Kerry Stokes’ majority-owned Beach Energy has called for gas from existing fields to qualify as “additional” supply under Labor’s new domestic gas reservation scheme, opening a potential pathway for LNG exporters to meet their obligations to the policy without diverting as much gas from export markets.
The change could give LNG ventures such as Santos-backed Gladstone LNG greater flexibility to satisfy their domestic supply obligations by relying on incremental production from existing fields, rather than having to reserve as much of their own export gas for Australian customers or developing new fields. By allowing incremental developments the scheme could provide economic incentives to support smaller players such as Beach.
Domestic gas producers are widely considered to he be biggest losers in the Albanese government’s domestic gas scheme as it forces an oversupply to push domestic prices down. Labor has insisted the 110 per cent target is modest, but developers have said it will crush domestic prices – making new projects uneconomic.
Joining the wave of criticism, AGL Energy – in its submission to the scheme – warned a 10 per cent oversupply buffer could flood the domestic market with gas, undermine long-term contracts and investment, and ultimately distort Australia’s electricity market.
The submissions expose a key tension in the government’s plan to force LNG exporters to guarantee gas for Australian customers: how to increase domestic supply without creating a surplus that damages the producers and buyers the scheme is intended to protect.
Beach, a major supplier to the east coast gas market, wants the government to scrap its proposed production-baseline test for “additional gas” and instead assess whether investment has caused gas to be supplied that would otherwise not have reached the domestic market.
Beach said gas from existing fields should qualify where it results from new wells, field expansions, workovers, recompletions, compression, debottlenecking or other production-enhancing investment.
The company argued the test should focus on whether the gas would have been developed, produced and supplied to the domestic market without the investment or commercial arrangement.
That would allow production from established fields to qualify even where the field had already reached a final investment decision or was operating under an existing production licence.
Beach Energy argues that gas supply could be developed from existing fields through ongoing exploration and production upgrades
Beach said a production baseline was an imperfect proxy for whether gas was genuinely additional. Production could rise above a baseline without any new investment, it said, while substantial investment in an ageing field could simply prevent production from falling and therefore fail to qualify despite maintaining domestic supply.
The company pointed to the Cooper Basin, where supply is developed through ongoing drilling, exploration, workovers, recompletions and production upgrades rather than a single greenfield investment.
Beach said the rules should recognise gas that “materially increases, accelerates, maintains or restores” domestic supply.
The issue is important for LNG exporters, because the proposed scheme allows them to meet domestic obligations through gas supplied by third parties in certain circumstances, rather than necessarily diverting their own export gas.
A broader definition of additional gas could therefore give exporters more options to satisfy the scheme by securing incremental production from established fields.
AGL has called for the buffer to be cut to 1 per cent, saying 10 per cent was not a “modest” level of oversupply and could leave tens of petajoules of gas above what the market required.
The retailer and electricity generator warned forced oversupply could lead to distressed prices, stranded gas, weaker incentives for long-term contracts, and reduced investment in new supply.
It also wants LNG exporters to have five years, rather than one year, to satisfy their domestic supply obligations.
AGL argues the proposed annual compliance system could encourage exporters to release gas into the market late in a compliance year to meet their obligations, prompting buyers to hold off signing long-term contracts in anticipation of cheaper gas becoming available.
The result, it warned, could be a shift towards short-term contracting at the expense of the long-term agreements that underpin investment in fields and infrastructure.
AGL said the risks could extend into the National Electricity Market, arguing artificially cheap gas created by mandatory oversupply could make gas-fired generation more competitive with coal and renewable generation.
That could depress wholesale electricity prices and weaken investment signals for wind, solar, batteries and pumped hydro, while potentially increasing demand for gas-fired generation.
Beach has also warned that forcing LNG exporters to supply more gas than the domestic market needs could hurt domestic-only producers by crowding them out.
In one example, the company modelled domestic demand of 400 petajoules, domestic-only production of 200PJ and an LNG exporter obligation of 240PJ after a 10 per cent demand buffer was applied.
If exporters supplied the full 240PJ, only 160PJ of demand would remain for domestic-only producers, leaving them able to sell just 80 per cent of their forecast production.
Beach said lower sales volumes and weaker prices could reduce cash generation and undermine incentives to invest in additional domestic supply.
It wants the default oversupply component reduced to zero, with any increase requiring a ministerial determination based on regulator advice and evidence of market need.
Both companies are also seeking greater certainty around the government’s powers to adjust the scheme.
AGL said broad ministerial discretion over domestic supply obligations, calibration settings and relief mechanisms could increase regulatory risk and discourage long-term investment.
Beach has separately called for a market-wide cap to ensure deferred quantities and other scheme-driven gas do not push total domestic supply beyond what the market can absorb.
The submissions underline the difficult balancing act facing the government as it finalises the domestic gas reservation scheme: ensuring Australian manufacturers, households and electricity generators have access to gas while preserving the investment incentives needed to keep supplying it.
For LNG exporters such as GLNG, the final rules governing what counts as additional gas could determine how much of their own production they ultimately need to make available to Australian customers.
Kerry Stokes’ majority-owned Beach Energy has called for gas from existing fields to qualify as “additional” supply under Labor’s new domestic gas reservation scheme, opening a potential pathway for LNG exporters to meet their obligations to the policy without diverting as much gas from export markets.
The change could give LNG ventures such as Santos-backed Gladstone LNG greater flexibility to satisfy their domestic supply obligations by relying on incremental production from existing fields, rather than having to reserve as much of their own export gas for Australian customers or developing new fields. By allowing incremental developments the scheme could provide economic incentives to support smaller players such as Beach.
Domestic gas producers are widely considered to he be biggest losers in the Albanese government’s domestic gas scheme as it forces an oversupply to push domestic prices down. Labor has insisted the 110 per cent target is modest, but developers have said it will crush domestic prices – making new projects uneconomic.
Joining the wave of criticism, AGL Energy – in its submission to the scheme – warned a 10 per cent oversupply buffer could flood the domestic market with gas, undermine long-term contracts and investment, and ultimately distort Australia’s electricity market.
The submissions expose a key tension in the government’s plan to force LNG exporters to guarantee gas for Australian customers: how to increase domestic supply without creating a surplus that damages the producers and buyers the scheme is intended to protect.
Beach, a major supplier to the east coast gas market, wants the government to scrap its proposed production-baseline test for “additional gas” and instead assess whether investment has caused gas to be supplied that would otherwise not have reached the domestic market.
Beach said gas from existing fields should qualify where it results from new wells, field expansions, workovers, recompletions, compression, debottlenecking or other production-enhancing investment.
The company argued the test should focus on whether the gas would have been developed, produced and supplied to the domestic market without the investment or commercial arrangement.
That would allow production from established fields to qualify even where the field had already reached a final investment decision or was operating under an existing production licence.
Beach said a production baseline was an imperfect proxy for whether gas was genuinely additional. Production could rise above a baseline without any new investment, it said, while substantial investment in an ageing field could simply prevent production from falling and therefore fail to qualify despite maintaining domestic supply.
The company pointed to the Cooper Basin, where supply is developed through ongoing drilling, exploration, workovers, recompletions and production upgrades rather than a single greenfield investment.
Beach said the rules should recognise gas that “materially increases, accelerates, maintains or restores” domestic supply.
The issue is important for LNG exporters, because the proposed scheme allows them to meet domestic obligations through gas supplied by third parties in certain circumstances, rather than necessarily diverting their own export gas.
A broader definition of additional gas could therefore give exporters more options to satisfy the scheme by securing incremental production from established fields.
AGL, meanwhile, has attacked another central feature of the scheme, warning that the government’s proposed 10 per cent oversupply buffer could have unintended consequences across gas and electricity markets.
AGL has called for the buffer to be cut to 1 per cent, saying 10 per cent was not a “modest” level of oversupply and could leave tens of petajoules of gas above what the market required.
The retailer and electricity generator warned forced oversupply could lead to distressed prices, stranded gas, weaker incentives for long-term contracts, and reduced investment in new supply.
It also wants LNG exporters to have five years, rather than one year, to satisfy their domestic supply obligations.
AGL argues the proposed annual compliance system could encourage exporters to release gas into the market late in a compliance year to meet their obligations, prompting buyers to hold off signing long-term contracts in anticipation of cheaper gas becoming available.
The result, it warned, could be a shift towards short-term contracting at the expense of the long-term agreements that underpin investment in fields and infrastructure.
AGL said the risks could extend into the National Electricity Market, arguing artificially cheap gas created by mandatory oversupply could make gas-fired generation more competitive with coal and renewable generation.
That could depress wholesale electricity prices and weaken investment signals for wind, solar, batteries and pumped hydro, while potentially increasing demand for gas-fired generation.
Beach has also warned that forcing LNG exporters to supply more gas than the domestic market needs could hurt domestic-only producers by crowding them out.
In one example, the company modelled domestic demand of 400 petajoules, domestic-only production of 200PJ and an LNG exporter obligation of 240PJ after a 10 per cent demand buffer was applied.
If exporters supplied the full 240PJ, only 160PJ of demand would remain for domestic-only producers, leaving them able to sell just 80 per cent of their forecast production.
Beach said lower sales volumes and weaker prices could reduce cash generation and undermine incentives to invest in additional domestic supply.
It wants the default oversupply component reduced to zero, with any increase requiring a ministerial determination based on regulator advice and evidence of market need.
Both companies are also seeking greater certainty around the government’s powers to adjust the scheme.
AGL said broad ministerial discretion over domestic supply obligations, calibration settings and relief mechanisms could increase regulatory risk and discourage long-term investment.
Beach has separately called for a market-wide cap to ensure deferred quantities and other scheme-driven gas do not push total domestic supply beyond what the market can absorb.
The submissions underline the difficult balancing act facing the government as it finalises the domestic gas reservation scheme: ensuring Australian manufacturers, households and electricity generators have access to gas while preserving the investment incentives needed to keep supplying it.
For LNG exporters such as GLNG, the final rules governing what counts as additional gas could determine how much of their own production they ultimately need to make available to Australian customers.