A couple of weeks ago, the Australian Government signed a Heads of Agreement with three major east coast liquefied natural gas (LNG) exporters.
The announcement on the Department’s website was accompanied by a headline that stated: Australian Government secures gas supply.
So, what has been agreed to and what does it really mean for Australian consumers who want low gas prices?
Why the government intervened
We know that the wholesale price of gas has spiked several times over the past couple of years and we know that global events (primarily Russia’s attack on Ukraine) have had a massive impact on demand, supply, and prices.
This past winter, the failure of coal-fired generators added to Australia’s domestic gas supply issue and producers were not prepared to meet the unprecedented demand.
In July, the Australian Competition and Consumer Commission (ACCC) forecast a gas shortfall of 56 petajoules (PJ) for the domestic market in 2023.
That dire forecast prompted the government to act, and Resources Minister Madeleine King put gas producers on notice that government would restrict their exports rather than let that happen (enacting the Australian Domestic Gas Security Mechanism, referred to as the “gas trigger”).
It was obviously in the interests of the producers/exporters to work with the government.
Addressing the predicted shortfall
News and media covered noisy demands that gas producers be forced to supply the domestic market before meeting their international contractual obligations. Among other knock-on effects, the impact on Australia’s reputation as a reliable trading partner would have been significant.
The solution had to be one that allowed the exporters to honour all their existing contracts and still do business effectively internationally, while not leaving Australian businesses and households paying the price.
Minister King asked Australia Pacific LNG (APLNG), QGC Pty Ltd (operator of QCLNG), and Gladstone LNG (GLNG) to each come up with a plan to make more gas available domestically.
They have now committed to making an additional 157 PJ available for the domestic market in 2023, supplied in line with seasonal demand. That’s almost three times the shortfall forecast by the ACCC.
Regular meetings to review
The main points covered in the Heads of Agreement are:
– LNG exporters to first offer uncontracted gas to the domestic market, on competitive terms, with reasonable notice, before exporting;
– in respect of uncontracted gas, the principle that domestic gas customers will not pay more for the LNG exporters’ gas than international customers;
– commits LNG exporters to offering gas on terms consistent with a code of conduct;
– enhanced transparency and accountability, with quarterly compliance reporting to the Minister for Resources, with oversight by the competition regulator the ACCC.
Minister King will meet every quarter with each east-coast LNG exporter to review whether they are meeting their individual commitments and ensure they are compliant with the Code
“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,” the Minister said.
But what about prices?
We love to criticise, but credit where it’s due: the government and the gas producers have worked together on domestic supply and restored some confidence well before we head into another high-demand winter.
The phrasing they have used sounds nice as they suggest supply for the domestic market will be “competitively priced”, but if gas prices remain high around the world, as they undoubtedly will until some time after the war in Ukraine ends and some normality of supply is restored, gas prices will remain high in Australia, too.
“The truth is we are in a global energy crisis, we have all seen what is happening in Europe and we have trading partners who have had their gas supply cut off,” Ms King said. “So it will continue to be a pretty heavy crunch on gas prices and other energy prices for that matter.”
Lowering prices is a whole different challenge, but one which the Australian government is taking seriously, with added pressure from industry and non-industry sectors.
While welcoming the Heads of Agreement on supply, Australian Workers’ Union Acting National Secretary Stephen Crawford said the government must implement a gas reservation scheme on the east coast to shore up Australia’s manufacturing future over the long term.
“A gas reservation scheme like Western Australia’s would allow our manufacturers to sleep at night knowing they won’t face obliteration every time gas prices spike,” he said.
In other words, “Job well done. Get on with the next job!”.
We’ll keep watching this space …