Australia may seek to impose nationwide natural gas reservation policy

Sydney — Australia's federal government may seek a national gas reservation policy that could have ramifications for the country's LNG exports at a time when it has become the largest LNG exporter in 2019.

"I am going to work with states and territories during the next 12 months to consider options to establish a prospective national gas reservation policy," the minister for resources and northern Australia Matt Canavan said Friday in a statement.

"We can't repeat the mistakes of the past in just letting our gas be shipped overseas with no thought to our domestic requirements," he said while publishing a review of the Australian Domestic Gas Security Mechanism or ADGSM.

The ADGSM was rolled out in 2017 to ensure sufficient supply of natural gas to meet domestic demand. Under the policy, if there is a supply shortfall in the domestic market, LNG projects may be required to limit their exports or find new gas sources.

While the ADGSM is applicable Australia-wide, Western Australia already has a policy in place for reserving gas equivalent to 15% of LNG production for domestic use.

However, export facilities on Australia's east coast do not have such a reservation policy and LNG export projects could be impacted if such a policy is implemented for existing projects. These projects are already below capacity.

The projects include three main Queensland-based terminals-- Origin-ConocoPhillips' Australia Pacific LNG, the Santos-led Gladstone LNG and Shell's Queensland Curtis LNG.

In 2019, the terminals exported a combined 22.12 million mt of LNG, which was up 8% year on year, according to the Gladstone Ports Corporation. They have a combined nameplate capacity of 25.3 million mt.

Canavan said the ADGSM has been instrumental in stabilizing the domestic gas market and keeping a lid on gas prices and that it will remain in place until its scheduled-end in 2023 while the country's competition watchdog will continue to monitor the gas sector out until 2025.

However, there were concerns that businesses were still finding it difficult to get longer term gas offers and some price offers remained higher than what they should be, especially when international LNG prices were so low, he said.

He said the review of the ADGSM recommended strengthening the mechanism for securing domestic gas and that the ADGSM's guidelines include the Australian Competition and Consumer Commission's LNG netback price series "as a signal of how well a market is functioning in estimating any potential supply shortfall."