An LNG gas storage tank near Karratha in the north of Western Australia © Photo by Greg Wood/AFP via Getty Images
An LNG gas storage tank near Karratha in the north of Western Australia © Photo by Greg Wood/AFP via Getty Images

Why LNG exporters should prioritise domestic supply

8 August 2022

Australia's competition watchdog has urged the government to block liquefied natural gas (LNG) exports to ensure the country can maintain its own supply.

The Australian Competition and Consumer Commission (ACCC) warned that even though the country is one of the world’s primary exporters of LNG alongside Qatar and the US, it could still face a shortfall and price rises next year.

ACCC chair Gina Cass-Gottlieb said in the July 2022 Interim gas report: “Our latest gas report finds that the outlook for the east coast gas market has significantly worsened. To protect energy security on the east coast we are recommending the resources minister initiate the first step of the Australian domestic gas security mechanism. 

“We are also strongly encouraging LNG exporters to immediately increase their supply into the market,” she added.

One of the ACCC’s key concerns is the fact that many of the Australian market’s key suppliers are also exporters. This could mean they face a conflict of interest and seek to take advantage of high international prices.

The report noted that LNG exporters and associates had influence over almost 90% of the proven and probable east coast reserves in 2021.

This was either through direct interests, joint ventures or exclusivity arrangements.

Nearly two-thirds (65.6%) of east coast gas is forecast to be exported overseas under long-term contacts. 

But exporters are also expected to produce 167 petajoules (PJ) more than they require to meet their contractual commitments – and this gas could be diverted to supply domestic needs. 

“Increasingly, LNG exporters have diverted most of their excess gas to overseas spot markets, with as much as 70% of the excess volume going overseas in recent years,” Cass-Gottlieb said.

“If LNG exporters were to provide all of their excess gas to overseas markets, the east coast gas market would be facing a supply shortfall 56 PJ.”

The ACCC also fears some exporters are not abiding by the spirit of a heads of agreement signed in early 2021.

This agreement commits LNG exporters to offer uncontracted gas to the domestic market first on internationally competitive market terms before it is exported.

A new rephrased agreement could ensure that LNG exporters make gas available to domestic users at competitive prices.

The ACCC has welcomed news that the government has committed to renegotiating the agreement.

“Under the heads of agreement, exporters can offer excess gas to domestic market participants through an expression of interest process,” said Cass-Gottlieb.

“We are concerned that domestic gas users don’t always have reasonable notice of these offers, and that LNG exporters do not make counter-offers to bids, which could indicate they are not seriously engaging in the domestic market.”

The ACCC said Australia’s LNG market was dominated by three LNG exporters and their associates.

“With the high degree of concentration in this part of the market, we have observed that joint ventures, joint marketing and exclusivity arrangements are contributing to the lack of effective upstream competition in the east coast,” Cass-Gottlieb added.

“This is particularly concerning given the current supply conditions and the reliance on the LNG exporters to meet domestic supply.”

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