The Federal Government announced in April that it will block gas exports if Australian market demand is not met, but Prime Minister Malcolm Turnbull warned that it was a quick fix solution.
The move could be the beginning of the end of the ridiculous situation where customers in Asia are paying less for Australian gas than we are.
Mr Turnbull made the formal announcement about the new restrictions on producers today in Brisbane and said that the move will see wholesale prices of gas on the East coast drop.
The PM will introduce sweeping powers to block exports unless there are adequate supplies to meet the needs of Australian businesses and consumers.
In a prelude to today’s announcement Mr Turnbull said domestic shortages have led to consumers paying much more for gas than overseas buyers.
The Prime Minster briefed industry groups about the announcement on Wednesday night.
Australian Industry Group chief executive Innes Willox welcomed the intervention and said the sector had been calling for the Government to help businesses.
Mr Willox has warned that the electricity crisis threatens tens of thousands of jobs unless a more interventionist approach is adopted.
Unacceptable that Australians do not have enough gas
“Australians are entitled to have access to the gas they need at prices they can afford,” Mr Turnbull said.
“It is unacceptable for Australia to become the world’s largest exporter of liquefied natural gas, but not have enough domestic supply for Australian households and businesses.”
Mr Turnbull hit out at the sector for failing to meet a demand and be net contributors to the Australian market — that is, producing more for domestic consumption than is exported. He said that the gas producers cannot continue to short change Australian households and businesses and reminded those involved that they had a ‘moral’ licence to operate from the Australian people.
Santos execs fume at decision
Origin and Shell produce more for the domestic market than they export. However, Santos chief executive Kevin Gallagher has hit out at the idea of requiring companies to be net contributors as a “fake construct”, with GLNG unable to meet demand because it is locked into aggressive export targets.
The Santos GLNG project has had to buy gas from other companies in the tight domestic market to fulfil its contracts, and in this year’s March quarter 59 per cent of its gas was supplied by third parties, including from AGL. Santos also says that had it been given a permit to explore for gas in 2010, the current situation could have been avoided.
Federal government putting pressure on state administrations to lift bans
The Turnbull government has been putting pressure on states and territories to lift moratoriums on exploration and fracking, saying they remain the greatest impediment to increasing supplies.
The Victorian government introduced a bill last year to ban fracking and coal-seam exploration. Tasmania introduced a five-year ban in 2015, and the Northern Territory instituted a fracking moratorium in October.
The NSW government is assessing the $3.6bn Narrabri coal-seam gas project, which has faced fierce community opposition but which has the potential to supply half of the state’s gas needs.
Manufacturers warn of job losses if energy prices continue to soar
Manufacturers have been warning of job losses and a collapse in investment across the country as a result of gas prices. It is expected that demand will exceed supply from existing reserves next year.
Mr Turnbull said that while progress had been made since the March meeting, the new Australian Domestic Gas Security Mechanism, to come into force on July 1, was needed because the requirement for operators to meet Australian demand had not been met.
“By ending the shortage … we will ensure gas prices in Australia are lower and fairly reflect international export prices as they should,” Mr Turnbull said. “Thousands of jobs depend on secure, reliable and affordable gas.”
Export controls
Under the new rules Resources Minister Matt Canavan will be able to impose export controls based on advice from the market operator and regulator about the demand forecasts of the local market.
Senator Canavan will consult with Energy Minister Josh Frydenberg and Industry Minister Arthur Sinodinos before making the rulings that will only affect the east-coast market.
Mr Turnbull said that if an exporter was not a net contributor to the domestic market, they will be required to outline how they will fill the shortfall of domestic gas as part of their overall production and exports.
Mr Turnbull insisted the government remained committed to LNG exports, “but not at the expense of Australian interests”.
He said the new regulations would comply with Australia’s international obligations.
Mr Turnbull’s statement
