It appears gas reservation is still on track

Via the Ministers:

Joint media release with the Treasurer, the Hon Josh Frydenberg MP and the Minister for Energy and Emissions Reduction, the Hon Angus Taylor MP

The Liberal-National Government will help secure gas supplies, put downward pressure on prices and encourage new investment in gas supplies. The measures we announce today will help to protect Australian industry and jobs.

Since the Liberal-National Government outlined new measures to protect Australia’s domestic gas supplies in early 2017, the spot price of gas in eastern Australia has fallen by more than 25 per cent and gas contract offers have fallen by up to 50 per cent.

The Government has established an ongoing role for the ACCC to monitor gas market behaviour and reformed gas pipeline regulations to increase competition and make it easier and cheaper to transport gas around the gas market.

Both the Australian Energy Market Operator (AEMO) and the Australian Competition and Consumer Commission (ACCC) have found that the Government’s actions have been effective in placing downward pressure on gas price offers and increasing domestic gas supplies.

The Government’s new measures build on these previous actions to ultimately support cheaper energy and reliable gas supplies for Australian manufacturing and Australian jobs.

First, the Government will bring forward the scheduled review of the Australian Domestic Gas Security Mechanism (ADGSM) to this year. A review was scheduled for next year but given major changes in global gas markets over the past 6 months, the government has decided to bring this review forward.

The review will assess if the ADGSM is still fit for purpose to deliver a functional domestic gas market with the lowest possible prices for consumers while ensuring strong investment in new gas production. It will specifically investigate the ongoing appropriateness of the ADGSM’s Total Market Security Obligation arrangements. Since the ADGSM was established, the ACCC has developed a “netback” gas price series and it is timely to clarify how this and other gas price information contributes to the Government’s decisions on wider gas policy. The review will be carried out by the Department of Industry, Innovation and Science and be completed by the end of September.

Second, the Government will consider options to establish a prospective national gas reservation scheme.

Past approvals of large gas export projects have not adequately considered the impact on the domestic gas market and that has contributed to some of the pressures we have seen in recent years. We cannot afford to repeat these past mistakes.

This is an opportunity to examine whether a reservation scheme could succeed and be applied at the national level. In considering the establishment of a gas reservation scheme, the Government will work cooperatively with the States and Territories. The establishment of any such a scheme should coincide with State and Territory governments removing unwarranted restrictions on gas developments. The Government will seek to conclude its consideration of options by February 2021. Should agreement not be reached with the states, the Government will look to develop its own policies to ensure future gas export proposals provide sufficient gas into the domestic market.

Third, we will increase transparency and supply in the gas market. This includes continuing reforms through the COAG Energy Council requiring improved transparency from gas producers and LNG exporters on prices, reserves and resources, and a comprehensive review of pipeline regulation. Consultation on these reforms will occur over August and September.

The Government will also work to improve supply through further action by

  • Extending the ACCC’s role in monitoring and publishing data on the gas market in Australia until December 2025
  • Engaging with LNG plants to explore whether some of their processes could be electrified, to free up more gas for domestic use;
  • Engaging with the manufacturing sector to explore opportunities to lower gas costs and reduce demand through increased energy efficiency and electrification measures;
  • Considering the feasibility of establishing mechanisms to facilitate collective bargaining and improve the negotiating position of large industrial users for gas supply; and
  • Seeking COAG Energy Council agreement to task the Australian Energy Market Commission with advising on further steps that could be taken to accelerate the establishment of a more liquid wholesale gas market.

These new measures will reinforce existing Government action including:

  • The Prime Minister’s renewal of an agreement with east-cost LNG exporters to ensure domestic gas supplies in September 2018;
  • An $8.4 million commitment to accelerate the development of the Beetaloo Basin, announced in the April 2019 Budget, including a feasibility study to fast-track production for domestic use;
  • Reform of gas pipeline regulation led through the COAG Energy Council, and
  • Introduction of the Australian Domestic Gas Security Mechanism in July 2017

Minister for Resources and Northern Australia Matt Canavan said the measures would help create a stable domestic environment for the gas sector to grow, creating more jobs and wealth for Australians.

“Gas extraction has been one of the largest contributors to value-added growth in the mining industry in recent years because of growing export volumes. We want to see that success continue but it must return greater dividends to Australians,” Minister Canavan said.

“We are the world’s largest LNG exporter, with our gas exports growing 22 per cent to reach 70 million tonnes between 2017 and 2018 and potentially hitting 81 million tonnes in 2020-21.

“While we are proud that Australian gas powers industry around the world, we must also be able to reliably and affordably harness gas to grow our own industries and create more Australian jobs.

“Price and supply are inextricably linked. To put downward pressure on prices and shore up supply, we need more exploration and production. For too long we’ve seen some State and Territory governments shelve onshore gas exploration for political purposes and the price we’ve paid is restricted supply and price creep. The plan outlined today tackles that and a host of other issues from all directions.”

Minister for Energy and Emissions Reduction Angus Taylor said gas powered generation would be increasingly important in balancing the National Electricity Market as more intermittent renewable energy sources enter the market.

“The reliable, secure and efficient supply of both gas and electricity requires the delivery of enough gas, at an affordable price,” Mr Taylor said.

“The measures announced today recognise we need a comprehensive plan across the gas supply chain which deals with production, prices and market transparency.

“But State and Territory governments must do their part by freeing up supply and supporting investment through the removal of bans on gas exploration. I encourage all State and Territory governments to take this action, and to work with the Australian Government to consider a national gas reservation scheme and further COAG Energy Council action on gas market reform.

“The Liberal-National Government is focused on delivering Australian households and businesses a fair deal on energy, unlocking gas production and keeping our economy strong.”

The acknowledgement that we need more gas to support renewables in the Natioanl Electricity Market is a huge concession. God knows why the Government didn’t just add the price trigger to the ADGSM is anybody’s guess. But Center Alliance is still confident that that is where we’re going, at the AFR:

Centre Alliance’s Senator Rex Patrick, who pushed the government for more action on domestic gas, said securing affordable prices would be a central aim of the review of the ADGSM, which allows the government to cap LNG exports.

…“It’s a range of measures, some of which like the gas reservation system will deal with longer-term prices, and some will deal with the short-term.”

Senator Patrick said how a price trigger would be inserted into the ADGSM was up to review and consultation and was ultimately a government decision. He has previously backed the competition chief Rod Sims’ suggestion that $7 a gigajoule may be appropriate for the east coast gas.

So, it appears Industry will look into how to add the price trigger. But in the mean time, that has opened the path for more lobbying. Matthew Stevens captures the cartel’s arguments:

But ADGSM has never been triggered because the need has never been there. Given the accord we referred to before, along with the fact domestic markets are consistently a more attractive destination for the LNG operators’ uncontracted gas and the live potential that Port Kembla will host a gas import terminal, it is quite hard to see how the ADGSM serves much of a purpose any more.

…the first best solution to the east coast gas crisis is to find and develop gas that is as close as possible to the biggest pools of demand. And that is why it makes so much sense for the government to hold coincident but patient discussions about the potential of a national domestic reservation scheme (that, critically, would not be retrospective) and the restrictive land access and drilling technology regimes of some states makes a whole lot of sense.

If NSW wants cheaper gas it needs to get the ill-starred Narrabri project under way and, in the meantime, it needs to park an LNG regas boat at Port Kembla. If Victoria wants a return to the good old days of competitively priced gas then it should open the state to onshore drilling, both conventional and unconventional, and it should do all it can to encourage a new era of offshore drilling.

Wow. That’s a gob full. It’s a fact that LNG importers are trying to negotiate contracts at $11Gj. Remove the ADGSM and that’s where the local price sits forever. The remaining reserves are too expensive to make any difference to the price; Victoria is a large net gas exporter and that the QLD cartel is sucking up huge volumes from SA, right next door to both VIC and NSW. The point of the ADGSM is not make the cartel push south from QLD. It is to prevent it from sucking gas north to export.

Get the ADGMS price trigger in at $7Gj and we will have made good progress. It should be $5Gj. Maybe a future government can lower it there.

David Llewellyn-Smith
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  1. The likelihood is that the government will demand that a lot of new land be opened to fracking as a condition of reserving more gas for the local market.

    Holding the Australian public and business gas users hostage and pointing the gun at unfracked agricultural land will have enormous appeal to the government.

    “..The solution is simple and no different to the one required for iron ore.

    A National Export Volume Auction – NEVA.

    Set the total volumes nationally of LNG that may be exported and then let industry bid for tradeable licences to part of that volume.

    If they dont have an export licence they will be limited to the domestic market.

    The only real difference between an Iron Ore NEVA and one for LNG is that the objective for the Iron Ore NEVA is to prevent international miners competing with each other with OUR ores rather simply competing against foreign competition.

    With LNG the issue is even simpler – work out how much gas we want available for domestic purposes. Subtract that from a conservative estimate of production capacity – i.e. one that does not require every bit of farmland to be screwed with fracking – and the remainder can be the national export volume for which licenses will be available for purchase via public auction.

    No sovereign risk involved at all.

    A wonderful free market solution! What better selling point can there be for our ideologically obsessed political classes in Canberra.

    If someone tries to suggest that setting a national export volume and auctioning off rights to it is beyond the competence of the national government they are barking mad.

    Sovereign risk is just a cloud of bull dust spun by international companies who fear the ‘natives’ are on to their scams…”

    • Sovereign risk is just a cloud of bull dust spun by international companies who fear the ‘natives’ are on to their scams…


  2. Its all BS. I haven’t heard Twiggy complain about the money he has invested so far on his Port Kembla FRSU going to waste. When he complains then I’ll know its for real.
    they will review, delay, review, delay, review, delay, review, delay, review, delay, Senator Rex Patrick will be pushing up daisies and there will still be an ongoing review.
    the days of fracking investment are over as the world is awash with gas,
    A very good example of this ongoing review process is 2nd tranche of anti-money laundering legislation

    • Yes, but we still need gas to bridge the gap to be able to turn off coal quicker. Battery prices are currently halving in price every 7-10 years, so we are 15-20 years away from batteries being able to be affordable at the scale we need. Supply of batteries at scale is our other current problem – we need to build more giga-factories – and the talk is needing to double the amount of factories every year for the next 20 years as well.

      I also still think that gas will be the ‘energy of last resort’ for a while. Like a lot of engineering problems it is easy (relatively) to get to about 80% renewables. To get to about 98% will cost a lot more. But to get to the last 2% will be an order of magnitude more expensive (once a year no wind & rain for a week kind of scenario across a large land mass) – do you over-engineer to get to 100% renewable or do you fire up some gas turbines a couple of times a year?

  3. This is clearly BS, as it appears to pertain to only new projects. The problem with that is that Australian gas projects are actually expensive to build. Why has the cartel not developed their own concessions fully? Because it makes no business sense to, that’s why.

    Now, this is my critique of this government: they appear to favour ‘solutions’ that have the appearance that something is being done, when in fact nothing much at all is being done. Hence why they have spending commitments going out to 2030 that are unfunded. It’s very cheap and easy for them to make these promises, because they probably never intend to keep them anyway.

    Unfortunately, the lesson Morrison and co have taken from the last election is that you don’t need to keep your promises, in fact you can say any old thing. It doesn’t matter, because as awful, corrupt, and useless as you are, you’ll probably still be re-elected. You certainly won’t be questioned deeply by the media, in fact many publications will cheer you on and admire your kaputz. They will first criticise Labor for your failings….which obviously makes total sense, as you’ve been in government for almost 7 years and nothing is ever your fault.

    I would love to say that with energy its very hard to hide the fact that your solution doesn’t actually solve the problem, because voters will see the non-result for themselves in their bills and shuttered industries, etc. Obviously this is not what has been happening. As an example, there are still posters/ commenters on this site that were only a few weeks ago blaming the Carbon Price for our/their energy price woes. Think about that for a second…..These people vote, they even drive cars and operate heavy machinery. Be scared.

    • Yeah it’s mind blowing people can’t see how they’re being robbed in broad daylight and when you try to explain it seems to wash over them. Then suddenly it’s the dreaded carbon tax. The country needs a bath. A bloody big one.

      edit: And it’s coming and (sadly) it’s fully deserved.

  4. Two general points:
    1) Pretty sure Qld is a net gas exporter to the south these days, I haven’t seen the MSP flow north this year.
    2) Of course sovereign risk is a thing. Would you rather lend money to Australia or Venezuela? Banks literally have a sovereign risk factor in their project models.