Gas industry warns Coalition that LNG restrictions would risk $50bn in investment

The gas industry has ramped up its attack on possible restrictions to natural gas exports, warning it could put $50bn in new investment at risk.

The Turnbull government on Monday edged closer to implementing export restrictions on liquefied natural gas (LNG).

The federal resources minister, Matt Canavan, gave notice to LNG producers that he would use the newly introduced Australian domestic gas security mechanism to assess whether there will be a shortfall in domestic gas supply in 2018.

If 2018 is deemed a “shortfall year”, the government will have a green light to intervene in Australia’s LNG market to prevent a domestic shortage. It can do that by either restricting exports or compelling LNG exporters to find new gas sources.

Australia exports about two-thirds of its gas production and the export restrictions would seek to redirect supply towards the domestic market to prevent any electricity shortage next year.

Canavan described government intervention in the market as a measure of “last resort”. He said export restrictions would be subject to Australia’s international trade obligations.

“The mechanism enables the Australian government to take action to secure domestic gas supply because of its importance to the Australian economy, at the same time bearing in mind the gas export industry’s long-term viability,” Canavan said.

But the Australian Petroleum Production and Exploration Association (Appea) said restricting exports was a short-term measure that would not address long-term problems with supply.

Its chief executive, Malcolm Roberts, described export controls as a “sovereign risk issue for Australia”, which would threaten the $50bn in new investment needed to maintain current supply.

“We acknowledge the critical importance of gas in the Australian economy and support the need for more gas in the domestic market but restricting a successful export industry is not the answer,” Roberts said. “The only sustainable solution to the challenges facing the east coast gas market is more gas supply.”

Roberts said the federal government should be pressuring states and territories to “immediately remove their bans and moratoriums” and ease the cost of developing new projects.

The Australian Energy Market Operator warned earlier this year that Australia faced energy shortages in the summer of 2018-19 unless action was taken on gas exports.

Aemo warned an increase in gas supplies and development was needed to avoid a tightening domestic gas market affecting the electricity sector.

The agency’s chief operating officer, Mike Cleary, warned there would be shortfalls in gas and electricity if nothing was done.

“At a time when LNG export is dominating demand and supply of gas in eastern states, strategic national planning of gas development has never been more critical for maintaining domestic energy supply adequacy across both gas and electricity sectors,” Cleary said in March.

Another report published by Melbourne University’s Australian-German climate and energy college found the predicted shortage unlikely to eventuate in 2018. It found the actual shortfall of electricity from the gas shortage amounted to the equivalent of less than 24 hours over a 13-year period.

The energy minister, Josh Frydenberg, has previously identified state-based moratoriums on new gas exploration as a cause of the domestic shortfall.

“This is drying up production and exploration,” he said. “But we also export two-thirds of what we produce and that has led to higher parity pricing in a very tight gas market.”

Canavan said steps were being taken to lift gas production. That included a $90m spend to “bring on new gas supplies and promote gas market reform”.

He said the government was working with states and territories to fast-track new gas to the east coast market, through the $26m gas acceleration program.

“Our longer-term goal is to increase domestic gas supplies and improve the transparency and efficiency of the gas market supply chain,” he said.