Australia softens, delays domestic gas reserve plan

: Natural gas
26/09/10

Australia has softened its plans to mandate supply of gas equal to 20pc of LNG exports into the domestic market, with draft laws indicating the government will instead target reserving "up to 20pc" of volumes for Australians.

The Domestic Gas Reservation Bill 2026 will ensure domestic customers can buy from a larger pool of gas, reducing the risk of tight market conditions driving price spikes, the government said today. The bill could lead to 200 PJ/yr (5.34bn m³) more gas for domestic markets, or about 20pc of total annual domestic demand of about 1,000PJ.

The draft laws state that the 20pc figure may be lower due to a demand calibration process by regulators, infrastructure constraints or existing reservation arrangements, like those instituted by the states.

The domestic supply obligation (DSO) will also be delayed until 1 January 2028, from 1 July 2027, with the export licence application process starting on 1 January 2027.

The DSO will not exclude or limit the operation of state-based laws that are able to work within the federal system. This pertains mainly to Western Australia, which has an existing 15pc state reservation scheme it wishes to maintain.

Australia's gas prices are too high, jeopardising industrial users including metals processors, which Canberra has spent billions bailing out in recent months.

Industry response

Upstream lobby Australian Energy Producers (AEP) said the proposed laws are better calibrated with domestic market needs but criticised the planned 110pc oversupply of the east coast gas market. That is likely to destroy investment signals and crowd out smaller, domestic-focused producers, it added.

The "must sell" requirement of the laws would force producers to sell gas below cost or on non-commercial terms, destroying the market, AEP said. It urged the government to revise this provision.

Australia's largest steelmaker Bluescope said the proposed laws would be a key part of a successful Future Made in Australia policy under which Canberra hopes to develop low-emissions heavy industries.

Consultation on the draft laws will close on 24 September, before the bill is introduced to parliament later this year.

The opposing Coalition party said the Labor government's reservation must include a clear plan to demonstrate greater future gas investment and be evidence based, urging the government to work with the party to pass the laws through parliament rather than with the smaller anti-gas Australian Greens party.

The Argus Gladstone fob price, an LNG netback indicator calculated by subtracting freight and costs associated with production from the delivered price of LNG to Asia-Pacific, stood at A$32.28/GJ ($24.58/mn Btu) on 8 September, up from A$13.59/GJ on 27 February.

Argus' AWX for October deliveries to Wallumbilla was A$10.55/GJ and the AVX for October deliveries to Victoria was A$9.25/GJ on 4 September.

By Tom Major

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