Japan wants security of supply.
Australia risks failing to capitalise on the unpredictability of US energy exports under President Trump because of uncertainty on the rules for its east coast gas market and the world’s toughest emissions limits for LNG, the head of a Tokyo-based energy think-tank has warned.
Tatsuya Terazawa, chairman and chief executive of the Institute of Energy Economics in Japan, said a rebound in demand for electricity in Japan meant gas would remain an important fuel, with Australia “a very, very important supplier” of LNG both for Japan and the broader Asian region.
But that would require stable and predictable policies around energy, which are now lacking, Terazawa suggested at the Financial Review Asia Summit in Sydney. Australia is one of the world’s top three exporters of LNG, the fastest-growing fossil fuel market.
Let us give Japan what it wants. Obviously, there can be no security of supply for Japan while there is no security of supply for Australia.
Manufacturing Australia has some ideas.
1. Strengthen the ADGSM by enforcing a net contributor test for LNG projects – This test should be applied annually (assessed by the AEMO) to ensure LNG producers maintain their historic commitment to governments of being a net contributor to the domestic gas market.
2. Establish a national gas reservation policy & Commonwealth export permit scheme – The permit system would require domestic reservation of an appropriate percentage of all gas production. The volume should be determined in close consultation with customers, and bring about a nationally consistent gas reservation policy.
3. Establish a pricing mechanism that disconnects domestic prices and export parity pricing (EPP) – A domestic pricing mechanism should ensure domestic customers are supplied at reasonable prices and they do not subsidise investments in export infrastructure. It should prevent producers from meeting domestic obligations using higher-cost gas while reserving low-cost production for export.
4. Government support for pipeline and storage infrastructure – This could take the form of guaranteed offtake with government(s) underpinning the latter years of agreements; certificate schemes such as are used elsewhere in the energy market; or, targeted grants or other incentives for priority infrastructure.
5. Accelerate new gas development project approvals via a streamlined development process – Through a fast-track approval pathways for projects meeting domestic supply criteria. In addition, MA also recommends:
1. Regulatory guardrails be developed to ensure LNG import capability will not lead to a shift from export parity pricing (EPP) to import parity pricing (IPP) for domestic gas sales.
2. ACCC use its powers to ensure netback pricing benchmarks do not include the cost of capital for liquefication capacity in the netback calculation.
3. The use of gas by LNG producers is not considered a contribution to the domestic market in net contributor considerations by AEMO and the ACCC.
4. The Federal Government introduce a scheme in the short-term to make locally produced gas more affordable for investors looking to decarbonise industrial applications.
5. The Federal Government introduces a program in partnership with customers and gas producers to educate communities on the need for gas as a tool for decarbonisation and an essential source of energy and feedstock for locally produced goods.
6. MA supports the fast tracking of potential storage projects including Golden Beach (Gippsland), Ionna expansion and Moomba expansion to ensure supply redundancy in the gas network.
Some good ideas there. But it’s complex. And the gas cartel could still go on a production strike.
The Dutton reservation proposal is still the best idea because it is so simple. Use export levies to guarantee a local surplus of spot gas. The price of the levy will set the local price, and export contracts are not affected, making Japan less pissed
This means any production strike would only hit export customers, which the cartel won’t do, and if it does, then who cares? That’s its fault.
We should also build out local storage, as MA suggests.
As we know, the cowardly Albo has already ruled out anything so useful.
