Australia's oil and gas producers have warned that forcing domestic gas sales could undermine investment and worsen future supply shortfalls in eastern state, as Canberra designs its proposed 20pc reservation scheme.
The plan — which would quarantine gas volumes equivalent to 20pc of LNG exports for domestic use — could initially lower prices for local consumers. But industry leaders warned at the Australian Energy Producers' (AEP) conference in Adelaide on 19 May that it could ultimately deter investment if prices fall below production costs.
Mandatory sales obligations, under which companies would be required to supply 20pc of planned export volumes into domestic pipelines before receiving LNG export approvals, would "absolutely destroy" investment signals, Shell Australia chair Cecile Wake said.
Federal energy minister Chris Bowen has dismissed concerns that this would occur, pointing to Western Australia's (WA's) 15pc domestic reservation scheme — in place since 2006 — as evidence that domestic producers can compete.
But Australian independent Woodside's chief executive Liz Westcott said WA's individual project-based model allows flexible delivery over the life of projects, helping ensure supply when needed in the next decade, in line with government forecasts that shortfalls could emerge.
For multi-decade investments such as Woodside's North West Shelf project, domestic gas obligations can be met when the market requires it, Westcott said, adding that flooding either the eastern or western markets with excess gas in the 2020s would be "sacrificial" to supply needs in the 2030s and ultimately counterproductive.
LNG projects not designed to fill policy gaps
The "devil will be in the detail" regarding the reservation scheme's ultimate design, expected to be unveiled later this year, Australian independent Santos' chief executive Kevin Gallagher said, adding that LNG projects were never designed to compensate for poor long-term gas planning in states such as Victoria and New South Wales.
But if it is designed as a prospective scheme, to encourage more production in line with the WA model, the domestic reservation would work in the national interest, Gallagher said.
The company's next two investment decisions will focus on the Papua LNG project and further phases of the Pikka oil project in Alaska's North Slope region. But the Beetaloo sub-basin in Australia's Northern Territory holds acreage that could one day feed the 3.7mn t/yr Darwin LNG or the 7.8mn t/yr Gladstone LNG on the east coast, Gallagher added, while also supporting domestic demand.
