MELBOURNE (REUTERS) – Australia’s competition watchdog has for the first time urged the government to curb liquefied natural gas (LNG) exports, warning that the east coast of one of the world’s biggest suppliers of the fuel could face a shortfall and soaring prices next year.
The recommendation on Monday (Aug 1) from the Australian Competition and Consumer Commission (ACCC) comes as the country faces a local supply crunch even as it vies with Qatar and the United States to be the world’s top LNG exporter.
If implemented, the recommendation could affect fuel supplies and prices for a host of global consumers already roiled by the impact of the war in Ukraine on the gas market.
Gas output is declining at Australia’s offshore fields in the south-east that have long supplied the populous east coast, and pipeline capacity is limited to move gas south from where the LNG exporters are.
The call for action came in a recommendation that the government pull the trigger on the Australian Domestic Gas Security Mechanism, a measure set up in 2017 that can be used to force the east coast’s three LNG exporters to divert gas to the domestic market to avert shortfalls.
This would impact LNG joint ventures led by Shell, Origin Energy and Santos. Their partners include PetroChina, ConocoPhillips, Sinopec, Korea Gas Corp, TotalEnergies, and Malaysia’s Petronas.
“Our latest gas report finds that the outlook for the east coast gas market has significantly worsened,” ACCC chair Gina Cass-Gottlieb said in a statement.
The commission found that LNG exporters are likely to withdraw more gas from the domestic market than they plan to supply, with a shortage of 56 petajoules now expected, equivalent to around 10 per cent of demand,
Not only did the commission warn of a shortfall in 2023, but it also said it was “strongly encouraging LNG exporters to immediately increase their supply into the market”.
Government under pressure
The global supply crunch has worsened in the wake of the Russia-Ukraine conflict as LNG buyers in Europe and Asia compete for shipments to replace Russian gas, boosting prices and spurring Australia’s exporters to send uncontracted gas offshore.
The ACCC report comes after gas demand surged for power generation due to coal-fired plant outages and for winter heating, which sparked a steep rise in prices for both gas and power and nearly led to blackouts in June.
The findings add fresh pressure on the newly elected Labor government to beef up local gas supply, with soaring prices having led gas-dependent manufacturers to threaten to shut plants and cut jobs, as some smaller manufacturers have already done.
Treasurer Jim Chalmers described the findings on Monday as “deeply concerning”, and said the report highlighted “some alarming features” about the gas market on the east coast, home to nearly 90 per cent of Australia’s population.
“It is critical that our domestic gas supply is secure and competitively priced, particularly when households and businesses are under extreme pressure,” Mr Chalmers said.