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Australia Plans LNG Export Curbs to Lower Domestic Prices

Australian natural gas has become cheaper abroad than it is at home, prompting the government to introduce liquefied natural gas (LNG) export restrictions intended to secure supply for Australians.

“The shortage of domestic gas supplies has resulted in dramatically higher prices in Australia -- higher than prices paid in the markets to which Australian gas is being exported,” the government said Thursday. “By ending the shortage, and ensuring the domestic market has adequate supplies, we will ensure gas prices in Australia are lower and fairly reflect international export prices as they should.”

The government said it will be consulting with industry on the measure and expects to have regulations in place by July 1.

Meetings were held in March and also last week to secure cooperation from east coast LNG exporters to be a “net contributor to the market,” the government said.

If an exporter draws more natural gas from the market via exports than what it puts in, it will be required to outline how it would fill the shortfall in domestic gas as part of its overall natural gas production and export plans. Exporters not drawing more from the domestic market overall would be licensed to export according to their forecasts.

“It is unacceptable for Australia to become the world's largest exporter of liquefied natural gas, but not have enough domestic supply for Australian households and businesses,” the government said.

The “Australian Domestic Gas Security Mechanism” would give the government power to impose export controls when domestic supply is short. “Gas companies are aware they operate with a social license from the Australian people,” it said “They cannot expect to maintain that license if Australians are shortchanged because of excessive exports.”

Santos, which operates Gladstone LNG, said in response to the government’s call for export curbs that it will be putting more gas into Australia’s domestic market than it buys for its share of LNG exports.

“Santos will seek clarification of how the new policy will work in practice in order to understand from government the terms on which it is proposing to introduce this mechanism and how proposals that have been put to government to address the domestic market situation are being considered,” the company said in a statement. “Santos will work collaboratively with government and its joint venture partners to ensure an outcome in the best interests of its shareholders.”

Australia is a leading LNG supplier in the Pacific Basin, with exports nearly tripling over the past decade, according to a March report from the U.S. Energy Information Administration (EIA).

“Australia became the second-largest LNG exporter in the world behind Qatar, surpassing Malaysia for the first time in 2015,” EIA said. “Australia is poised to overtake Qatar as the world's largest LNG exporter by 2020 as capacity of its liquefaction terminals builds. Exports rose to 2.1 Tcf in 2016, up from about 1.4 Tcf in 2015.”

LNG exports from Australia are almost exclusively to Asian markets, with Japan buying about 51% of the country’s LNG exports last year, according to EIA.

Since February 2016 -- when Lower 48 U.S. LNG exports began from Cheniere Energy’s Sabine Pass terminal -- the United States has exported 25.37 Bcf of domestically produced LNG to Japan via vessel, according to an April report from the U.S. Department of Energy.

“The government remains committed to LNG exports but not at the expense of Australian interests,” the government said.

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