The government has struck a deal with the three major gas exporters on the east coast that will ensure sufficient supplies of the fossil fuel are available to avoid a potential shortfall next year.
The federal resources minister, Madeleine King, said on Thursday she had signed a new heads of agreement with the three big LNG exporters – Santos’s GLNG plant, the ConocoPhillips-led APLNG group and Shell’s QGC operations.
“This agreement will ensure Australians continue to have access to secure and reliable gas,” King said. “The new supply commitments, and [agreement], will deliver gas to the domestic market when needed, and ensures future uncontracted gas will be offered to the domestic market first, on competitive and reasonable terms, before it is offered for export.”
King said she would not need to apply the so-called gas trigger – formally known as Australian Domestic Gas Security Mechanism – to intervene in the market and secure supplies to meet demand in the eastern states. A decision on using the trigger had to be made before 1 October.
In July, the Australian Competition and Consumer Commission forecast a gas shortfall of 56 petajoules (PJ) for the domestic users in 2023. The competition watchdog “strongly” urged the big three LNG exporters, which control more than 90% of reserves in eastern states, to increase supply.
“The new commitments from LNG exporters will lead to an extra 157PJ for the domestic market in 2023, with the gas to be supplied in line with seasonal demand,” King said.
For that uncontracted gas, “the principle” would be that domestic gas customers will not pay more than international customers for the gas, the government said.
The companies also agreed on greater transparency, and will provide quarterly compliance reporting to King, with oversight by the ACCC. King will also meet the firms individually each quarter to sure they are complying with an agreed code of conduct.
Gas exporters had warned Australia’s reputation as a reliable exporter would be at stake if the government intervened to divert gas. Japan’s ambassador to Australia, Shingo Yamagami, reportedly told a Minerals Week conference in Canberra that Japan’s access to Australian fossil fuel exports were “a cornerstone of our partnership based on mutual trust” and any disruption to trade carried “potential risk”.
“This is a great outcome for Australia, will strengthen confidence in the domestic gas market and safeguard our global reputation as a stable and reliable energy exporter to our regional partners,” King said.
Others, though, have been critical of the gas exporters exporting almost all uncontracted gas to take advantage of soaring global prices in the wake of Russia’s invasion of Ukraine.
Sanctions on Russia have prompted European nations, in particular, to scramble to supply alternative gas supplies. So far, Australian gas does not appear to have been diverted to Europe, Graeme Bethune, an analyst with Energy Quest said on Wednesday.
Higher gas prices also feed into electricity prices as the fuel is often the price setting in the wholesale power market.
The gas industry welcomed the new accord and said it confirmed the sector’s commitment to ensure domestic gas supplies while meeting obligations to trading partners and investors.
The chief executive of the Australian Petroleum Production and Exploration Association, Samantha McCulloch, said households and businesses could be assured that “local supply will continue to be prioritised, despite broad energy market challenges locally and globally”.
“Gas is increasingly in demand as coal-fired generation declines and because its flexibility makes it a natural partner for renewable energy – just as we saw during the recent winter,” McCulloch said. “Ultimately, the long-term solution is encouraging investment in new supply with positive policy settings.”
The chief executive of Australia Pacific LNG, Khoa Dao, said the company had consistently said there would be a gas shortfall next year.
Dao said the company agreed with the principle that domestic customers would not pay more than overseas ones.
“It is consistent with how Australia Pacific LNG has continued to offer its uncontracted gas to the domestic market,” he said.