Australia digs up a mountain of gas. So why do east coast households and businesses keep paying through the nose for it?
The federal government’s answer is a gas reservation plan. Make exporters keep some of their gas at home, and prices should come down. Simple enough on paper.
The trouble? Critics say the draft has holes in it. Big ones. Santos-sized ones, according to the Australian Workers’ Union.
The plan, in a nutshell
Labor put out a draft last month. Exporters would have to set aside up to 20 per cent of their production for the local market.
That figure isn’t fixed, though. The Australian Energy Regulator could cut an exporter’s obligation below 20 per cent. The minister could cut it to zero.
The aim, according to Energy Minister Chris Bowen, is to make sure “gas is more affordable and the domestic market is always modestly oversupplied.”
The start date has already slipped six months, to 1 January 2028, Reuters reported. Legislation is expected in the coming weeks.
The Gladstone problem
Three big LNG projects ship gas out of Gladstone, in Queensland. Shell runs one. Origin and ConocoPhillips run another. Santos operates the third, GLNG, on Curtis Island.
Here’s the catch. GLNG’s plant can process 7.8 million tonnes a year, but it doesn’t have enough of its own gas to fill it. So it buys gas from the east coast market and sends it overseas.
The ABC dug into the numbers. Over 10 years, GLNG has shipped out gas equal to about a fifth of what eastern Australia uses at home. The other two projects have mostly supplied the local market, on a net basis.
Go easy on GLNG, critics say, and you’ve missed the main target.
Where the loopholes are
The biggest one is contracts. Extend an old export contract and, under the draft, it still counts as an “existing contract”. Existing contracts are exempt.
That could let GLNG stretch its supply deal with South Korea’s KOGAS for another five years from 2030. That deal alone is 3.5 million tonnes a year. That’s around 40 per cent of what the east coast uses annually.
There’s more. Take “take-or-pay” deals. Critics say Santos could use them to show local sales on paper. Actual gas to Aussie buyers? Maybe none.
Then there’s the “reasonably” test. Can an exporter find enough gas without breaking its overseas deals? Critics say Santos would basically get to set the terms of that one.
An exporter could also buy a local gas supplier, call its output “additional”, and ship gas overseas that would otherwise have stayed here. Fall short one year? No problem. Nothing rolls over to the next. It just disappears.
Plenty of people are cranky
Paul Farrow runs the AWU nationally. In his view, the “Santos-sized loopholes” risk making the whole scheme a joke.
“The government is so close to getting it right,” he said. “I don’t see why the average Australian should be the fall guy instead.”
Even a rival exporter is having a go. Dan Clark, from the Origin-backed Australia Pacific LNG, wrote that exporters should “first have to contribute at home with no carve-outs, leave passes or exemptions.”
Saul Kavonic, an analyst at MST Financial, put it this way. Give one player “special treatment” and it stops being a proper reservation scheme.
Even the Chinese Embassy has had its say. Its message? The law should “uphold the principle of fairness” for every exporter. Chinese companies own part of two of the Gladstone projects and buy their gas.
What Santos says
Not much, at least on this. The ABC asked Santos and Resources Minister Madeleine King for comment, and neither had responded at the time of publishing.
Santos boss Kevin Gallagher did have a crack at his competitors last month. He said he appeared to be “living rent-free” in their heads around Gladstone. He’d prefer the WA model, where exporters only have to offer gas to local buyers on “commercial terms.”
Why it matters for your bills
Gas doesn’t just heat homes. Factories run on it. Power prices often follow it. So when the east coast runs short, you feel it.
Nobody has put a dollar figure on what these loopholes could cost households. But the whole point of the plan is cheaper gas. If one big exporter can sidestep it, critics say, the savings shrink.
Where to from here
The legislation is due within weeks, and that’s when we’ll find out whether the gaps get closed.
Farrow reckons the government is close. Plenty of people on the east coast, staring down the next power bill, will be hoping he’s right.