Australian gas reservation scheme gains backing of Senate committee

By Helen Clark

PERTH, Nov 11 (Reuters) - An Australian Senate committee has backed the Labor government's plans for a nationwide gas reservation scheme that would force liquefied natural gas exporters to retain up to 20% of their product for the domestic market.

The contentious scheme is designed to create what the government calls a “modest oversupply” and force gas exporters to supply the domestic gas market or face the loss of export licenses. Australia's east-coast markets have struggled with high prices and persistent threats of shortfalls for close to a decade.

The plan has been attacked by the export industry and domestic-only gas producers alike, who argue the additional gas will create a glut that will ultimately push gas prices down to a point that exploration for new resources is not economic.

The Senate bipartisan committee made up of Labor, Greens, National and Liberal Party members said in a report released on Wednesday that it "commends the Australian government for progressing this important reform."

The bill will now be debated in the Senate. It was passed in the House of Representatives last month.

Both the Greens and the conservative Coalition disagree with parts of its design, but assuming a successful passage, the scheme is due to come into force in January 2028, six months later than originally proposed by Canberra.

EXPORTERS AND DOMESTIC SUPPLIERS UNHAPPY

Three LNG export projects on the east coast operated by Origin Energy ORG.AX, Shell SHEL.L and Santos STO.AX are set to be among the most affected by the reservation scheme.

Santos’ Gladstone LNG, in particular, does not have spare gas and does not supply the domestic market. The venture, which includes Petronas, TotalEnergies TTEF.PA and Korea Gas 036460.KS, has at times sourced third-party gas for its LNG plant.

Domestic suppliers could also be hit.

“Forcing exporters to oversupply the domestic market undercuts the companies that have always supplied it. That punishes the domestic gas sector,” Ryan Stokes, chair of Beach Energy BPT.AX, Australia’s largest domestic gas company, said at the company’s annual general meeting held on Wednesday.

The plan also recognises a domestic reservation requirement of 15% in Western Australia but largely exempts the Northern Territory, where holding back 20% of gas supply would vastly outweigh the region's modest demand.

Western Australia gas supply is not connected to the east coast and the Northern Territory has one modest-capacity pipeline to the east.

Western Australia's reservation scheme requires exporters to offer, rather than forcibly supply, the market and the 15% can be supplied over the lifetime of the project rather than annually.