Australian watchdog takes LNG producers to task on domestic supply issues

Sydney (Platts)--21 Sep 2017 445 am EDT/845 GMT

The Australian Competition and Consumer Commission has criticized the country's east coast-based LNG exporters' efforts to address the region's gas supply problems.

ACCC's criticism could be seen as a harbinger to the tone of its soon-to-be-released report to the Treasurer which will feed into the government's deliberations on whether or not to implement LNG export restrictions next year.

In a speech at the nation's capital, Canberra, on Wednesday, ACCC's chairman, Rod Sims, reminded those in attendance of the advice he had given to Queensland's LNG producers six months ago: support the domestic market as much as possible at this crucial time.

"They have largely not done so," he said.

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There have been some transactions, particularly in the wake of the prime minister calling in gas producers earlier in the year to discuss the crisis, he said.

"In addition, Santos has taken some highly visible steps under the threat of the Australian Domestic Gas Security Mechanism. But none of these moves have made any serious inroads into the gas supply problem," he said.

A decision by the government as part of the ADGSM on whether or not to invoke LNG export controls, in an effort to shore up domestic supplies, is due to be made by November 1.

And, Sims's comments do not bode well for the LNG exporters who are hoping to avoid any restrictions, considering ACCC is planning to shortly deliver a report on the situation, which could influence the government's decision.

Gas supply on the east coast of Australia has become a leading issue of national debate throughout the year due to warnings by the Australian Energy Market Operator that the region could face shortages within the next couple of years.

The cause of the supply tightness is a "triple whammy," as Sims puts it, which includes the introduction of the export LNG projects in Queensland, oil prices falling faster and further than some thought possible, which has curtailed investment in gas exploration and development, and regulatory uncertainty and exploration moratoria having significantly limited or delayed the potential for new gas supply.

Also, the gas supply outlook for 2018 now appears worse than at the time of ACCC's first gas report in March 2016, he said.

Despite Sims' comments about the LNG producers not having done enough to address the supply concerns, he sympathizes with them.

"The three LNG producers ... could not have foreseen that after their investment decisions were made the onshore gas exploration and development rules would change completely. I doubt anyone in the industry expected Victoria to ban all onshore gas exploration and production, which has stopped even conventional gas projects, nor could they have foreseen the delays and uncertainty over projects in NSW and the NT," he said.

"If there is a criticism of the three LNG gas developers, it is that they fell into the usual commodity project trap of assuming that the then-high $100-plus oil prices would continue, when long-run average oil prices of around $55 would have been a better planning assumption," he said.

Australia's gas industry body, APPEA, said on Thursday that the LNG industry has been unfairly blamed for the situation and that the answer lies not in creating export controls, which could force the LNG projects to default on contracts, but rather in creating more supply. "This policy of 'Australia First' might be in keeping with the times but it is not a genuine solution," APPEA chief executive Malcolm Roberts said on Thursday.

"It does nothing to expand supply or reduce the cost of new supply. It is based on the flawed idea that the LNG industry is a risk to domestic supply when, in fact, the industry has underwritten, directly or indirectly, the new gas developed over the last decade," he said.

He said APPEA is calling for reforms to cut costs, unlock resources and deliver the new production "which is the only way to create sustainable long-term supply."

ACCC declined to comment further on the issue.

--Nathan Richardson,
--Edited by Arnab Banerjee,

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