the natural gas sector. While these measures may have helped constrain domestic gas prices and support domestic supply in the short term, they have also affected investor confidence to some extent.”
The Chinese government is a major importer of Australian LNG and holds stakes in several large gas projects in Queensland and Western Australia.