AUSTRALIAN LNG CONTROL
PLATTS - Australia is set to apply LNG export controls, aimed at securing domestic supply of gas and keeping prices of the fuel in check, from January 1, the government announced earlier this week despite industry warnings about the decision's potential impact on energy investment.
The plan to block LNG exports in the event of a domestic gas shortfall was announced in April in response to Australia's energy market operator warning of potential shortages by the end of the decade, and came while Australia is tipped to become the world's largest LNG exporter in 2019.
The risk of a gas shortage is particularly high in Australia's eastern states, including Queensland, where LNG exporters have secured international supply contracts for more than 25 million mt, mainly with buyers in northeast Asia.
"It is unsustainable for our country to be the world's largest exporter, but to be paying some of the world's highest prices for gas. That will erode support for a gas industry in this country if it is maintained and that is why we are taking action to be able to bring more gas on to the domestic market to help lower prices down to a more reflective international level," minister for resources Matthew Canavan said Tuesday.
"We have done this after significant consultation with the gas industry and other stakeholders, and from July 1 when these regulations come into place, there will be more consultation before any shortfall is identified and before gas export controls would apply from January 1 next year," he said.
IMPACT ON INVESTMENT
The gas industry has been critical of the government's move, especially after the Australian Energy Market Operator last week softened its supply warnings, saying it is now forecast that gas production is sufficient to meet current projections of gas demand.
"The [Australian Domestic Gas Supply Mechanism] is a sovereign risk issue for Australia. It undermines our reputation as a safe place to invest," the Australian Petroleum Production and Exploration Association chief executive Malcolm Roberts said last week.
Export controls are set to discourage investment in new gas supply, which risks exacerbating the very problem it is meant to solve, he said.
When asked by a journalist at a press conference on Tuesday about whether the mechanism introduces sovereign risk and whether gas producers will have to break contracts, Prime Minister Malcolm Turnbull said Australia's gas security comes first.
"Our first duty -- and it is consistent with our legal obligations -- is to project our people, our businesses, our households," he said.
"You cannot seriously suggest that we, a nation that is about to become the largest exporter of LNG in the world, would have a shortage of gas in its east coast domestic market. We clearly have to address that," he said.
LNG TRADE FLOWS
The risk of a lengthy supply deficit in eastern Australia remains low, so export controls are expected to have a minimal effect on exports from Queensland and global trade flows, at least in the short term.
"Our estimation is that from 2018 only around 1.4 million mt could be impacted and it is debatable whether it will be that much," said Matt Howell, senior research analyst, Australasia upstream oil and gas, with Wood Mackenzie. "From a global standpoint, the impact is therefore likely to be minimal."
The mechanism should have limited impact on the Queensland Curtis LNG and Australia Pacific LNG projects, Howell said, but could impact Gladstone LNG, which has largely been blamed for the perceived supply problems.
"But it is ultimately up to the minister's discretion whether the controls are enacted and to what extent, and the size of the potential shortfall is up for debate," he added.
The mechanism is valid until 2023 and will be reviewed after two years.
"The government recognises that bringing new supply into the market is going to be key for future gas domestic supply and this should hopefully lead to any controls being removed," Howell said.
Australia's LNG exports have skyrocketed following the development of the three export plants at the Port of Gladstone in Queensland.
Australian LNG exports almost doubled from 22.15 million mt in 2014 to 42.58 million mt in 2016, and are forecast to rise to 55.66 million mt in 2017 and then to 70.92 million mt in 2018, before over taking Qatar as the world's largest export in 2019, according to Platts Analytics.
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International benchmark Brent crude futures were at $56.51 a barrel at 0644 GMT, up 8 cents, or 0.14 percent, from their last close. U.S. West Texas Intermediate (WTI) crude futures were up 12 cents, or 0.24 percent, at $50.67 per barrel.
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