Australia Softens Gas Reservation Rule for LNG Exporters

Australia's government has eased gas supply rules for LNG exporters, aiming to secure adequate gas for the domestic market. The previous regulations required producers to set aside 20% of their output for the Australian market; however, the updated proposal allows for up to 20% of output to be reserved for the domestic market. The proposal was introduced in May this year, addressing concerns about potential gas shortages, particularly on Australia's east coast, which is especially susceptible to supply shortages.

In 2022, the competition regulator had warned that the market could experience a deficit by December, which was temporarily averted by the Australian Domestic Gas Security Mechanism. Nevertheless, the competition authority maintained that the risk of shortages persists. Under the new guidelines, if producers reserve some of their output for domestic consumption, they can inject an additional 200 petajoules into the domestic supply, which is sufficient to counteract the anticipated shortage of 140 petajoules.

According to Energy Minister Chris Bowen, this scheme ensures domestic customers can access a larger gas supply, mitigating the risk of market tightness and price spikes, encouraging long-term contracts, and shielding consumers from global volatility. The specific quantity of output that each LNG producer must reserve would be determined by the Australian Energy Regulator.

Despite the government's efforts to strengthen gas supply security, the energy industry remains dissatisfied with this policy. Gas reserve mandates were initially proposed in 2017, leading to the establishment of the Australian Domestic Gas Security Mechanism to prevent shortages at home due to excessive exports. The current rules build upon that mechanism to enhance gas supply security further.