At the recent Australian Domestic Gas Outlook conference held in Sydney in late February 2014 the issue of a ‘National Interest’ test for LNG exports was again raised. Senior Associate, Leanne  McClurg  who  attended  the conference and Lawyer, Shao Ma revisit the issue and provide an update on current views.

Approval process

In response to increasing gas prices and tightening of gas supply, generally considered to be caused by LNG projects, some have recommended the introduction of a national economic approval process for the purpose of limiting LNG exports overseas in favour of domestic supply. This process has been adopted in United States and Canada to protect their respective domestic LNG markets.

In July last year The Australian Industry Group, in their report titled “Energy Shock: the gas crunch is here”, recommended that approval to develop new gas export facilities should only be granted where it is established that:

  • Approval would leave adequate gas supply for domestic requirements in relevant Australian markets over the life of the facility. The report emphasised that the focus should be on supply, not just resources, as the rate of production is more important to consumers than the size of the resource.
  • Approval is in the national interest, taking into account the economic, strategic and social impacts of the proposed expansion. This assessment should consider in particular the likely impact, if any, of the proposal on domestic gas prices.
  • Opportunities for and net benefits of parallel supply to domestic and export markets have been adequately considered by proponents.

A barrier to development?

The Australian Petroleum Production & Exploration Association (APPEA) have said that a national interest test would be a barrier to the development of a natural gas industry. APPEA’s concern is that such a test would impose further red tape and manipulate the gas market to deliver perceived benefits to manufacturers while driving away investment in the sector and thus hurting the wider economy.

APPEA highlights the situation in Queensland where the regulatory regime aids industry. That state employs 30,000 people in the coal seam gas industry and has contributed more than $100 MM to local community projects and causes. In contrast, in Victoria and New South Wales, where exploration has ground to a halt because of regulation, employment in the sector is low and they are facing a gas supply shortage.

The Resources Update team will monitor movements on a National Interest test and report on developments.