In Australia’s energy dilemma, Japan may end up selling us our own gas

With energy bills set to soar again this year, it is no wonder the Albanese government announced a fresh round of subsidies in Tuesday night’s budget.

And speculation is swirling that the Coalition might this week take the audacious step of unveiling a national gas reservation scheme – which would force gas producers to reserve a set amount of gas for domestic use.

Off the coast of Western Australia, Shell’s Prelude floating LNG vessel flares excess gas. The state was the only one in Australia to reserve gas for its local market. Credit: Boiling Cold

Gas is one of the most significant and volatile cost items in your energy bill, especially if you use gas directly in your home. This is why gas reservation became an issue as our energy giants began massive investments in LNG (liquid natural gas) export infrastructure in Queensland a decade ago.

The infrastructure turbocharged Australia’s LNG exports. But critics complained that it would push up the price of domestic gas to international levels and enrich energy producers such as Santos at the expense of every Australian who, you know, actually owns the gas that is being extracted.

Australia’s energy groups assured us this would not be the case. They even said the main driver for rising gas prices in Australia was a lack of fresh local development – not the export market. No one took that argument seriously, and subsequent events showed why.

When Western Australia became the only state to introduce a gas reservation policy, the energy giants fought it tooth-and-nail, threatening to move their multibillion-dollar developments to other states.

Subsequently, WA paid gas prices that were a fraction the size of those paid by the rest of the country when the Ukraine crisis upended global energy markets.

If a national reservation had been in place, it would have ensured that energy groups such as Santos did not make billions of dollars while selling us our own gas at a price set by overseas buyers.

Yet a gas reservation policy now will not save Australia from the diabolically embarrassing scenario of having to import gas to keep the lights on in Melbourne and Sydney.

Understandably, Australians are having trouble getting to grips with the fact that we are one of the world’s biggest gas producers and exporters, yet we face a gas shortage in the highly populated south-east corner of the nation.

Waning gas production in this part of the country, combined with a lack of capacity to pipe additional gas from plentiful regions such as Queensland, means the governments of NSW and Victoria must now work on finding the best way to import LNG before the gap between supply and demand becomes a permanent problem later this decade.

To be fair to energy groups such as Woodside and Santos, this situation comes down in large part to the sort of bad development policy from governments that they have long complained about.

However, we are now in a bind – and the best immediate solution, ironically, for us as a gas export nation is to set up an LNG import terminal – and start buying the stuff.

The most likely deal will be done directly with local operators such as Woodside Petroleum from its WA operations – but the gas giants face an unusual rival.

There’s a supplier that has built a significant industry around LNG exports within South-East Asia: Japan. Yep, Australia’s largest LNG customer.

After the Fukushima nuclear power station was swamped by a tsunami in 2011, Japan turned to gas to replace its shuttered nuclear plants, and it signed long-term supply contracts from countries including Australia.

Within a few years, however, Japan began switching its nuclear power plants back on. Overall energy consumption also fell due to its declining population, and green energy developments chipped away at its demand for gas.

Despite telling Australia in 2023 that the “lights of Tokyo” would go out if Australia tore up the long-term LNG supply contracts, experts say Japan is now exporting to other countries the equivalent of what it buys from Australia.

Japan now imports far more gas than it needs to “keep the lights on in Tokyo”.Credit: iStock

In simple terms, Japan now uses only two-thirds of the LNG it buys from countries such as Australia and Qatar. The rest is re-sold to other countries.

Bloomberg has noted that Japanese companies generated profits of about $US14 billion ($27 billion) in the year ending March 2024 from this LNG ecosystem, which develops gas infrastructure as well as trading the commodity.

If the lights are at risk of going out in Sydney and Melbourne, Australia will surely find a sympathetic ear in Tokyo.

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