Australia softens local gas supply rules, easing fears in Asia

Labor has softened some of its proposed laws compelling gas exporters to reserve more supply for Australian buyers after holding talks with gas producers and buyers and facing pressure from key trading partners in Asia. Under the modified plan to take effect from January 2028, liquefied natural gas shippers will still face a requirement to reserve up to 20 per cent of their export volumes for local customers. The policy is designed to force a 10 per cent domestic oversupply each year to push down the cost of the fuel. Most of Australia’s LNG is produced in Queensland or Western Australia, and is sold on long-term contracts to Asia. BloombergHowever, federal ministers on Thursday made key concessions to ensure the oversupply would be “modest” and provide critical assurances to Australia’s Asian LNG buyers that their long-term contracts will be honoured. Among the changes is the possibility of lowering of the 20 per cent reservation level when forecast domestic demand is weak, while also giving ministers the discretion to reduce how much gas each producer must supply the local market when they are constrained by pre-existing contracts and pipeline capacity. The concessions come after consultations with local gas producers and buyers and officials from Japan, South Korea and Malaysia, whose state-backed energy companies are among the largest customers of Australian LNG. Over the past four months, officials from the three nations have lodged appeals through the Department of Foreign Affairs and Trade seeking certainty over contract protections. Energy Minister Chris Bowen said trading partners had engaged constructively with the government. “What they were looking for was reassurance that existing contracts would be honoured,” he said. We’re not doing it,” he said. The incoming gas reservation policy is an attempt to address long-held concerns that excessive LNG exports from Queensland are leaving local households and factories on the eastern seaboard more exposed to the risk of gas shortfalls and high prices. Despite Australia’s position as the world’s second-largest LNG supplier, consumers in nation’s southern states, including Victoria and NSW, are at risk of shortfalls in coming years unless more gas is made available. Left unchecked, the crunch threatens to worsen cost-of-living stresses for consumers who still use gas for cooking and heating, add to the price of electricity, and threaten the future of factories that need gas to fire kilns and furnaces or as a feedstock in plastics, chemicals and fertilisers.