KALGOORLIE (miningweekly.com) – The Australian Consumer and Complaints Commission (ACCC) has called on liquefied natural gas (LNG) exporters to divert gas to the domestic market, in order to avoid a shortfall.

In its July interim gas report, the ACCC has forecast that the east coast of Australia could face a shortfall of 56 PJ in 2023.

“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 (ADGSM),” ACCC chairperson Gina Cass-Gottlieb said.

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

The ACCC’s report raises concerns about the high level of market concentration, noting that LNG exporters and associates had influence over almost 90% of the proven and probable (2P) reserves in the east coast in 2021 through direct interests, joint ventures and exclusivity arrangements.

The east coast of Australia is forecast to produce 1 981 PJ of gas in 2023 of which 1 299 PJ, or 65.6%, is forecast to be exported overseas under long-term contacts. LNG exporters are also expected to produce a further 167 PJ over what they require to meet their contractual commitments.

This excess gas is not contractually committed and could be supplied into either the domestic market or the international LNG market.

“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 said on Monday that LNG exporters have been net withdrawers of gas from the domestic market since 2021, purchasing more gas from domestic producers than they supply to domestic customers, which has worsened the gas shortfall. The volume of gas withdrawn by LNG producers is increasing and is estimated to reach 57.6 PJ of gas from the domestic market in 2023

The report highlights concerns that some LNG exporters were not engaging with the domestic market in the spirit of a heads of agreement signed in early 2021, which commits LNG exporters to offer uncontracted gas to the domestic market first on internationally competitive market terms before it is exported.

The watchdog noted that well-functioning heads of agreement with LNG exporters could ensure that LNG exporters make gas broadly and transparently available to all domestic users, including commercial and industrial users and gas-powered generators and retailers, at demonstrably competitive prices, in volumes and for periods suitable to buyers' needs, and with sufficient notice.

The government has committed to renegotiating the heads of agreement.

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

“We welcome the announcement by the Minister for Resources that the Australian government has decided to review and renegotiate the ADGSM and the heads of agreement with LNG exporters. Both mechanisms are critical to ensuring adequate supply to the domestic market in 2023 and future years.”

The Australian Petroleum Production & Exploration Association (Appea) on Monday moved to allay fears, saying the ACCC’s report was designed to provide new information that would allow the industry to plan and respond to issues before they actually occurred.

“The ACCC report shows 167 PJ of uncontracted gas is available for supply into the domestic market next year. This is more than enough gas to ensure that no shortfall occurs,” said Appea acting CEO Damian Dwyer.

Dwyer pointed out that there had never been an actual shortfall and the ACCC had found 11 consecutive surpluses previously.

“Gas customers can be assured supply will be adequate next year so households and businesses can continue uninterrupted. There has never been an actual shortfall and there will not be one next year, this is the ACCC signalling that action is needed, and the industry will act.

“The report also shows contract prices for gas delivered into the market in 2022 and for delivery into the market in 2023 remained competitive. The report found, for example, that prices paid for gas supply agreements for delivery into southern states falling from A$11.50/GJ in January to August 2021 to A$9.25/GJ in September 2021 to February 2022.

“While prices for delivery in 2023 have increased, they remain well below international prices.

“We very much understand our obligation to Australians and the importance they place on gas in running their homes and businesses, and that will be honoured.

“It has been confirmed by Australian Energy Market Operator just last week that the reason for pressure on the system is the extraordinary and rapid demand for gas we have seen this winter because of the extreme pressure on the broader energy system.

“There have been major coal-fired generations outages and renewable generation not stepping up when required due to bad weather as well as a cooler winter and immense pressures on the global energy market due to the Russian invasion of the Ukraine.

“The industry stood up when the east coast needed us this winter and we will do so again now as we have done for decades, providing safe and reliable energy supply.”

The report further underlined the need for more supply and investment to continue to ensure energy security, said Dwyer.

“Today’s ACCC report underlines what we have been saying for a long time: ensuring more investment in supply with conducive policy settings. We have been warning for years that moratoriums and bans in Victoria and New South Wales, our two biggest users of gas, are going to have an impact and that is making the pressures worse.”