Australia’s government has mandated energy companies in the country to set aside 20% of their natural gas output for the domestic market to avoid supply shortages along the east coast.
The mandate will come into effect from July next year, Reuters reported today, adding that it will affect three companies with LNG facilities on the east coast of Australia: Shell, Santos, and Origin Energy. The mandates will not interfere with long-term LNG export contracts, concerning instead spot market sales and prospective contracts, according to Australia’s energy minister.
“This is a carefully calibrated model which ensures that Australia’s national best interests are put first,” Chris Bowen told the media. “This is a policy which will obviously not please everyone – often good policy doesn’t – but it’s good policy.”
The energy industry is far from thrilled with this good policy, however. The idea of gas reserve mandates first emerged in 2017, leading to the Australian Domestic Gas Security Mechanism aimed at making sure one of the top global exporters of liquefied natural gas did not suffer shortages at home.
Big Oil immediately responded with warnings that this could discourage further investment in the country’s gas industry, which is necessary to boost supply, including for the domestic market, for the future.
The east coast of Australia is particularly vulnerable to supply shortages. Last year, the country’s competition regulator warned the market could swing into a deficit by December. That danger was temporarily averted thanks to the Australian Domestic Gas Security Mechanism, but the competition authority still warned last year that the risk of shortages remains.
In fact, the competition authority last October said gas supply for the eastern coast will swing into a surplus in the first quarter of this year, with the size of the surplus estimated at between 2 and 24 petajoules. That was before the U.S. and Israel bombed Iran on February 28, which changed the global supply situation radically, bringing the risk of a shortage closer as demand for non-Middle Eastern LNG surged.
By Irina Slav for Oilprice.com
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