Labor’s proposed domestic gas reservation scheme risks undermining investment in new supply and could “kill companies”, according to some of Australia’s largest LNG producers, as industry opposition to the Albanese government’s signature energy policy intensified on Tuesday.
Santos chief executive Kevin Gallagher warned the policy risked destroying business models if exporters were forced to sell gas into the domestic market at uneconomic prices, while Shell Australia chair Cecile Wake cautioned the proposal could damage investment and erode trust with Asian LNG customers.
Woodside Energy chief executive Liz Westcott also warned against “flooding” the domestic market with excess gas supply.
The Albanese government this month unveiled plans requiring LNG exporters to divert 20 per cent of export volumes into the domestic market, but has yet to explain how the policy would affect long-term supply contracts with key Asian allies including Japan, South Korea and Malaysia – countries Australia also relies on for fuel imports.
“If you put a policy in place that forces sales into a market at any price, you will kill companies, destroy their business models, and that needs to be thought through very, very carefully,” Mr Gallagher told the Australian Energy Producers conference in Adelaide on Tuesday.
Ms Westcott said forcing additional gas into the domestic market before it was needed risked creating longer-term supply problems.
“Flooding (the market) in the 2020s is going to be sacrificial to the 2030s as the gas can only be used once,” Ms Westcott said.
“Our view is that forcing gas into markets when they don’t need it is counter-productive for everybody.”
The comments mark the clearest intervention yet from the LNG sector since Labor announced the reforms, which are designed to boost domestic gas supply and shield manufacturers from future shortages and price spikes. While Santos, Shell and Woodside all declared support for the principle of domestic gas reservation, the companies argued the proposed framework risked undermining the investment needed to bring on future supply.
Ms Wake said the policy could create a “structurally oversupplied domestic market” that would crowd domestic producers out of the market, discourage investment in future projects and undermine Australia’s standing as a reliable energy supplier.
Industry concern is centred on whether exporters will be forced to redirect contracted LNG cargoes into the domestic market or source additional supply to meet the reservation requirement.
That issue is particularly acute for Gladstone LNG, in which Santos owns 30 per cent. The project has warned the proposed scheme could jeopardise existing contracts with Asian customers because it does not hold significant volumes of uncontracted gas, unlike rival Queensland LNG exporters, including Shell’s Queensland Curtis LNG and Australia Pacific LNG, part-owned by Origin Energy.
Gladstone LNG has long faced criticism from domestic manufacturers and rival producers because it buys gas from the east coast market to fulfil LNG export commitments.
Manufacturers argue Australia’s LNG industry has diverted too much supply offshore while producers insist export revenues are essential to underpinning investment in new fields and infrastructure.
Labor is expected to release further details of the policy this week, following weeks of industry lobbying and growing concern among exporters about how the mechanism will operate.
In comments delivered at the conference opening, Ms Wake said the proposal in its current form “falls well short” of providing the certainty needed to unlock investment in new supply.
She said any reservation scheme needed to be “prospective” and “carefully calibrated” and should be paired with faster project approvals and policies that encourage new supply.
She also cautioned against applying the framework to LNG operations in Western Australia and the Northern Territory that are not physically connected to the east coast market. “It is in everybody’s interest that we work together to design a policy that does not repeat the mistakes of past interventions that have distorted the market, dampened investment, unsettled trade partners and failed to deliver more supply or lower prices,” Ms Wake said.
The writer travelled to Adelaide as a guest of Australian Energy Producers.
Labor’s proposed domestic gas reservation scheme risks undermining investment in new supply and could “kill companies”, according to some of Australia’s largest LNG producers, as industry opposition to the Albanese government’s signature energy policy intensified on Tuesday.
Santos chief executive Kevin Gallagher warned the policy risked destroying business models if exporters were forced to sell gas into the domestic market at uneconomic prices, while Shell Australia chair Cecile Wake cautioned the proposal could damage investment and erode trust with Asian LNG customers.
Woodside Energy chief executive Liz Westcott also warned against “flooding” the domestic market with excess gas supply.
The Albanese government this month unveiled plans requiring LNG exporters to divert 20 per cent of export volumes into the domestic market, but has yet to explain how the policy would affect long-term supply contracts with key Asian allies including Japan, South Korea and Malaysia – countries Australia also relies on for fuel imports.
“If you put a policy in place that forces sales into a market at any price, you will kill companies, destroy their business models, and that needs to be thought through very, very carefully,” Mr Gallagher told the Australian Energy Producers conference in Adelaide on Tuesday.
Ms Westcott said forcing additional gas into the domestic market before it was needed risked creating longer-term supply problems.
“Flooding (the market) in the 2020s is going to be sacrificial to the 2030s as the gas can only be used once,” Ms Westcott said.
“Our view is that forcing gas into markets when they don’t need it is counter-productive for everybody.”
The comments mark the clearest intervention yet from the LNG sector since Labor announced the reforms, which are designed to boost domestic gas supply and shield manufacturers from future shortages and price spikes. While Santos, Shell and Woodside all declared support for the principle of domestic gas reservation, the companies argued the proposed framework risked undermining the investment needed to bring on future supply.
Ms Wake said the policy could create a “structurally oversupplied domestic market” that would crowd domestic producers out of the market, discourage investment in future projects and undermine Australia’s standing as a reliable energy supplier.
Industry concern is centred on whether exporters will be forced to redirect contracted LNG cargoes into the domestic market or source additional supply to meet the reservation requirement.
That issue is particularly acute for Gladstone LNG, in which Santos owns 30 per cent. The project has warned the proposed scheme could jeopardise existing contracts with Asian customers because it does not hold significant volumes of uncontracted gas, unlike rival Queensland LNG exporters, including Shell’s Queensland Curtis LNG and Australia Pacific LNG, part-owned by Origin Energy.
Gladstone LNG has long faced criticism from domestic manufacturers and rival producers because it buys gas from the east coast market to fulfil LNG export commitments.
Manufacturers argue Australia’s LNG industry has diverted too much supply offshore while producers insist export revenues are essential to underpinning investment in new fields and infrastructure.
Labor is expected to release further details of the policy this week, following weeks of industry lobbying and growing concern among exporters about how the mechanism will operate.
In comments delivered at the conference opening, Ms Wake said the proposal in its current form “falls well short” of providing the certainty needed to unlock investment in new supply.
She said any reservation scheme needed to be “prospective” and “carefully calibrated” and should be paired with faster project approvals and policies that encourage new supply.
She also cautioned against applying the framework to LNG operations in Western Australia and the Northern Territory that are not physically connected to the east coast market. “It is in everybody’s interest that we work together to design a policy that does not repeat the mistakes of past interventions that have distorted the market, dampened investment, unsettled trade partners and failed to deliver more supply or lower prices,” Ms Wake said.
The writer travelled to Adelaide as a guest of Australian Energy Producers.