The Grattan Institute has made a submission to the federal government, calling for it to revise its proposed gas reservation scheme, arguing the current design would fail to deliver affordable domestic gas.
In a new submission, the think tank backed the government’s objective of ensuring Australians have access to reliable and reasonably priced gas but said several key elements of the draft framework were impractical and based on unrealistic assumptions about how gas markets operate.
Instead of linking domestic supply obligations (DSOs) to LNG production volumes, Grattan recommended obligations be tied to the needs of three separate regional markets — the east coast, Western Australia and the Northern Territory — reflecting Australia’s fragmented gas infrastructure.
The institute also proposed setting supply obligations only slightly above projected domestic shortages, rather than requiring producers to reserve up to 20% of LNG output. It said an oversupply of between 2% and 5% of domestic demand would be sufficient to ease prices while avoiding major distortions to export markets.
Grattan recommended the DSO be established as a rolling five-year obligation, with annual reviews based on the Australian Energy Market Operator’s Gas Statement of Opportunities, providing greater certainty for producers and domestic buyers and encouraging a return to long-term gas contracting.
The submission also rejected provisions allowing exporters to reduce supply obligations if the domestic market was deemed adequately supplied, arguing the mechanism would be difficult to administer and should be removed unless it could be clearly defined.
Among its other recommendations, Grattan called for governments to play a greater role in supporting new gas transport and storage infrastructure, particularly in the Northern Territory, and warned any reservation scheme should be accompanied by stronger emissions reduction policies to ensure it does not undermine Australia’s climate targets.
The federal government is consulting on the design of the proposed gas reservation scheme as it seeks to improve domestic gas affordability and supply security.
The full submission is available here.