The domestic gas debate

Gas reservation policies actually impair local gas supply and affordability, rather than improve it.

Exploring for gas and developing gas projects are expensive and high-risk activities. Gas companies undertake exploration and development on the understanding that they will receive commercial returns for their investment. Laws that dictate where and how gas can be sold will inevitably deter the very investment needed to develop Australia’s abundant gas reserves.

A 2013 report Domestic Gas Market Interventions: International Experience reviews gas market policies throughout North America (the US, Canada & Mexico), Europe (Netherlands, Norway and the UK) and 14 non-OECD countries (Russia, China, India, Algeria, Egypt, Oman, Qatar, UAE, Indonesia, Malaysia, Thailand, Argentina, Brazil and Peru). These countries produced 74 per cent of global gas supply in 2011.

This report finds:

  • In the US and Canada, wholesale gas prices are set by the market without government intervention and that the combination of a competitive market and favourable geology has created some of the world’s lowest gas prices.
  • In the Netherlands, Norway and the UK, wholesale gas prices are set by the market and these countries’ liberalised energy markets place downward pressure on gas prices.
  • Many of the non-OECD countries have policies aimed at controlling gas prices. But the impact of these has been to artificially stimulate demand and restrict supply, leading to gas shortages, imports from other countries at high prices, and upward pressure on domestic gas prices. These policies are often associated with government ownership or control of downstream gas industries.

Introducing gas reservation policy would do nothing to stimulate the exploration and development needed to deliver the new gas supplies and new infrastructure that would put downward pressure on prices.

In an advanced economy underpinned by competitive markets, such as Australia, one industry should not be required to subsidise the activities of another. In all sectors of the economy – not just oil and gas – maintaining access to open and competitive markets is in Australia’s best interest.

Benefits of Australia’s gas industry

Australia is looking to gas export projects to deliver valuable investment, infrastructure, jobs, export income and tax revenue. These projects will underpin the national economy for decades to come.

These liquefied natural gas (LNG) developments are complex, extremely costly and require a decades-long horizon.

Just as Australia’s long-term national interest is served by maintaining access to open and competitive markets for coal, wheat, and iron ore, the same is true for gas.

Australia’s LNG industry is a source of comparative advantage that should be harnessed, not hindered. It is also delivering valuable infrastructure that will aid the development of the domestic gas sector.

White Paper shows the way

The Government’s Energy White Paper has established a solid policy framework to guide the long term development of the sector. It clearly articulates the important role that Australian natural gas will play in delivering economic growth and energy security, both domestically and throughout our region. It also recognises the critical importance of market-based energy policies and sends an important signal to investors in its rejection of domestic gas reservation policies and other such industry protection measures.

Australia’s gas industry is delivering substantial, economy-wide benefits, delivering investment, jobs and regional development. But for this benefit to be sustained, governments must resist calls for policy interventions that force non-commercial outcomes.