Share prices in Australia’s energy sector slipped on Thursday after the federal government announced a new requirement for liquefied natural gas exporters to reserve a portion of new output for domestic use.
The S&P/ASX 200 Energy sub-index dropped about 3% on the news. Major exporters saw marked declines: Santos (ASX:STO) and Woodside Energy (ASX:WDS) each fell in the range of 3.5% to 4.5%, while Origin Energy Ltd (ASX:ORG) shares were down nearly 3%.
Energy Minister Chris Bowen outlined the policy as an effort to ease expected gas shortages and to bring down energy costs for consumers on Australia’s east coast. Under the announced scheme, exporters will be required to divert 20% of new gas production to domestic buyers prior to shipping liquefied natural gas overseas.
The government said the reservation obligation will take effect from July next year and will cover new contracts and spot market volumes. It will not apply to existing export agreements, according to the announcement.
Australia is one of the world’s largest exporters of liquefied natural gas, but regulators have repeatedly warned of potential shortfalls in supply concentrated on the east coast, where demand is heaviest. The government’s forecasts released in April indicated a possible supply shortfall during the July-September quarter.
The prospective reservation requirement prompted market participants to reassess near-term earnings prospects for Australian LNG exporters. The policy’s application to new contracts and spot volumes, while excluding existing export agreements, framed investor concerns over how future sales and revenue streams will be affected.
Overall, the announcement combined a domestic policy objective - securing gas for local users and attempting to reduce costs - with an immediate market response that weighed on the listed energy producers. The stated start date, the scope of coverage, and the exclusion for existing export contracts were set out clearly by the government, while official projections published in April underlined the impetus for the move.