The Federal Government released exposure draft legislation last month setting out how its proposed national gas reservation scheme will operate.
Australian Energy Producers' submission on the draft legislation acknowledged there have been some important changes to the proposed framework, but warned that as currently designed the scheme presents significant risks to investment, competition and future supply.
We reiterated our support for a prospective reservation scheme for the east coast that encourages new supply, supports competition and provides the investment certainty needed to secure Australia’s long-term gas needs and remain a reliable LNG partner in the region.
We reaffirmed our support for a prospective east coast reservation scheme that encourages investment new supply, supports competition and provides long-term certainty for all market participants. Getting these settings right is essential to meeting Australia’s long-term gas needs and maintaining our role as a reliable LNG supplier to the region.
Australian Energy Producers Chief Executive Samantha McCulloch said getting the final design right was critical to ensuring the scheme achieved its intended objectives.
“The Government has made some important improvements to the proposed reservation scheme, but critical flaws must be addressed for the reservation scheme to work,” Ms McCulloch said.
“Artificially oversupplying the market may deliver a short-term sugar hit but it will come at the expense of investment that will only add to future price pressures and energy security risks.”
Further changes needed to the scheme’s design
The draft legislation includes several changes we had previously called for, including calibrating the reservation requirement more closely to domestic market needs, recognising existing state schemes and linking obligations to physically connected domestic gas markets. The scheme’s start date was also deferred by six months to 1 January 2028.
However, further changes are needed. A central concern is the effective forced-sale requirement, which could require exporters to sell gas into the domestic market even where there is insufficient commercial demand or appropriate market conditions. Combined with the requirement to supply 110 per cent of forecast domestic demand, the scheme risks crowding out domestic-focused producers, reducing competition and deterring investment in new supply.
Our submission recommends the Government:
- replace the effective forced-sale requirement with a genuine offer obligation
- calibrate domestic supply obligations to deliver a balanced market without oversupply
- prevent deferred supply obligations from creating future oversupply or distorting the market
- ensure Western Australia’s existing reservation framework is not undermined or overridden by the national scheme
- recognise genuine and ongoing infrastructure constraints
- narrow and clarify ministerial discretion
- provide certainty around production baselines and additional gas
- establish a proportionate, graduated and risk-based compliance regime.
“A reservation scheme should strengthen competition and encourage new supply, not force gas that is not needed into an already well-supplied market at the expense of producers that have invested specifically to supply Australian customers,” Ms McCulloch said.
Coalition’s support focused on more gas, investment
The Federal Opposition has said it is willing to work constructively with the Government on a reservation scheme, based on the principles it outlined last month.
Those principles include support for more gas and investment, protecting existing export contracts, recognition of state and territory reservation schemes, and strengthening the Australian Domestic Gas Security Mechanism.
Last week, the Coalition reaffirmed it will not support a gas reservation policy that is not evidence-based or backed by research demonstrating it will deliver more gas and more investment.
Advocacy enters critical stage
The submission forms part of our broader advocacy for a reservation framework that supports investment in new supply and provides long-term certainty for all market participants.
The Australian’s Energy Nation Forum, held last month in Sydney, provided another opportunity to reinforce the critical role of natural gas in Australia’s energy future and the importance of policy settings that support investment in the next generation of gas supply.
Several Australian Energy Producers members joined energy, business and political leaders at the event, where speakers highlighted the importance of Australia’s natural gas resources as a competitive advantage in the global race for capital.
Speaking on a panel at the Forum, Ms McCulloch (pictured below) said the test of a successful reservation scheme would be whether Australia continued to attract investment while maintaining diversity and competition in the domestic market.
“There would be no more perverse outcome for a domestic gas reservation policy than to have fewer domestic gas producers,” Ms McCulloch said.
“If we want reliable and affordable energy for Australians, we should be developing our resources in a responsible way. That’s also something that’s missing currently from the reservation policy and the approach to the reservation policy.”
The Federal Government is expected to introduce legislation in the Parliament as soon as next week. The Government hopes to pass the legislation by the end of next month.
We will continue engaging with members, Government, Opposition, officials, state and territory governments and other stakeholders to advocate for necessary changes to the final framework.
For more information, contact Principal Advisor Economic Policy Dr Matt Steen at msteen@energyproducers.au.