Lessons for Canada: Australia’s natural gas export strategy

Australia’s new ‘Future Gas Strategy’ lays out a path for natural gas to play a key role in its energy economy thru 2050 – regardless of whether or not the country achieves early its net-zero emissions targets.

The strategy supports investment in both domestic and export focused natural gas supply, and aims to address criticism that too much gas is exported at the expense of domestic needs.

It may also provide an interesting analogue for Canadian policymakers specific to increasing LNG exports while heeding goals to safeguard domestic security of supply and affordability.

Supply security and affordability

Canada’s and Australia’s natural gas markets are structured quite differently.

Australia exports three-quarters of its production as LNG, and has relatively poor pipeline connectivity between regions of supply in the north and centers of demand in the south.

Canada exports around half of the natural gas it produces via good pipeline interconnections with the US, and none as LNG.

But nine Canadian LNG export licenses have been issued, with the first, LNG Canada, due to begin operations in 2025. How many of the remaining projects will be fully commercialized remains an open question.

Following domestic gas price rises, critics in Australia declare that too much gas is going for export, endangering domestic supply. Earlier this year, the Australian Energy Market Operator (AEMO) forecast a gap in gas supply for southern Australian states from 2028.

The government’s ‘Future Gas Strategy’ notes that simply diverting gas from LNG export projects is only part of the solution to this problem. “Arguments that Australia could divert gas developed for export fail to recognize the domestic gas market’s reliance on supply from gas export projects, the nature of Australia’s trade and investment relationships, and the role of Australian gas in our trade partners decarbonization pathways.”

Instead, the strategy will prioritize developing new gas fields closer to domestic demand centers plus expanding natural gas infrastructure, including the potential for LNG import terminals in southern states.

The Australian east coast gas market could have sufficient gas supply from local fields to meet domestic demand out to 2035, the report notes. Queensland has already invested AU$21 million (CDN$19.1 million) to support the fast-tracking of four new gas projects in the Bowen Basin to boost domestic supply.

The federal government also introduced two measures last year aimed at stabilizing the domestic gas market. The Gas Market Code of Conduct sets a price anchor of $12/GJ for east coast gas users. And the Australian East Coast Domestic Gas Supply Heads of Agreement has the power to control the export of LNG if a domestic gas shortfall is forecast. Meanwhile, Western Australia state law requires delivery of 15% of export production to Western Australia’s domestic market.

Insights for Canada

Currently in Canada, exporters must demonstrate to the Canada Energy Regulator (CER) that any exports are surplus to Canadian needs. But the market structure means exports rarely threaten levels of domestic supply.

“Canadian gas markets are well connected to US markets via numerous pipelines. Therefore, when conditions change locally, the rest of the system across the continent adjusts to compensate,” according to a market analysis from CER in 2022.

Far from worrying about domestic supply, Canadian domestic gas producers are eyeing LNG Canada as a welcome source of demand amidst low prices. The AECO-C price was $1.48 per gigajoule (GJ) in March 2024, a 45.6% decrease on year-ago prices.

In the event that all proposed Canadian LNG projects be built, they would represent a total 20.8 bcf/d of demand. That is greater than the 17.9 bcf/d that Canada produced in 2023, according to the Canadian Association of Petroleum Producers (CAPP).

Emissions reduction

Australia’s ‘Future Gas Strategy’ says the development of natural gas assets is compatible with the nation’s 2050 net zero target.

This comes despite the fact that in 2018-19, emissions associated with Australian LNG exports were equivalent to approximately 40% of Australian domestic emissions across all sectors. This has now been reduced to 24%, primarily due to reduced flaring in LNG operations.

Under the government’s central scenario, emissions associated with the natural gas sector are expected to continue to fall by 17%, from 103 million tons of CO2e in 2021-22 to 85 million tons of CO2e in 2034-35, even without any restrictions on LNG exports.

Source: Australia’s Future Gas Strategy, May 2024

Fugitive emissions are projected to decline by 28% between 2022 and 2035, due to efficiency gains, flaring reduction, and CCUS projects at LNG facilities.

The ‘Future Gas Strategy’ report notes that more than 97% of Australia’s LNG exports are covered by net zero commitments.