Australia Backs Down on Limiting Gas Exports -- Update

By Robb M. Stewart and Rob Taylor 

MELBOURNE, Australia--Australia's government held back from imposing curbs on exports of liquefied natural gas after producers, including Royal Dutch Shell PLC, agreed to put more gas into the domestic market to ease energy shortages.

The decision, which followed a meeting between Prime Minister Malcolm Turnbull and energy companies, came just days after an Australian regulator warned that gas shortages in 2018 could be three times worse than previously thought. Experts had warned the export curbs risked damaging the country's standing as a destination for investment, while having a limited impact on local gas supply and prices.

Mr. Turnbull said the energy companies had promised to fill a supply shortage that the Australian Energy Market Operator estimated would be up to 107 petajoules in 2018--or enough gas to generate electricity for roughly 5 million Australian homes for a year--and 102 petajoules in 2019.

"They have given us a guarantee that they will offer to the domestic market," he said. "They have stated that they will provide a similar guarantee over two years."

The energy companies, which also include Santos Ltd. and Origin Energy Ltd., agreed to make regular reports to regulators on sales and market prices, a move that Mr. Turnbull said would help to improve transparency.

Zoe Yujnovich, chairwoman of Royal Dutch Shell's Australian arm, said the company had established a new unit in Melbourne to sell gas from eastern Australia's Queensland state.

"The company is committed to understanding demand in the market, securing gas supply and selling more gas to customers," she said Wednesday.

Australia, the world's second-largest exporter of LNG, has grappled with blackouts in recent years as energy demand soared and there wasn't enough gas to maintain electricity supply.

Australia now exports so much LNG that it may overtake No. 1 exporter Qatar within several years. It exported 62% of its gas production last year, according to the BP Statistical Review of World Energy.

Yet its policy makers didn't ensure enough gas would remain at home. As exports increased from three new LNG facilities in Queensland, some state governments let aging coal plants close and accelerated a push toward renewable energy because of environmental concerns. That left the regions more reliant on gas for power, especially when intermittent sources such as wind and solar weren't sufficient.

Shortages have sent domestic gas prices surging this year in some markets in eastern Australia, driving up household energy bills and sending the government's popularity plummeting to near-record lows in opinion polls. They have also caused widespread pain for industry: Australia's largest aluminum smelter cut production and laid off workers because it said it couldn't secure enough cheap energy.

Rod Sims, chairman of the Australian Competition and Consumer Commission, said in a speech last week that none of the steps taken by energy companies to support the domestic market had made serious inroads into the supply problem, noting that Australian natural-gas prices remained at around all-time highs.

"There is no point in Australia becoming the world's biggest LNG exporter if the domestic market misses out," Josh Frydenberg, minister for energy and the environment, said Wednesday.

Imposing export curbs, however, would have been a risky move for the government because they would have weighed on Australia's reputation, dented state tax revenue and potentially encouraged producers to leave gas in the ground, said Saul Kavonic, an analyst at consultancy Wood Mackenzie in Australia.

Santos, which operates an LNG plant in Queensland, has said the best way to bring more gas to the domestic market is to scale back restrictions on exploration and development that are in place in several states.

Write to Robb M. Stewart at [e-mail] and Rob Taylor at [e-mail]

(END) Dow Jones Newswires

September 27, 2017 03:21 ET (07:21 GMT)

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