Shell says Australia’s gas reserve plan risks market failure

what happened

Newsmetry API reports that Shell criticised the Australian government’s plan on Tuesday to require liquefied natural gas producers to reserve part of their output for domestic use. Cecile Wake, chair of Shell Australia, called the proposal a “sledgehammer to crack a nut” and said it represented an unusually heavy intervention in a market that was functioning well.

The government is expected to introduce legislation to parliament this week to address supply shortfalls and lower energy prices. Under the draft plan, exporters would reserve up to one-fifth of production, as determined by the regulator, from January 1, 2028. The measure is intended to make supply in Australia’s east-coast gas market equal to 110% of forecast demand.

Shell, Origin Energy and Santos would be the companies most affected because they operate the three east-coast LNG export projects. Wake said the requirement that producers “must supply” local customers could push prices excessively low and lay the groundwork for future market failure. Australia exports more gas than it consumes, while most major reserves are in the northwest, far from demand centres in the southeast.

why it matters

The dispute highlights the tension between Australia’s LNG export industry and domestic supply policy. The proposed reservation rules could affect operating conditions for the three east-coast projects and gas availability in the southeast.

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