Independent analysis by Wood Mackenzie has confirmed the Federal Government's proposed domestic gas reservation would undermine investment in new gas supply, weaken Australia's long-term energy security and ultimately make it harder to deliver reliable and affordable gas to Australians.
The analysis found the Government’s proposal to require LNG exporters to supply 20 per cent of their export volumes to domestic users every year would force more than 200 petajoules of additional gas into an already well-supplied east coast market, creating a massive structural oversupply that would undermine the investment needed to avoid future shortfalls.
The report also found the proposed framework would crowd out domestic-focused gas producers that currently supply around two-thirds of the east coast market, discourage new gas exploration and development, introduce significant sovereign risk, and undermine Australia's reputation as a reliable energy supplier in the region.
Australian Energy Producers Chief Executive Samantha McCulloch said the analysis confirmed industry concerns that the proposed framework is fundamentally unworkable and needs significant changes.
“The proposed scheme will ultimately result in higher gas prices for Australian manufacturers because it will destroy investment in future supply, reduce competition and risk reliance on more expensive LNG imports for southern states,” Ms McCulloch said.
“It will have the perverse effect of reducing competition and stopping investment in Victoria and NSW where new supply is most needed.”
Australian Energy Producers’ submission on the draft framework outlines several recommendations to achieve a workable design that supports investment while ensuring a well-supplied gas market beyond 2030.
The submission calls on the Government to calibrate domestic supply obligations to actual market demand, fully protect existing contracts, and allow gas genuinely offered to the domestic market but not purchased to be exported without unnecessary regulatory hurdles.
It also recommends replacing annual Ministerial approvals with a more predictable, performance-based compliance framework. The scheme should also recognise the unique circumstances of Western Australia and the Northern Territory and exempt these jurisdictions in practice.
Ms McCulloch said Australian Energy Producers supported a well-designed, prospective domestic gas reservation scheme linked to new supply.
"The ultimate test of a successful policy will be if it delivers a more efficient and predictable framework that encourages investment, maintains competition and strengthens Australia's long-term energy security," Ms McCulloch said.
"However, the current proposal falls well short of this and without substantial changes it will ultimately lead to lower supply, higher prices and reduced tax and royalty revenue for governments.
“These reforms are complex and should not be rushed. Genuine and detailed consultation on the design is critical to avoid the same unintended consequences and damage associated with previous government interventions.”
Ms McCulloch said the reservation scheme must also be backed with reforms to fast-track projects currently held up in approval processes.
"Investing in new gas supply remains the only sustainable way to maintain affordable and reliable gas for Australian households and manufacturers. A reservation framework should support that objective, not undermine it."
Read the Wood Mackenzie report here.
Read submission here.
