-1200x645-800x430.jpg)
On both sides of the Tasman, liquefied natural gas (LNG) developments are accelerating to meet expected energy demands and the new dynamic created by the Middle East crisis. From a small-scale LNG proposal relating to coal mining in Queensland through to a government-backed import terminal over in New Zealand, gas is very clearly seen as critical to the energy future.
Listen to the HotCopper podcast for in-depth discussions and insights on all the biggest headlines from throughout the week. On Spotify, Apple, and more.
In New Zealand, the government has declared that households and businesses are a step closer to relief on their power bills and greater energy security, as the nation takes the next step to deliver an LNG import facility.
Energy minister Simeon Brown says the introduction of imported LNG will create up to NZ$800 million a year in potential savings flowing through.
“The previous Labour government failed to secure New Zealand’s energy supply, and Kiwis are paying the price every time they open their power bill,” the minister stated.
“This government’s focus has been on turning this around by securing New Zealand’s energy supply to keep the lights on and take the pressure off power bills.
“Kiwis need a backup source of power when the wind isn’t blowing, the sun isn’t shining, and the lakes are low. You can’t run an energy system on weather forecasts, and without firm, flexible energy to back up our renewables, the next dry year will bring higher power bills, potential factory closures and job losses, and rolling blackouts across the country.”
With the previous government creating impediments to exploration, New Zealand’s indigenous gas supplies have run down.
“Without LNG to fall back on, a dry year leaves us with unacceptable choices. Either wholesale prices skyrocket, and power bills climb for every Kiwi household, or businesses are forced to shut their doors and lay off workers as gas is taken from industry to produce electricity,” the minister said.
“This government is not prepared to let that happen.”
On the other side of the Tasman, Clean Energy Fuels Australia Marketing (CEFAM) has applied for an environmental authority to construct and operate a small-scale LNG production facility.
The proposed site is 41km north of Moranbah within a mining lease operated by the Centurion Coal Mine. The facility will process up to 1.46 petajoules of incidental coal mine waste gas (ICMWG) annually, converting it into LNG for transport to regional Queensland for industrial use or regasification and injection into the state’s natural gas pipeline, increasing the supply of gas to the domestic market.
Some pundits are suggesting that the Australian government’s plan to ensure gas is reserved for domestic markets is providing confidence to project developers like CEFAM.
However, experts say the government’s move could create the opposite impact. Global energy specialists Wood Mackenzie say the Australian government’s proposed domestic supply obligation framework risks increasing, rather than reducing, investment uncertainty at a critical time for the nation’s energy sector.
While designed to streamline a fragmented web of gas market regulations into a single, definitive policy, the draft framework leaves critical commercial questions unanswered and introduces substantial sovereign risk that could stall vital upstream investments, according to a new report from Wood Mackenzie.
John Gibb, research director upstream Australasia at Wood Mackenzie, said his company’s discussions with industry at the recent Australian Energy Producers conference in Adelaide made one thing clear – the federal government’s initial announcement on the DSO generated significant confusion.
“Upstream investors and international LNG buyers have long asked for policy certainty, but the draft DSO delivers the opposite. By creating an annual review cycle heavily reliant on ministerial approval, the government is trying to regulate a long-dated, capital-intensive industry via short-term fixes,” Mr Gigg said.
The draft DSO mandates that from July CY27, LNG exporters must supply gas equivalent to 20% of their export volumes to the domestic market to contain local prices.
However, Mr Gigg says that the soon-to-start policy relies heavily on future ministerial discretion, leaves many key issues unaddressed, and fails to address the physical limitations of Australia’s pipeline infrastructure.
According to Wood Mackenzie, the system shifts long-term market dynamics onto annual planning cycles and makes government ministers the decision-makers. The new system would rely on ministers to react promptly and flexibly to market signals to ensure the domestic market is well supplied, has a surplus, and exporters get timely permission to export LNG spot cargoes when that can be facilitated.
“As with similar minister-level discretionary gas policies in Indonesia, a hyper-flexible ‘unknown’ regulatory environment subject to changing political whims is an added risk that does not encourage new, long-term investment,” Wood Mackenzie noted.
Mr Gibb said, despite initial assurances that existing LNG contracts would be preserved, the draft policy forces exposed exporters to take on “DSO debt,” potentially requiring them to find domestic gas or buy international spot cargoes if the local market is undersupplied, rolling unmet obligations into future years.
“The DSO risks delivering gas obligations on paper that cannot be fulfilled in practice. As southern offshore supply drops sharply in the 2030s, Queensland must shoulder the burden,” according to the report.
“However, existing pipeline capacity is insufficient on the East Coast for the north to fully supply the southern states’ gas demand. The draft’s ambiguity leaves gas sellers guessing whether they will be forced to fund and build new pipeline infrastructure.”
Wood Mackenzie believes that, taking the policy at face value on paper, applying a blanket 20% obligation across all export volumes would result in a significantly oversupplied domestic market.
“Under our models, the domestic market will not require the full 20% obligation to be applied across all LNG projects until at least 2040,” the report found.
Join the discussion. See what’s trending right now on Australia’s largest stock forum and be part of the conversations that move the markets.
The material provided in this article is for information only and should not be treated as investment advice. Viewers are encouraged to conduct their own research and consult with a certified financial advisor before making any investment decisions. For full disclaimer information, please click here.