Scott Morrison’s bid to calm nerves over gas reserve

Scott Morrison is moving to reassure gas producers that a domestic reservation scheme will not jeopardise investment or Australia’s $49bn LNG export market

Prime Minister Scott Morrison’s JobMaker gas-fired recovery plan relies on unlocking more supply to drive down prices. Picture: AAP

Scott Morrison is moving to reassure gas producers that a domestic reservation scheme will not jeopardise investment or put at risk Australia’s $49bn LNG export market, while ensuring there is enough cheap gas available for east coast energy users that are facing a shortfall by 2023.

Resources Minister Keith Pitt will begin the process of implementing a national gas reservation system on Tuesday, seeking input from state governments, gas companies and energy users before a “final decision is made” by June next year.

While spot prices remain low because of the COVID-19 pandemic, the reservation policy is being driven by fears from big ­energy users that a renewed outbreak of tight supply could spark new price pressures.

An issues paper released by the Department of Industry and Resources this week, ahead of a one-month consultation process, states that consideration of options for a ­national gas reservation system was “taking place in an ­uncertain world with new risks”.

With the oil and gas industry opposed to a domestic reservation scheme, and the Australian Workers Union and Labor in support, the Morrison government has flagged any shake-up of the market would apply only to prospective projects and take into account COVID-19 investment pressures.

Resources Minister Keith Pitt. Picture: Kevin Farmer

“The government will consider issues including certainty of supply and investment confidence in our oil and gas industry in assessing options for a national gas reservation scheme,” Mr Pitt said.

APPEA, the oil and gas lobby group, pleaded with the federal government ahead of the budget to not advance a national domestic gas reservation policy. Western Australia and Queensland — the nation’s largest gas-producing states — already have domestic reservation policies in place.

The US and Canada also reserve the right to limit gas exports in the public interest, but neither country has used those powers.

The gas industry argues that reservation could “create greater risk and uncertainty for future gas projects”, putting at risk future production capacity.

“The COVID pandemic has bought a fall in international gas demand, LNG spot market prices have seen record lows and the international oil market, against which many LNG exports are pegged, has fallen,” the departmental issues paper states.

“This uncertainty has contributed to a historic writedown of oil and gas assets, with about $US12bn of Australian oil and gas assets written down by July.”

In 2019, Australia became the world’s largest exporter of LNG, with exports worth $49bn. More than 28,000 people were employed in oil and gas extraction last year, with almost 40 per cent ­located in regional communities.

Supply constraints, an expansion of LNG export projects and restrictive regulations imposed by state governments have put pressure on the east coast gas market in recent years, with the Australian Competition & Consumer Commission forecasting “increasing uncertainty” beyond 2023.

The Prime Minister, whose JobMaker gas-fired recovery plan relies on unlocking more supply to drive down prices, has repeatedly flagged his intention to pursue a reservation scheme.

Speaking in Tomago last month, Mr Morrison said the government would continue supporting gas exporters but warned “we must avoid past pitfalls”.

Submissions to the national reservation policy paper will close on November 27. A draft options paper will be provided to Mr Pitt by December, before the government considers its final options in the first half of next year.

Mr Pitt said examining the “possible costs and benefits of a gas reservation scheme” would be key, alongside other government measures to lower gas prices.