Labor’s domestic gas reservation scheme has delayed talks on LNG imports into the country’s southeast by at least six months, but has not eliminated the need to bring in gas, according to aspiring suppliers.
They say the scheme will largely create an increase in available gas in Queensland, meaning it is of limited use in the southern states because the pipeline capacity south is already full on peak demand days.
A looming global glut of liquefied natural gas, meanwhile, will result in imported gas matching up competitively with local production by the early 2030s, they say.
The gas reservation system flagged by Energy Minister Chris Bowen in December is expected to create a slight surplus in the east coast domestic market, bringing down prices.
That is widely regarded as further raising the hurdles to the four proposed LNG import ventures in NSW, Victoria and South Australia, which have already suffered several delays as customers hold back from committing to buy gas.
Proposals to import gas have long been met with scepticism by the industry because the country is one of the world’s biggest LNG exporters, sending gas overseas from Western Australia, Queensland and Darwin.
But the import hopefuls insist that although the reservation plans have slowed discussions with customers as the details are hammered out, the case for shipping in gas from overseas – or from Queensland or Western Australia – remains intact.
“Even if Australia adopts a gas reservation policy as expected, simply reserving gas does not solve the logistical bottlenecks involved in transporting supply to demand centres,” said Paul Kanters, managing director of Vopak Victoria Energy Terminal, an import operation proposed by the Rotterdam-based fuel giant in Port Phillip Bay.
“Additional gas supply is likely needed, beyond what might be reserved today.”
Squadron Energy chief executive Rob Wheals, whose project at Port Kembla in NSW is the most advanced of the four, said import terminals were “not only complementary to a domestic gas reservation scheme – they are key to the scheme’s success”.
Squadron, owned by the billionaire Forrest family behind Fortescue, has already spent more than $200 million on its project.
“On the east coast, the issue isn’t just about reserving gas; it’s getting that gas to where demand is strongest,” said Wheals.
“Any reservation scheme will largely apply to Queensland exporters, but there is very limited pipeline capacity to move material volumes south into NSW and Victoria, particularly in winter.”
‘A valuable complement’
Viva Energy, which is developing an import terminal near its Geelong oil refinery, said a well-designed reservation scheme would be “a valuable complement” to its project.
It said it would pit the economics of imported gas against that of gas piped from Queensland, the price of which would have to cover investment to expand pipeline capacity.
Gas pipeliner APA Group, which has argued against imported LNG, has a five-stage plan to expand its east coast grid at a cost of almost $2 billion.
“We are encouraged that the proposed policy framework will support the delivery of the most cost-effective transport solutions, maintain supply security, and ensure a robust competitive environment for all gas users,” said Viva’s chief strategy officer, Lachlan Pfeiffer.
“Viva Energy believes that shipping gas into Victoria represents a far more flexible, cost-effective and efficient solution to meeting gas demands than building transcontinental pipelines and expanding local storage.”
But MST Marquee analyst Saul Kavonic said he expected further delays in the import projects, which may never proceed given their “tenuous” business case. He said the need to amortise import costs over a seasonal window or to address short-lived demand peaks ramped up the unit cost of imported LNG.
LNG imports were originally targeted for south-eastern Australia in late 2022, but were repeatedly deferred as customers demurred and regulators shifted back forecasts for a shortfall.
The competition regulator last year delayed its expectation of when imports would be needed from 2027 to 2028, while some terminal ventures are now targeted for start-up only in 2029.
“Imports can only happen if the government fails to achieve its intent behind the reservation policy,” said Kavonic. “Even then, the business case is a struggle.”
Still, one executive close to one of the import projects said the very high tariff that would be needed to cover the cost of expanding pipelines on the east coast played in favour of LNG imports into the south.
“Following a pipeline-only solution to accommodate gas reservation risks embedding a higher floor for gas prices in the southern states, and ultimately that undermines the purpose of the gas reservation scheme in the first place,” said the executive, who requested anonymity to speak freely.
“Pipeline companies have not offered the public a figure for the capital requirements to satisfy rising peak demand in the southern states with a pipe-only solution, and the reason they haven’t provided a figure is that that figure would be especially exorbitant.”
Extracted in full from: https://www.afr.com/companies/energy/lng-importers-cling-to-ambitions-despite-gas-reservation-scheme-20260113-p5ntot
