PERTH, WESTERN AUSTRALIA—Australia’s Federal Resources Minister Matt Canavan defended his government’s controversial “Domestic Gas Security Mechanism,” a legislative instrument under development designed to shore up domestic energy supplies that could put long-term Australian east coast LNG export cargoes at risk.
Critics of the mechanism, which Commonwealth plans to draft by July 1 to avert a looming energy crisis threatening jobs and manufacturing notably in Victoria and New South Wales, say the scheme brings sovereign risk ramifications and would tarnish Australia’s reputation as a safe investment haven.
However, speaking at the opening of the Australian Petroleum Production & Exploration Association Ltd. (APPEA) Conference in Perth on May 15, Sen. Canavan said the mechanism would only be triggered as a last-gasp solution.
“The federal government cannot sit idly by while jobs are lost because people are paying higher gas prices here in Australia than they are in our major export markets in North Asia,” Canavan said. “So we have stepped in to produce a gas exporting license system. This is not a system that I, or the government, welcomed or preferred, but we believe it is an appropriate, targeted and temporary response to the issues we are facing.”
“Restrictions will only apply where a gas shortage is identified and only apply to export operations that are in effect drawing down from our domestic gas sources in net terms,” Canavan added. “We have designed the scheme to be precisely targeted at the problem the east coast gas market faces. I know there has been criticism that it is too targeted at groups and companies, but I reject that outright.”
Canavan conceded that Australia’s feast-to-famine gas supply problems were self-inflicted and said Canberra, the capital city of Australia, was lobbying three states—Victoria, New South Wales and the Northern Territory—to lift drilling, exploration and fracking bans to fast-track gas production.
“The answer to shortages and higher prices normally would be more supply. But that’s not happening right now, because of the ridiculous and stupid moratoria we see here in Victoria, the Northern Territory and New South Wales, which are completely lacking in science, reason or logic. But they have come into place, they are there and we must deal with them,” he said.
The federal government has committed AU$90 million to programs aimed at incentivizing exploration, ideally close to existing gas fields thus expediting production, and preferably within the state boundaries of key manufacturing centers. Canavan said gas produced in Victoria and given to the state would reduce costs by $2 to $4 per gigajoule compared to gas exports from Queensland.
Canavan warned, however, that states that continued dragging their heels would not find a willing partner in the federal government.
“The first step is to try and encourage state and territory governments to remove the blanket moratoria that exist,” he said. “Those states which have blanket moratoria in place are going to be at the back of the queue, and states where there are already attractive gas productions and regulations in place will be at the front of the queue.”
Woodside CEO Peter Coleman said “there are immediate solutions that can increase domestic supply while honoring export contracts.”
With west coast LNG export plants such as Gorgon, Pluto and the North West Shelf producing at 80% capacity in contrast to east coast cargoes, Coleman said “cargo swaps are one such option. However, it’s more a Band-Aid than a long-term solution.”
Coleman’s reaction to the federal government’s intervention was lukewarm. “While the arguments for the Australian Domestic Gas Security Mechanism are understandable, it is clearly not an enduring policy, and it has the potential long-term impact of inhibiting additional development of domestic supply.”