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Australia’s Deal with Big Three Operators Ends Threat to Curb LNG Exports

Australia is pulling back from threats to curb natural gas exports after three major producers agreed to put more gas into the domestic market to ease potential shortages.

The decision followed a meeting between Prime Minister Malcolm Turnbull and energy companies, which came only days after the Australian Energy Market Operator (AEMO) warned that gas shortages in 2018 could be worse than previously thought.

Turnbull in June warned that liquefied natural gas (LNG) exports could be restricted beginning Jan. 1 to give the country first dibs on supply in an effort to contain rising prices.

Australia is vying to overtake Qatar in 2020 as the world’s leading gas exporter. Australia overtook Qatar in 2013 as Japan’s top LNG supplier, and in 2015 it became the second-leading global exporter. However, overseas LNG customers shouldn’t be allowed to pay less for Australian gas than Australians are charged, Turnbull had said.

The prime minister said Tuesday during a press conference the three largest gas exporters on the east coast -- Origin Energy Ltd., Santos Ltd. and Royal Dutch Shell plc -- had “given us a guarantee that they will offer to the domestic market the gas that was identified as the expected demand shortfall, by AEMO, in 2018.

“They’ve indicated...that they will provide a similar guarantee over two years,” he said, according to a transcript posted on his website. “That’s their intention and will respond further in more detail on 2019 when we meet again next week.”

Turnbull said the producers’ “first priority” is to offer “domestic customers any uncontracted gas in the future...They have also given a commitment to provide regular reporting” regarding sales, “offers by them to sell gas and bids to buy gas from customers that they have declined. This is a very, very important step.”

The Australian Competition and Consumer Commission (ACCC) on Monday had reported that the gas industry had been opaque about its LNG dealmaking.

“There has been very, very little transparency,” Turnbull said. “We are going to bring that to an end by putting the ACCC on the case. They, of course, have the ability to investigate with compulsory powers, and they have been able to get behind what is going on in the gas sector and therefore identify the way in which the market is not working.”

Government officials plan to meet with the producers to reach a heads of agreement with the producers “to ensure we have an effective gas market on the east coast, where customers can acquire gas on standard commercial terms from several vendors, several sellers, for a term of years at prices that reflect global prices,” he said.

“There is more work to be done. But we have secured that guarantee from these three big gas companies, three big gas exporters that the shortfall, the expected shortfall identified by AEMO and the ACCC in 2018, they will provide the gas to meet that.”

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