First the Gas Unplan, now for Gas Unreservation

I can’t find this paper, which is no doubt the intention, at The Australian:

Scott Morrison is moving to reassure gas producers that a domestic reservation scheme will not jeopardise investment or put at risk Australia’s $49bn LNG export market, while ensuring there is enough cheap gas available for east coast energy users that are facing a shortfall by 2023.

…An issues paper released by the Department of Industry and Resources this week, ahead of a one-month consultation process, states that consideration of options for a ­national gas reservation system was “taking place in an ­uncertain world with new risks”.

…APPEA, the oil and gas lobby group, pleaded with the federal government ahead of the budget to not advance a national domestic gas reservation policy. Western Australia and Queensland — the nation’s largest gas-producing states — already have domestic reservation policies in place.

The US and Canada also reserve the right to limit gas exports in the public interest, but neither country has used those powers.

The gas industry argues that reservation could “create greater risk and uncertainty for future gas projects”, putting at risk future production capacity.

“The COVID pandemic has bought a fall in international gas demand, LNG spot market prices have seen record lows and the international oil market, against which many LNG exports are pegged, has fallen,” the departmental issues paper states.

“This uncertainty has contributed to a historic writedown of oil and gas assets, with about $US12bn of Australian oil and gas assets written down by July.”

There’s more at the AFR:

“Consideration of options for a prospective national gas reservation scheme is taking place in an uncertain world with new risks,” it says.

“The COVID pandemic has brought a fall in international gas demand, LNG spot market prices have seen record lows and the international oil market, against which many LNG exports are pegged, has fallen.

“This uncertainty has contributed to a historic write-down of oil and gas assets, with around US$12 billion [$16.8 billion] of Australian oil and gas assets written down by July this year.

“Some industry commentators argue that reservation may create greater risk and uncertainty for future gas projects, potentially curtailing future production.

“It is important to consider how a prospective reservation scheme could be applied in a low oil and gas-price environment, where economic recovery will take place over an uncertain time frame, and where policy responses to the pandemic are evolving around the world.”

The discussion paper points out previously identified risks that locking away gas from any new project could deter foreign investment, especially during such a downturn. It also raises the potential for sovereign risk.

I am beyond being shocked so let’s just itemise the corruption here for future reference.

  • A fall in the international price is irrelevant to domestic reservation. We need reservation to ensure low prices over the cycle.
  • APPEA is an organised crime outfit misrepresenting itself as a lobby. It lies constantly to enable theft of gas resources by its members and should be explicitly excluded from all policy deliberation.
  • WA has reservation. QLD only has a few tiny reserves for exploration. The US and Canada use reservation every single day by controlling new projects. Every other gas producer on earth has reservation because, without it, you end up exactly where Australia is, paying discriminatory prices for your own resources as the export monopoly leaves you short.
  • Reservation for prospective projects is next to useless. Unless reservation blankets all projects then the export cartel just shifts more volumes offshore from unreserved acreage to sustain local market tightness.
  • Oil and gas writedowns are normal and are irrelevant to reservation.
  • There is no more foreign investment coming regardless of reservation. The global gas glut is huge which is why prices have crashed.
  • The only sovereign risk is to Australia as the gas cartel occupies national interest policymaking to guarantee ongoing higher prices than anywhere else for our own gas.

The current tax cuts being enjoyed by all are a direct consequence of a deal struck between the Morrison Government and Centre Alliance to deliver gas reservation over existing projects in return for passing the tax cut legislation. That deal has been trashed and betrayed. Morrison straight up lied.

Coming on the heels of the Gas Unplan we are now headed for Gas Unreservation. This guarantees that the local gas market will remain tight and gas prices high, gas will be subsidised by the Government into greater use in the power grid, and power prices remain high in consequence.

Resource Minister Keith Pitt and the Morrison Government are captured by the east coast energy cartels.  This is corruption in plain sight straight out of a Banana Republic.

To be honest, I have never seen more ruinous energy policy in my life, and that’s saying something.

David Llewellyn-Smith


  1. To be fair, if I was about to make a huge investment in a project, I’d probably be put off if I thought, with the stroke of a pen, the Govt could retain a portion of my reserves. How do you price that risk? It’s tricky enough to price all the rest of the risks.

    I still don’t understand, given the price differential, why new projects aren’t coming online to serve the domestic market. If this were a free market, suppliers would be falling over themselves to sell where the price is highest.

    • If this were a free market

      there’s your problem Dom!

      Should all gas be in a free market? Ought not the sovereign control the price of some? I say yay to this proposition.

      • It’s not my problem at all — we don’t have a free market in energy and it is, not surprisingly, fuct as a result.

    • Why would you when you know the profit margins the Cartel are enjoying means they can afford to undercut you and put your investment into high risk…

      The cartel effectively have a reservation lever they can pull as well as the government…

    • I suspect there are two facts missing from your market equation
      1) is Fukushima
      2) is gas cartel ownership of the all the best gas fields/ resources for near term development

      Fukushima created an environment where Japanese Electricity generators scoured the globe for available LNG resources and entered into long term contracts to source (scarce at the time) NG resources. These long term supply contracts are still being worked through, even though there is no real demand for this gas, least ways not in Japan.
      If our LNG providers fail to deliver gas then they are in default and risk the contract being cancelled however they know better then anyone that there is no real long term demand and therefore no need to develop expensive new Gas fields.
      On point 2) even the very best of these new gas fields have implied production costs that far exceed the price points desired by Local producers under proposed Reservation policy. The gas fields that aren’t cartel controlled come with very high production costs and much greater underlying gas resource certainty .

      The silly thing is that It was all rather predictable and many called out the insanity of the Gladstone LNG development as it happened but none of this changes where we are today.

      • Interesting points. It still doesn’t quite explain though why the Japanese haven’t tried renegotiate a release from part of their contracts, allowing Santos, say, to sell into the domestic market at a marginally higher price. That sounds to me like a win for the Japanese, a win for Santos and a win for the domestic consumer. Unless it’s the liquefaction facility returns that are the issue in all this i.e. the throughput at Gladstone would decline thus rendering it uneconomic?

    • Every project, past or prospective has faced this risk.

      Hence the constant lobbying, donating and misinformation. Just a cost of doing business.

    • TheLambKingMEMBER

      If this were a free market, suppliers would be falling over themselves to sell where the price is highest.

      In a ‘free’ market that means gas would be sold in Australia for:
      “The Japan Price” – “The cost of liquefaction + shipping” + $0.01
      Because the Australian market does not need to ship and liquefy, so by bidding 1c more it is willing to pay the supplier more!
      Australia has been paying WAY over that cost!

    • TheLambKingMEMBER

      Let me put that into perspective (and this should be front page news!) – China pledged a carbon neutral plan a few weeks ago.
      In the last 2 weeks we have lost 80% of our gas market (Japan 40%, China 40%) and 55% of our coal market (Japan 40%, China 15%)

      And our wonderful leaders are doubling down on gas and have no exit plan for coal. What could go wrong????

      • bolstroodMEMBER

        It is encouraging to see that others take the Climate Catastrophe seriously,add India, Vietnam to list of Carbon Neutral anouncements.
        as for our mob?
        Well SFM about sums it up.
        He knows nothing else.

      • The issue I have is where taxpayer money is being used to subsidize these developments in any way – if private money wants to run this risk then let them, but the taxpayer should not be touching this.

  2. kierans777MEMBER

    > That deal has been trashed and betrayed. Morrison straight up lied.

    Which everyone was screaming from the rooftops would happen. I really wonder if Senator Patrick feels really foolish for trusting ScumMo. Now that Patrick isn’t part of CA they’ve shown that they’re closest Liberals anyway.

  3. Great summary. As I sit here in WA, cooking my pasta on the gas-lit stove top, which cops a 21c / day supply charge, and 15c/unit usage charge, I cannot wonder but how much more it would cost if WA state government didn’t have domestic gas reservation policy in place for its people.

    • NoodlesRomanovMEMBER

      Hilarious – QLD here. My AGL contract is 68.12 c/day daily supply charge and 4.49 c/MJ. I wish I could screen dump the details to prove. The household uses 18MJ/day so we are better off being in a state with no reservation.
      I think the WA retailers are taking the p1ss.

      • interesting… I only cook said pasta once per week and have solar HWS, so happy to have a lower fixed fee and higher usage charge…

        but its strange we have high usage charges here in WA when gas is beyond plentiful