Jurisdiction - Australia
Australia – The Domestic Gas Market: Any Reservations?

14 November, 2013


Legal News & Analysis – Asia Pacific – Australia – Energy & Project Finance



There has long been debate between governments, leading gas companies and the manufacturing industry as to whether Australia should adopt a national gas reservation policy in an effort to secure domestic supply and lower costs within the market.

Key players in the manufacturing industry are at the forefront of the debate calling for a reservation policy, stating that Australian industry faces dire consequences resulting from rising gas prices and shortage of supply. In contrast, gas companies suggest that the key to driving down cost is to continue to develop the resources and facilitate access to export markets. They argue that reservation will not promote the development of resources that is needed to supply the domestic market and will, moreover, act as a disincentive to investment, ultimately further damaging the economy.

Whilst Western Australia and Queensland have adopted regimes for domestic gas reservation, no such federal intervention has been contemplated and, based on the 2012 Energy White Paper and subsequent statements from both major political parties, it is unlikely that any such policy will be implemented in the short term.

Background: The Gas Market

Gas is an internationally and increasingly popular fuel.1 It is the cleanest-burning fossil fuel and is versatile in its use as a feedstock for other products and to power fuel cells.

The Australian gas market has continued to grow rapidly since the 1960s.2 Liquefied natural gas (‘LNG’) exports have, in particular, been integral to the monetisation of vast offshore gas sources and spurring Australia’s emergence as a world leader for LNG investment and trade.3 With 70 per cent of the world’s LNG capacity currently under construction, Australia is predicted to become the world’s largest producer by 2017. In 2013 alone almost $200 billion has been invested in oil and gas including seven major LNG projects which, by 2025, are forecast to add over $260 billion to Australia’s GDP.

As a world leader in LNG export, Australia must balance its strong focus on export with securing and growing its own domestic market. Striking an appropriate balance however has presented an ongoing problem.4 Whilst at current projections, Australia has enough known gas resources to meet 70 years of gas demand at current production rates,5 in the absence of comprehensive energy policies there appears to be a looming shortage of available and appropriately priced gas for the domestic market. There is particular anxiety for when LNG exports from the east coast begin at some point over the coming years6causing a surge in east coast export demand at the same time that long-term domestic supply contracts come to an end. In the current market, importers of Australian gas are prepared to pay much higher prices than domestic consumers, ‘therefore setting the benchmark for new gas contract negotiations in Australia’.7 This prospect is causing a scare amongst domestic gas users and has spurred argument over the possible strategies to counter any adverse consequences. Domestic gas reservation is one such strategy suggested to counter the issues of rising prices and shortage of domestic supply. This suggestion has, however, been met with a mixed reception.

Gas Reservation Policies

Gas reservation policies are designed to ensure that the supply of natural gas to the domestic market is guaranteed into the future. Those in favour of such policies also claim that their ultimate effect would be to lower the costs of domestic consumption. Queensland and WA are the only two Australian jurisdictions to have introduced domestic gas reservation policies.

Western Australia

Whilst the WA domestic gas reservation regime is not mandated by legislation, it is nonetheless the government’s ongoing policy to require all projects to supply 15 per cent of gas produced to domestic consumers as a requirement for gaining access to land in WA for the location of gas processing facilities. Under this policy, the WA government will negotiate with the companies involved in gas projects to include a domestic gas supply commitment as a condition of access to Western Australian land. The policy provides that negotiations with companies will be conducted on a case-by-case basis to take account of the different characteristics of each project (such as the size and accessibility of the resource, potential markets, appropriate timeframe for delivery etc).


The Queensland government’s gas reservation policy is, on the other hand, given effect through the Prospective Gas Production Land Reserve Policy (‘PGPLRP’) implemented under the Gas Security Amendment Act 2011 (Qld) (the ‘Act’). Whilst the Act is currently in effect, exports of gas are not scheduled to commence in Queensland until 2015-2017 so the Queensland policy has not been utilised to date. Moreover, the Queensland Energy Minister, Mark McArdle, has stated that his government ‘will not move to gas reservation… unless everything else falls by the wayside.’8 In other words, it appears that gas reservation through the PGPLRP would only be implemented as a last resort. If the policy were to be implemented, the current framework provides that, it is only operational where the government’s annual Gas Market Review process identifies ‘domestic supply constraints’ within the market. Where such ‘domestic supply constraints’ are found to exist, the Act empowers the government to create a Prospective Gas Production Land Reserve by placing an Australian Market Supply Condition on future petroleum exploration tenure releases, operating as a condition of tenure under which gas produced from the prescribed land must not be supplied to markets outside Australia.9

The Current Debate

Manufacturing Australia

The most ardent advocates for the implementation of a federal gas reservation policy are those within the Australian manufacturing industry who rely heavily on gas as an ingredient in making plastics and chemicals such as fertiliser. Earlier in 2013, MA launched its ‘Gas for Jobs’ campaign which seeks to highlight the impact that continued unrestricted gas exports would have on the manufacturing industry and households. At the heart of their argument is the simple premise that Australians are forced to pay one of the world’s highest gas prices, despite having one of the world’s largest supplies. MA argue that, whilst there are benefits to continuing to develop a strong gas export market, ‘such a gas export industry should not come at the cost of thousands of jobs and increased costs for Australian households.’10 By their own estimates, if the issue is left unchecked, it could cost Australia 200,000 jobs in the manufacturing sector and up to $28 billion in economic value over the next three years. MA have proposed a number of policy initiatives to counter this, all of which centre around Government market intervention.

The Australian Petroleum Production & Exploration Association

In contrast, companies operating within the LNG export market argue that any intervention into the gas market will impair local gas supply and affordability. The key policy priorities set out by representative groups such as APPEA are to continue growth and maintain Australia’s international competitiveness – they believe that ‘Australia’s LNG industry is a source of comparative advantage, that should be harnessed, not hindered’ as it would be by ‘highly dangerous, short-sighted and self-interested’ intervention.11 APPEA argue that ‘the best policy response to rising prices lies in cutting development costs and bringing more gas to market’ which will entail ‘reducing the green and red tape currently constraining new projects.’12 Moreover, they suggest that laws that dictate where and how gas can be sold will inevitably deter the very investment needed to develop Australia’s gas reserves. By introducing such ‘non-commercial measures’ the gas market will actually be stymied due to a reduction in investment in the industry and exports thus resulting in further domestic price increases, and long-term issues.13 This view has been supported by a number of independent reports.14

The Outlook

The former Federal Government’s 2012 Energy White Paper recommends the development of initiatives to enhance competition and efficiency in the Australian gas market. Whilst recognising the centrality of natural gas production to Australia’s strategic objectives, the White Paper does not support reservation policies to secure domestic gas supply and suggests that such policies should only ever be considered in cases of clear market failure. The former Federal Government thus indicated its preference towards a less interventionist regulatory regime with the balance between export and domestic markets being best managed by the gas industry itself.  Similarly, the new Coalition Minister for Industry, Ian Macfarlane, has suggested that the Government will not support the implementation of a mandatory gas reservation policy as it would be inappropriate to ‘change the rules for investors mid-stream.’ The Minister has not, however, ruled out the idea of prospective acreage reservation for domestic production on new projects.15 As such, any form of interventionist measure or regulation in the Australian gas market remains unlikely. Based on comments by the federal government and gas companies at the recent NSW Energy Security Summit it seems more likely that the easing of CSG regulations is the preferred strategy to counter domestic gas issues.16



  1. Between 1990 and 2010 gas consumption increased by 63 per cent and by 2020 consumption will have doubled since 1990. At present, gas supplies approximately one fifth of the world’s energy needs. See, Tony Wood and Lucy Carter, ‘Getting gas right: Australia’s energy challenge’, Grattan Institute (June 2012) 4; Glen Gill, ‘Australia Domestic Gas Policy Report: Prepared for The DomGas Alliance’ (November 2012) 21.
  2. Glen Gill, ‘Australia Domestic Gas Policy Report: Prepared for The DomGas Alliance’ (November 2012) 21.
  3. Ibid 24-25.
  4. Ibid 31.
  5. Australia has approximately 140,000 petajoules of both CSG and conventional gas reserves. See, Tony Wood and Lucy Carter, ‘Getting gas right: Australia’s energy challenge’, Grattan Institute (June 2012) 5.
  6. Four large LNG export terminals are set to open between 2014 and 2016 – Queensland Curtis LNG, Australia Pacific LNG, Gladstone LNG and Arrow LNG.
  7. Tony Wood and Lucy Carter, ‘Getting gas right: Australia’s energy challenge’, Grattan Institute (June 2012) 8.
  8. Angela MacDonald-Smith, ‘Queensland holds out gas reservation as last resort’, The Australian Financial Review, 11 April 2013, here, (last accessed 23 September 2013)
  9. Petroleum Gas (Production and Safety) Act (Qld), s 175A.
  10. Manufacturing Australia, ‘Gas for Jobs: A roadmap for domestic gas security manufacturing Australia’, 29 July 2013, here, (last accessed 30 September 2013).
  11. David Byers, ‘Less regulation, more exploration’, 23 January 2013, here, (last accessed 23 September 2013).
  12. Ibid.
  13. Ibid; Deloitte Access Economics, ‘The economic impacts of a domestic gas reservation; (October 2013) 12.
  14. See, eg, Deloitte Access Economics, ‘The economic impacts of a domestic gas reservation; (October 2013); Tony Wood and Lucy Carter, ‘Getting gas right: Australia’s energy challenge’, Grattan Institute (June 2012).
  15. Committee for Economic Development of Australia, ‘Domestic gas reservation and high project costs top energy discussion’, 4 July 2013, here, (last accessed 30 September 2013); Matt Chambers, ‘Call for action over price hikes’, The Australian, 25 September 2013 here (last accessed 30 September 2013).
  16. Phillip Coorey and Angela MacDonald-Smith, ‘Coaltion pushes CSG in NSW’,The Land, 18 September 2013, here, (last accessed 23 September 2013); Michael Smith, ‘NSW energy catastrophe feared’, Australian Financial Review, 19 September 2013, here, (last accessed 30 September 2013).


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