Australia to divert gas for LNG exports to domestic use

The Australian government has moved to divert gas from the three LNG projects at Gladstone, Queensland to the domestic market to avoid a forecasted shortfall of 56PJ in 2023.

The country's minister for resources Madeleine King is preparing a notice of intent to invoke the Australian domestic gas security mechanism (ADGSM) for 2023, after the Australian Competition and Consumer Commission (ACCC) found that the east coast could face a shortfall of 56PJ in 2023, compared with a shortfall of 2PJ it has forecast for this year.

The three LNG projects in eastern Australia under the ADGSM are the Shell-operated 8.5mn t/yr Queensland Curtis LNG (QCLNG) venture; the 7.8mn t/yr Gladstone LNG (GLNG) venture operated by independent Australian producer Santos, and the 9mn t/yr Australia Pacific LNG (APLNG) venture operated by ConocoPhillips and independent Australian producer Origin Energy. The move is designed to force the three LNG exporters to guarantee supply to domestic manufacturers and households rather than delivering it to seaborne markets, where Russia's invasion of Ukraine has increased demand and prices.

Canberra's plans will reduce the availability of spot cargoes on the seaborne LNG market, which is already tight due to Russia's invasion of Ukraine. But it will play well to a domestic audience concerned about rising inflation and a hollowing out of local manufacturing capacity.

"Based on the forecast shortfall, the government needs to see firm commitments out of the east coast LNG exporters," King said. She also plans to extend the ADGSM, which was to expire on 1 January, to 2030, with a review in 2025.

"The government is also talking with key trading partners to reassure them that Australia remains a trusted trading partner and a stable and reliable exporter of resources and energy," King added.

The ACCC has argued that LNG exporters are not dealing with domestic users in the spirit of a Heads of Agreement signed last year, which commits them to offer uncontracted gas domestically before exporting it. "We are concerned that domestic gas users don't always have reasonable notice of these offers, and that LNG exporters do not make counter-offers to bids, which could indicate they are not seriously engaging in the domestic market," ACCC chair Gina Cass-Gottlieb said.

The Australian Petroleum & Exploration Association (APPEA), the top gas industry body, assured gas users that there will be enough domestic supply next year and said that while contract domestic gas prices for delivery in 2023 have increased, they are lower than international prices.

The AWX and AVX, the Argus Australian domestic gas assessments for month-ahead spot gas deliveries to Wallumbilla and Victoria, were at A$32.25/GJ ($22.51/GJ) and A$33.06/GJ respectively on 29 July for August deliveries, down from A$34.83/GJ and A$35.50/GJ for month-ahead deliveries on 1 July. The spot LNG netback to Gladstone was A$57.40/GJ on 29 July, up from A$53.92/GJ on 1 July.

The ACCC has forecast that 1981PJ of gas will be produced in east Australia in 2023, of which 65.6pc will be exported overseas under long term contacts. Of the remainder, LNG exporters are likely to produce 167 PJ of uncontracted gas, which could be supplied either to the domestic or to the international market, the ACCC said. The commission had earlier urged the government to trigger the ADGSM to ensure enough uncontracted gas is diverted to cover domestic demand, particularly at a time where coal fired power generators are struggling to maintain their portion of domestic electricity supply.

By Jo Clarke