Government mulls domestic reservation policy

THE federal government is considering establishing a prospective national gas reservation scheme to ensure its availability for domestic users and has released an issues paper for public comment and consultation.
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Mark Tilly

Journalist

Mark Tilly

Minister for resources Keith Pitt urged stakeholders to make a submission, saying the government was exploring issues including certainty of supply, and investment confidence in industry in the post-COVID world. 

The reservation scheme would be applied to prospective gas projects only, either to new fields or those being expanded from a current project. 

Pitt noted both the Australian Energy Market Operator and the Australian Competition and Consumer Commission have found the already-established Australian Domestic Gas Security Mechanism to be effective in regard to ensuring supply to 2021 and wanted to ensure it continued to work. 

The mechanism was established in July 2017 in the face of soaring gas prices and allows the minister of the day to restrict LNG export in years where there is a domestic shortfall, however it has never been triggered. 

Also in 2017 and 2018, the government and east coast LNG exporters agreed to offer uncontracted gas to the domestic market in the event of a shortfall. 

Earlier this month Prime Minister Scott Morrison announced the government would negotiate a new agreement with east coast LNG exporters and would strengthen price commitments. 

The issues papers refers to AEMO's Gas Statement of Opportunities released earlier this year highlighting the possibility of a shortfall in southern markets on peak winter days from 2023-24, however some analysts have disputed the notion, saying previously expected shortfalls have been avoided so far. 

It also looks  at Western Australia's reservation policy, noting its effectiveness, with supply expected to exceed demand over the outlook period until 2029. 

It highlights the changing dynamics in the market, given the COVID-19 pandemic has lowered international gas demand, caused oil prices to crash and led to around US$12 billion to be wiped off Australian oil and gas assets - noting some commentary that a reservation policy could create greater risk and uncertainty for investment. 

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Australian Petroleum Production and Exploration Association chief Andrew McConville told Energy News the government should resist calls for policy interventions which could lead to "non-commercial outcomes". 

"While sensible reforms can improve the efficiency of the domestic gas market and its operation, unnecessary market interventions can affect confidence in the sector and discourage investment," he said. 

"Rather than generating more gas or driving down prices, intervention may impede the very investment needed to bring on new, or cheaper, supplies.  So, a more sustainable solution is to support investment that can increase supply."

He called on the government to release more acreage for exploration and development and to remove regulatory barriers to ensure more supply.

"Intervention into a market by government is a blunt tool which can have unintended economic consequences and should generally only be considered in situations of genuine market failure," he said.

"There is no market failure in the domestic gas market."  

Progressive think tank The Australia Institute was critical that the reservation would only be applied prospectively, telling Energy News the government was closing the gate when the horse had already well and truly bolted. 

"Five years ago there was some affordable gas that could have been reserved for Australian manufacturers. But that LNG ship has well and truly sailed now," TAI principal advisor Mark Ogge said. 

"If the government was serious about helping Australian manufacturers, rather than the LNG exporters, it would reserve what remains of lower cost gas in the Cooper Basin that was developed for the domestic market. Instead, it's doing the opposite."

Energy and emissions reduction minister Angus Taylor said the government would work with industry and consider all feedback to ensure both gas producers and users can thrive.

"It is essential we consider all of the policy options available that could help ensure Australian gas is working for all Australians." 

The paper poses questions including how a reservation scheme would address a potential domgas shortfall and how a reservation scheme would affect investment and what it's impact would be on LNG trade. 

The paper is open for public comment until November 27 and can be viewed here.