WA has been left in the dark over the Federal Government’s rollout of a national domestic gas reservation plan, 20 years after the launch of its own scheme to protect local industry.
Despite months of discussions with WA, the Albanese Government has still not communicated how the State will be affected by the national scheme even as it prepares to introduce the contentious legislation to Parliament on Wednesday.
Under a policy that comes into effect in July 2027, Queensland’s three main LNG exporters will be required to sell 20 per cent of any gas they produce into the domestic market. The scheme mirrors WA’s existing plan, which since October 2006 has reserved 15 per cent of gas produced by exporters for domestic users.
The new national 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.
Resources Minister and Brand MP Madeleine King was still unable to reveal on Tuesday whether WA gas exporters would also now be required to put aside additional gas to meet the national requirements.
Ms King told Labor MPs during a caucus meeting that 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,” she said.
Ms King will tell the National Press Club in a speech on Wednesday that the legislation has been refined to ensure that “the States and Territories are consulted on decisions that impact them, for example, in relation to market-wide domestic supply obligation adjustments”.
Industry is opposed to the new plan.
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 Government’s scheme.
“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.”
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 WA.