The federal government last month released a draft plan aimed at lowering east coast gas prices by requiring exporters to reserve a portion of their output for local buyers. But analysts and industry players say the draft is full of provisions that will allow some exporters to reduce or eliminate their exposure.
They point to the GLNG plant on Curtis Island in Queensland as the exporter most likely to benefit. An ABC investigation found GLNG had exported the equivalent of 20 per cent of eastern Australia's domestic gas demand over the past decade, because the venture built a plant with a capacity of 7.8 million tonnes a year despite not having enough gas of its own to fill it.
By contrast, the other two Queensland LNG projects — operated by Shell and by Origin with ConocoPhillips — have overwhelmingly supplied the local market in net terms.
Paul Farrow, national secretary of the Australian Workers Union, said "Santos-sized loopholes" threatened to undermine the reservation plan. "The government is so close to getting it right," he said. "But the exposure draft, as it stands, contains a bunch of Santos-sized loopholes. That's a major, major worry."
Under the draft policy, the Australian Energy Regulator can reduce an exporter's supply obligation below 20 per cent, and the minister can cut it to zero. Critics say the draft also allows GLNG to count contract extensions as "existing contracts" that are exempt from consideration. This could enable GLNG to extend a supply agreement with South Korea's KOGAS from 2030 for five years. The current deal is for 3.5 million tonnes of LNG a year, equivalent to about 40 per cent of annual east coast gas demand.
Observers also warn the draft will give rise to "take-or-pay" deals allowing Santos to generate paper sales to the domestic market without actually supplying any gas, and say the government has given too much ground to Santos.