The draft Australian LNG policy is a source of anger for the industry

The Australian government released on Monday a draft version of its rules for the export of liquefied gas for consultation. It was aiming to clarify its 20% domestic reservation rule, but instead received criticism for its opacity.

The Domestic Supply Obligation rule (DSO) will be in effect from July 2027. It will only apply to contracts and?extensions to existing contracts that were signed after December 22,?last year?. However, it is clear the government wants to "respect" all contracts while bringing more gas to the market.

This will replace other measures to prevent gas shortages on the east coast of the country, which is predicted to start within the next decade.

A spokesperson from industry lobby group Australian Energy Producers said that the draft imposed complex and opaque compliance requirements on exporters, which would undermine the trust of major Asian trading partners in Australia for the supply of liquid fuel.

The policy applies despite the fact that Western Australia, a major LNG exporter, has its own 15% reservations policy and is not physically connected to east coast. Woodside Energy, Chevron and other companies operate facilities in the state which account for close to two thirds of Australian exports.

Australia is now the second largest exporter of LNG in the world after the U.S.

COMPATIBLE POLICIES

A government spokesperson stated that "the WA state government will engage with the national government throughout the design process but is confident that the 'national scheme' will be compatible once finalised with WA’s successful policy."

MST Marquee analyst Saul Kavonic stated that the Santos-operated Gladstone LNG plant (GLNG) in Queensland will be the most affected as all of its gas is contracted to export.

Petronas in Malaysia, TotalEnergies in the United States and Kogas are other partners.

Kavonic stated that "the policy clearly has GLNG as its target. GLNG must show that it is unable to purchase gas from neighboring?LNG project before it can reduce its DSO."

Kevin Morrison is an energy finance analyst for Australian Gas, at the Institute for Energy Economics and Financial Analysis. He said that the "critical" issue was the?Kogas agreement, which ends in 2030, but that the 20% policy will provide assurance for industrial users who are dependent on gas.

A spokesperson from?Santos stated that the company is not concerned about the policy, as it only applies to future contracts. She said: "We do not anticipate any interference with our existing contracts."

Australia Pacific LNG and Queensland Curtis LNG Shell both declined to respond. Both LNG export via contract and domestic LNG supply are available.

Shell Australia's Cecile Wake, who chairs the Australian Energy Producers group, said last week that the policy could result in an oversupply which would drive down prices and discourage investment into new gas exploration and production.

Beach Energy CEO Brett Woods stated in an email that it was "essential", to consult domestic producers like his, in order for exploration projects on the market to continue. Helen Clark, David Holmes and David Holmes edited the report.

(source: Reuters)