Oil Majors Warn That Australia’s Natural Gas Policy Could Make Shortages Worse

Shell, Chevron, and Exxon have warned the Australian government a proposal aimed at curbing natural gas shortages on the domestic market might end up making them worse instead.

“The fact that the easiest lever the federal government now has to solve the southern gas problem is export controls, is not a reason to pull that lever harder,” the chairwoman of Shell Australia, Cecile Wake, said at an industry event in Sydney, as quoted by Reuters. “This does not increase supply; it simply redistributes it and when coupled with price caps and other market interventions, it can impede investment and exacerbate the challenge.”

‘;
document.write(write_html);
}

The proposal comes down to forcing gas producers in the country set aside a certain amount for the domestic market and follows a warning from the country’s competition watchdog, which said last year the populous east coast of Australia could swing into a gas shortage by 2027 unless steps are taken to avoid that.

“Long-term solutions to gas market shortfalls will require a range of policy and market responses,” the Australian Competition and Consumer Commission said in its interim Gas Inquiry report in July last year. “Amongst these, there is an urgent need to develop new sources of gas production and supply,” the watchdog added at the time.

It also made the suggestion that gas supply be diverted from the spot market to the domestic market to help neutralize the danger of shortages. Politicians, however, seem to have decided to bet on creating a gas reserve, with opposition leader Peter Dutton talking about mandates for 10-20% of production to be redirected from international to local markets. Shell has now warned that this could discourage investment and ultimately aggravate the situation.

For now, the idea is to use uncontracted gas produced in the country, without touching volumes committed to existing contracts, but even that appears to be risky for the producers.

By Irina Slav for Oilprice.com

More Top Reads From Oilprice.com