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Australia cuts LNG exports to protect domestic supply

The Australian government has introduced export restrictions on liquefied natural gas (LNG) to ensure that the domestic market does not run short.28 Apr 2017

A shortage of domestic gas supplies has already resulted in "dramatically higher prices in Australia - higher than prices paid in the markets to which Australian gas is being exported", prime minster Malcolm Turnbull said.

"Australians are entitled to have access to the gas they need at prices they can afford," he said.

Under the Australian Domestic Gas Security Mechanism, Australia's minister for resources will impose export controls based on advice from the market operator and regulator.

Exporters that export more than they contribute domestically "will be required to outline how they will fill the shortfall of domestic gas as part of their overall production and exports", Turnbull's statement said.

The government had tried to solve the domestic gas shortage by asking the each LNG exporter to be a net contributor to the market, but this has not worked, Turnbull said.

"Gas companies are aware they operate with a social licence from the Australian people.  They cannot expect to maintain that licence if Australians are short-changed because of excessive exports," he said. 

A National Australia Bank report said in January that Australian wholesale and domestic energy consumers face a 50% rise in gas prices due to the country's focus on LNG.

Australia has been increasing LNG production capacity and is expected to have the world’s largest LNG production capacity, at around 85 million tonnes per annum or over 20% of global capacity once development is completed, the report said.

Growth has, however, been slower than planned, and global LNG prices have fallen since 2014. The volume of exports is also expected to rise, overtaking coal as Australia's largest export after iron ore in 2018. This exposure to LNG export markets is likely to increase wholesale prices significantly, with "far reaching implications for domestic gas use", NAB said.

The International Energy Agency (IEA) said in November 2016 that major transformations in the global energy system will mean that renewables and natural gas are the "big winners" in meeting energy demand by 2040.

Investment in oil and gas will remain essential to meet demand and replace declining production, but growth in renewables and energy efficiency will reduce demand for oil and gas imports in many countries. Increased LNG shipments will also change how gas security is perceived, the IEA said.