Labor sends emergency delegation to Asia to address diplomatic concerns
Labor is sending a delegation of senior officials to Asia this week as it tries to overcome a growing diplomatic crisis over plans to force Australian gas exporters to restrict supplies for domestic use.
The diplomatic offensive involves senior bureaucrats from the ministries of energy, resources, foreign affairs and trade and responds to concerns from key regional partners about the scope of the Albanian government’s gas reserves plan, which will come into force in July next year.
Energy companies and government officials in Malaysia, South Korea and Japan fear the plan poses a risk to their multibillion-dollar investments in Australia’s gas sector and could threaten long-term national energy security; Concerns were conveyed to the Ministry of Foreign Affairs and Trade through diplomatic channels.
According to the correspondence seen in this article, Australian bureaucrats will hold meetings behind closed doors in cities such as Tokyo and Seoul. They will also visit Singapore and Kuala Lumpur, industry sources confirmed.
At stake is Canberra’s relationship with countries critical to keeping oil and diesel shipments dangerously short due to the Iran war. Importantly, some of the largest Asian buyers of Australian liquefied natural gas (LNG) are also the country’s major transport fuel suppliers.
Under the government’s proposed gas reservation plan, Australian LNG producers will be required to allocate the equivalent of 20 per cent of their annual export volumes to the domestic market from next year. The policy seeks to mend a contentious economic disconnect: the country ranks as one of the world’s largest LNG shippers, generating $60 billion in export revenues last year alone, but Victoria and NSW face the risk of deficits in coming years, exposing households and factories to higher energy bills.
The move has received strong support from unions and the manufacturing sector, who hailed it as a necessary intervention to repair a “broken” market following a three-fold increase in domestic gas prices over the past decade. Without this, more Australian factories that rely on gas to fuel ovens and stoves would have to close, manufacturing bosses said. “This is the most significant structural reform of the Australian gas market in a generation,” said Ben Eade, chief executive of industry group Manufacturing Australia. “This is largely against the national interest.”
Many key details of the policy remain unclear, and frictions threaten to erode decades-old strategic trade ties at a sensitive time. Prime Minister Anthony Albanese recently used Australia’s reputation as a reliable LNG supplier to negotiate with Malaysia, Korea, Japan and Singapore over priority access to oil refineries’ dwindling fuel output as Iran’s closure of the Strait of Hormuz raises fears of a global crisis.
“We will exchange views on energy trade-related issues on a ‘no surprise’ basis and deepen practical cooperation on energy security so that both countries achieve common goals,” Albanese said in a joint statement with the Malaysian prime minister in April.
Leading Asian utilities such as Japanese giants INPEX and JERA, Korea Gas Corporation (KOGAS) and Malaysia’s Petronas have major stakes in joint venture projects in Gladstone, Darwin and WA. The main motivation for their investment was the establishment of long-term LNG purchase agreements that guaranteed the supply of gas they needed to power their countries’ electrical grids, heaters and production facilities.
But these companies are uneasy about the lack of clarity around the operation of Australia’s reservations scheme. The government has promised to honor long-term LNG contracts signed before December 22 and has argued further consultations are needed to finalize the plan, but a series of government briefings over the past two weeks have added to Asian buyers’ uneasiness.
“Concerns have increased following industry engagement on the draft framework,” said a senior industry source.
It is concerning that there is a significant degree of ministerial discretion in the draft program to change booking volumes or grant allocations, which may vary from one year to the next.
Other industry players are questioning the specific outcomes of the Santos-led Gladstone LNG project (GLNG) in Queensland, whose backers include KOGAS and Petronas. Queensland’s two other LNG plants, operated by Origin Energy and Shell, send gas to the domestic market and abroad; however, GLNG is fully contracted with no reserve gas to spare.
Under the draft rules, to obtain an exemption it would need to prove that it has exhausted all viable options to secure additional supplies, such as buying additional gas or reducing exports. Companies that fail to comply with the policy could face fines of up to $100 million.
Resources Minister Madeleine King said the reservation would ensure fair prices for local gas users while maintaining Australia’s status as a trusted regional partner.
“We are designing this plan in a calm, methodical and consultative manner. We have been clear that we will respect existing agreements,” King said.
Samantha McCulloch, chief executive of industry body Australian Energy Producers, said uncertainty about booking rules threatened Australia’s reputation for reliability.
“The Prime Minister has acknowledged that Australia’s fuel security depends on our LNG exports,” he said. “In the midst of a global energy crisis, the last thing Australia should do is put at risk the trade relationships that underpin our fuel and economic security through a poorly designed gas reservation scheme.”
Meanwhile, smaller non-exporting Australian gas producers conceded that a “modest” oversupply in the market would drive prices down, but also warned there was a risk that many new projects would not be viable if disruptions were too deep. Oil and gas producer Beach Energy, citing analysis by consultancy Kroll, argued that the reservation scheme would “act as a handbrake” on domestic gas exploration, development and production if not carefully designed. “The plan as currently drafted undermines the objectives it is intended to serve,” chief executive Brett Woods said.
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Nick Toscano is an economic correspondent for The Age and the Sydney Morning Herald.Connect with: X or email.
Mike Foley is the climate and energy correspondent for The Age and The Sydney Morning Herald.Connect via email.
