Major gas exporters on the east coast have promised to ensure higher domestic supplies but the industry has slammed the federal government's new restrictions on gas exports.
Prime Minister Malcolm Turnbull has announced the Australian Domestic Gas Security mechanism, under which his government will have the power to impose export controls on companies when there is a shortfall of gas supply in the domestic market.
The move would bring local gas prices in line with the global market and protect thousands of jobs in gas-dependent manufacturing industries, Mr Turnbull said.
"Gas companies are aware they operate with a social licence from the Australian people. They cannot expect to maintain that licence if Australians are shortchanged because of excessive exports," he told reporters.
The government action follows two rounds of meetings between Mr Turnbull, gas producers and the Australian Energy Market Operator to discuss a domestic gas crunch.
While Australia is set to overtake Qatar as the world's largest LNG exporter in 2018, AEMO warned of domestic gas and electricity shortages on the east coast within the next few years, with gas production diverted to LNG plants and state government curbs on fresh drilling.
Energy giant Santos has been accused of contributing to the tight gas supply situation, given its reliance on third-party supplies to fill up export shipments at its giant Gladstone LNG project in Queensland.
Nearly 60 per cent of the gas processed through GLNG in the March quarter was sourced from third parties, the company revealed in a recent production update.
Analysts said the curbs were squarely targeted at GLNG, as the other two Queensland-based LNG projects produced more gas domestically than they export.
Santos on Thursday pledged to lift domestic supplies, but its shares sank more than seven per cent after the announcement of government action.
"Moving forward Santos will supply more gas into the Australian domestic market than it purchases for its share of LNG exports," it said in a statement, though didn't say how this would be achieved.
The company also said it will seek clarification from the government on how the new policy will work, and the terms on which the mechanism is being introduced.
Its larger rival - the Origin Energy-led Australia Pacific LNG - reaffirmed plans to continue supplies to the domestic gas market, but warned that energy market challenges could not be resolved by just the Queensland LNG industry, and collaboration is needed from all producers, explorers, transporters and retailers.
The gas industry's peak lobby group said the curbs are a "short-term measure" that risk worsening tight market conditions unless genuine reforms are introduced.
"Restricting exports is almost unprecedented for Australia," Australian Petroleum Production & Exploration Association chief executive Malcolm Roberts said.
"Governments must address the real problem - a lack of supply created by high regulatory costs and political barriers. With exploration at a 30-year low, the pipeline for future supply is precarious."
That view was supported by RBC Capital Markets analyst Ben Wilson, who said the majority of the blame for the crisis lies with fracking moratoriums and excessive red tape involved in approving projects.
"The implications of this policy announcement for Australia's sovereign risk barometer are uniformly negative in our view," he said.
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