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Government flags sensible backflip on gas

A new Morrison government discussion paper on gas reservation has flagged a sensible backflip on further meddling in the east coast gas industry. Domestic manufacturers have blamed Queensland’s massive LNG export expansion for diverting gas offshore and driving up the price for local buyers.

Under Malcolm Turnbull and Scott Morrison, a supposedly free-enterprise government has launched banana republic-style threats, including export controls, against an industry that previously enjoyed bipartisan praise for making Australia the world’s biggest LNG exporter and helping to power the rise of Asia’s middle class.

The technology that has allowed gas to be chilled and exported in liquid form has connected Australia to the global gas market, and the global price. Rather than diverting gas from local use, however, much of the gas in question would not have been extracted from Queensland coal seams in the first place without the foreign demand that underwrote the $300 billion in capital investment. That investment boom suffered from cost blowouts. And now it has been rocked by the collapse in world energy prices.

Thankfully, the Coalition government is now back-pedalling on its resource nationalism rhetoric that would risk increasing sovereign risk in the name of economic sovereignty. The issues paper released by Resources Minister Keith Pitt finally throws some cold water over proposals – from both sides of politics – to require any new gas development to reserve some of its production for domestic use.

Such a reservation policy, it warns, could add even more uncertainty and political risk to gas investment, much more of which will be needed to keep Australian LNG reserves competitive in Asian markets and to meet post-COVID-19 domestic gas shortfalls.

The Morrison government sees muscular gas supply policy as a key to wider economic revival. Yet the Santos Narrabri field could supply half of NSW gas demand if it finally gets the regulatory approval to start. There is plenty more gas being developed in Queensland’s Surat basin. Western Australia could supply Victoria through domestic LNG terminals: ideally that could count toward WA’s domestic gas reservation quota on the grounds that this is one nation. Belatedly the government is recognising that more intervention risks less gas in the current climate, not more.

Source: Financial Review