Home World Business Need for ‘national interest test’ to head off gas shortage

Need for ‘national interest test’ to head off gas shortage

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The looming supply crunch in the gas market will require federal government intervention in the national interest to stave off shortages, says the nation’s peak manufacturing body.

In a letter to the government on Monday, the Australian Industry Group (AI Group), makes a detailed case for intervention taking advantage of low international prices to head off an emerging gas supply crisis in the manufacturing sector.

The call came as the Queensland government also went public with the demand for Canberra to assist with new pipeline developments to help ensure new gas fields can reach the market – a call which won immediate backing from gas explorers.

Tough restrictions on onshore gas exploration in Victoria and NSW brought in at the same time as a series of new export projects in Queensland has boosted demand for gas to meet export sales commitments has pushed domestic gas prices to record levels,

Swap solution

To help head off the supply crunch, the AI Group wants the government to assess how domestic gas exporters can “swap” supplies, by sourcing gas from other exporters internationally to fill export contracts and then divert what would have been sold abroad for sale in the domestic market.

“The government should immediately move to gather information from producers, exporters, retailers, domestic customers, international customers and market analysts to better understand whether and how a swap is feasible,” the lobby group’s chief executive Innes Willox wrote.

“If this assessment is favourable, the government should increase pressure on parties to reach suitable agreements, and consider if necessary playing a more facilitative role.”

The call comes as large gas users such as local manufacturers are facing both a rise in gas prices as well as a squeeze on available supplies due to the export commitments of companies supplying gas abroad through the three new gas export projects in Queensland.

Australian gas being shipped abroad Australian gas being shipped abroad 

To address these concerns, the federal government recently held emergency meetings with the exporters to clarify how they would act to ensure adequate gas is made available to local users.

National interest

In its pitch to the government, the AI Group argues that a ‘national interest’ test should be implemented, whereby guarantees are in place to make sure that domestic gas users do not face a loss of supply.

Innes Willox, chief executive of the Australian Industry Group, has called for government intervention. Innes Willox, chief executive of the Australian Industry Group, has called for government intervention. Photo: Alex Ellinghausen

“The existence of a test would make it much more likely that voluntary commercial arrangements to manage the current tight [gas] market will be established,” Ms Willox argued in the letter to government.

While calling for a ‘swap’ to be made, which would ensure adequate gas is supplied to local users, there is the concern that this could simply result in this gas also finding its way abroad.

We are told by some producers that some gas has already been sold to help the domestic market, then onsold

Innes Willox

“If a swap were executed by one or more exporters and freed more gas in the Australian market, it is possible that another exporter might simply acquire some or all of that gas to meet its own export commitments … leaving the local market still short,” Ms Innox wrote.

“The apparent travails of Santos and its partners in meeting their base level of commitment mean this is a real threat.

“Indeed we are told by some producers that some gas has already been sold to help the domestic market, then onsold to [the Santos consortium].”

Pipeline call

At the weekend, the Queensland government said it was essential the federal government assist with the construction of new pipelines so that gas reserves can reach end markets.

“Queensland has promising gas fields that can be developed in the Galilee and Bowen Basins,” the Queensland director of the Australia Petroleum Production and Exploration Association, Rhys Turner, said.

“Unfortunately, there is a real risk that this gas may be stranded because of a lack of pipeline infrastructure.

“The first, best solution is private investment in competitively priced infrastructure. However, if the market fails, [Queensland’s Natural Resources and Minister] Dr Anthony Lynham’s call for the Commonwealth to support infrastructure has merit and is worth considering.”

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