Should Australia import LNG?


Should Australia import LNG?

Australia will need more than one LNG import terminal to safeguard east coast supplies and prevent a devastating shortfall, one of AGL Energy’s most senior executives says.

Australia’s east coast will see gas shortfalls as soon as winter next year under extreme weather conditions, and by 2027 the gap will be so large that there will be a substantial void, the Australian Energy Market Operator warned last month.

While the outlook has stirred extreme concern, Australia’s energy industry is split on how to resolve the issue. Some insist the country’s east coast has sufficient reserves and states and the federal government must unlock them through policy support, while others insist Australia will have to construct an LNG import terminal and ship in cargoes during peak periods.

As we know, it’s absurd. China and Japan are both over-contracted for LNG by much more than the Australian shortfall over the next decade. They resell about the same volume of LNG cargo that we need to keep to fill the gas shortfall at home.

We will literally be buying back our own gas.

But if you want to do it and thereby embed international gas prices on Australia’s east coast forever, there are good ways and bad ones.

By definition, one or two import terminals are monopolistic.


So, they should either be in public hands operating to keep the local gas price most in line with the international.

Or, if in private hands, must be heavily regulated on a cost-plus model, ensuring that the gas price is only marginally above the international price.

What you don’t want to do is allow the formation of an LNG import cartel. If the price of the incoming gas is not held by discipline of competition then it adds nothing to the already failed domestic gas market, destroyed by the price gouging of the LNG export cartel.

Yet that is exactly what we are allowing to develop in Port Kembla:


Squadron’s LNG import terminal has yet to sign any deals with large users such as AGL or Origin, which critics insist reflects demand for imported gas.

Potential buyers say they are unable to make the market work presently as major users such as large manufacturers remain reluctant to sign long-term contracts that would allow retailers such as AGL to commit to importing LNG cargoes.

Squadron remains confident that users will have to sign contracts as the looming shortfall approaches, which is stoking increasing alarm among Australia’s energy industry.

In short, its monopoly power will give them no choice.

We have already watched the absurdity of Venice Energy’s counter-proposal in SA collapse after it contracted all of its gas to Origin, a member of the LNG export cartel, which subsequently pulled out.

Letting more of these monopolistic proposals get up will only add to the gas market’s political economy problems.


The industry minister, Useless Husic, needs to stand up and deliver a policy process that permanently restructures the gas market with tougher price caps and mandated domestic reservation, erasing the need for imports.

However, he is too busy with another Forrest business:

Federal industry and science minister Ed Husic said the government is listening to concerns held by employers after the Business Council of Australia said corporate bashing risks the economy and jobs.


Mr Husic told The Australian in Gladstone on Monday at the opening of Fortescue’s electrolyser manufacturing plant that businesses are generators of economic and commercial opportunities.

And so it goes in Australia.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.