Australia softens gas reserve rule for LNG exporters

SEATTLE (Oil Monster): Australia relaxed a proposed rule on Thursday that would have forced energy exporters to reserve ‌a fixed 20% of natural gas, instead requiring them to reserve up to a fifth of production as determined by the country's energy regulator.

Energy Minister Chris Bowen said exporters could provide up to 200 additional petajoules of gas per year, more than enough to avoid the possible shortfalls of up to 140 petajoules forecast by the ​country's energy market operator.

The proposed policy will ensure "gas is more affordable and the domestic market is always modestly oversupplied," Bowen said ​in a statement. The proposal is designed to reserve an oversupply of 110% for the east coast gas ⁠market, which has faced shortfalls for almost a decade.

"The scheme ensures domestic customers can buy from a larger pool of gas, reducing the ​risk of tight market conditions driving price spikes, promoting long-term contracting and shielding them from global volatility," Bowen said.

The 20% figure is a ceiling ​and how much an exporter must reserve for the domestic market would be determined by the Australian Energy Regulator, he said. The AER has oversight over Australia's electricity and gas markets.

The scheme's start date would also be pushed back by six months to align with the gas industry's contract cycles, meaning LNG exporters would not ​need begin to meet their supply commitments until January 1, 2028.

RESERVATION LEVELS TO DIFFER BY REGION

The changes come four months after the centre-left Labor ​government proposed a hard 20% gas reservation scheme for the country's east coast market in May.

The new plan also recognises a domestic reservation requirement of 15% in ‌Western Australia ⁠and largely exempts the Northern Territory, where holding back 20% of gas supply would vastly outweigh the region's modest demand. Western Australia gas supply is not connected to the east coast and the Northern Territory has one modest capacity pipeline to the east.

"Domestic supply obligations will align with physical domestic markets," Resources Minister Madeleine King said of the difference between western and eastern markets, noting that within an already well-supplied market, the domestic ​obligations would be reduced.

Three liquefied natural ​gas (LNG) export projects on the east ⁠coast operated by Origin Energy (ORG.AX), Shell (SHEL.L) and Santos (STO.AX) would be most affected by the reservation scheme, though existing contracts would be exempt.

Shares in Santos, which operates the Gladstone LNG project in Queensland, and Origin Energy, which ​leads rival export consortium Australia Pacific LNG, were slightly higher in early morning trade.

Australia is one of ​the world's largest ⁠LNG exporters and ships more gas overseas than it consumes domestically.

The government on Thursday released a draft of the policy, seeking feedback until September 24, after receiving more than 140 submissions from gas producers and exporters, retailers, large industrial users and trade partners during the policy's preliminary planning phase.

Australian Energy Producers ⁠welcomed the ​changes but warned that oversupply would flood local markets, drive down prices and discourage ​development of much needed new gas supply.

"A domestic reservation policy that results in less competition and less investment is not in the national interest," a statement from the producers group ​said.

The bill is expected to be introduced to parliament later this year.

Courtesy: www.reuters.com