The Albanese government’s plan to reserve gas for domestic buyers on the east coast would cost about $2.9 billion a year in forgone revenue and infrastructure losses and could bring forward energy shortages in Australia’s south-east to next year.
The stark predictions come from independent analysis carried out by financial and risk advisory firm Kroll Economics for domestic gas producer Beach Energy, whose chief executive, Brett Woods, is voicing extreme frustration with Labor’s proposed scheme.
“They’re building a policy that’s trying to shut us down and kill investment in Australia,” said Woods, a previous supporter of domestic gas reservation who says the scheme is far from what industry had been engaging with the government on.
The proposed scheme, which is being consulted upon, would require the equivalent of 20 per cent of LNG exports to be supplied into the domestic market by all exporters.
But gas producers and analysts say that would create a glut in the domestic market, causing prices to plunge and destroying the case for investment in new supply.
Manufacturers would be left largely reliant on more expensive gas being imported into the south-eastern states, while LNG investors in Queensland would face major new obligations to supply the domestic market.
The Kroll modelling finds that a 20 per cent reservation scheme would cut real gross domestic product in Australia by about $653 million by 2030, with Queensland bearing the biggest hit because of a cut to LNG exports.
The analysis backs up the Queensland government’s complaints that it will be unfairly disadvantaged by the scheme, something that Climate Change and Energy Minister Chris Bowen has rejected.
Kroll said the policy would cut domestic gas prices initially, but only by reallocating gas from exports rather than creating new supply. That means that while domestic gas buyers pay less initially, exporters receive less for gas diverted to the local market and domestic producers lose both production and margin.
It concludes that while the evidence in the east coast market does not support doing nothing on the policy front, it “supports better-targeted intervention”.
It finds there is no immediate shortage that justifies a permanent obligation on gas reservation and recommends the scheme be refined, keeping the government ability to intervene strongly if warranted.
The proposed reserve scheme has also been slammed by other domestic-only gas producers on the east coast, such as Amplitude Energy and Senex Energy, while Korea Gas Corporation has been the most vocal critic among overseas investors in Queensland LNG.
Korea Gas this month contradicted the Albanese government’s claim that the scheme would not affect long-term LNG sales contracts, saying it imposes a direct obligation to supply domestic customers.
Beach’s Woods also took issue with Bowen’s description of the scheme as a prospective, forward-looking reservation scheme, given that it applies to 20 per cent of all LNG exported from Australia, including that committed under long-term sales contracts.
“The current framework is a very much a retrospective model,” Woods said.
He described discussions with government and department officials on the scheme as “frustrating”, contrasting suggestions there was no intent to oversupply the market – and therefore crowd out domestic producers – with the clear intent in the draft scheme to do just that.
Beach, whose biggest shareholder is Kerry Stokes’ SGH Ltd, supplies about 20 per cent of the east coast domestic market, but Woods said the scheme put future projects in doubt.
“The proposal, as the government describes at the moment, is an investment killer, and we need to look very carefully about where we deploy our money,” he said.
“Unfortunately, it would look like Australia is an incredibly difficult place to deploy capital at the moment.”
Global consultancy Wood Mackenzie has also criticised the scheme, saying it risks increasing – rather than reducing – investment certainty at a critical time for Australia’s energy security.
Both Woods and Wood Mackenzie research director John Gibb criticised the level of ministerial discretion baked into several key elements of the scheme.
“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,” Gibb said.
The firm said the 20 per cent supply obligation meant the domestic market could be oversupplied until at least 2040, killing the incentive for new domestic gas projects.
“It is a catch-22 that increases Australia’s sovereign risk in the eyes of crucial trading partners like Japan and South Korea,” said Adele Long, head of Asia-Pacific upstream research at the consultancy.
Source: https://www.afr.com/companies/energy/they-re-trying-to-shut-us-down-beach-ceo-slams-gas-reserve-20260612-p6069e