Labor’s plan to reserve more domestic gas stirs hopes of a revival

Australia's proposed national gas reservation policy, set to take effect from July 2027, has sparked renewed optimism for industrial revival, particularly in sectors heavily reliant on natural gas. The initiative, which mandates that shippers of eastern Australian liquefied natural gas (LNG) redirect up to 20 percent of their export volumes to domestic consumers, aims to address longstanding issues of affordability and supply stability for industries and households alike. A key beneficiary of this policy appears to be Coogee Chemicals, whose mothballed methanol plant in Laverton, Melbourne, could see a resurgence if the policy successfully lowers gas prices to levels deemed viable for long-term operations. The policy seeks to reverse the consequences of a surge in LNG exports beginning in the mid-2010s, which tied Australia’s domestic gas market to volatile global prices. Three large-scale LNG terminals on Queensland’s Curtis Island initiated this shift by exporting gas overseas, coinciding with the depletion of cheaper legacy gas reserves in the Bass Strait. As a result, gas prices along the eastern seaboard skyrocketed, rising from approximately $3 to over $8 per gigajoule by 2016. This dramatic increase rendered many gas-dependent manufacturing processes economically unsustainable, prompting several plants to close, including Coogee Chemicals' Laverton facility, which lost 38 jobs in 2016. Methanol, the primary product of the Laverton plant, is derived almost entirely from natural gas and serves as a crucial precursor in the production of formaldehyde, which is essential for resins and adhesives used in engineered wood products, building materials, and coatings. Coogee Chemicals CEO Grant Lukey emphasized that gas constitutes the largest single cost in methanol production. With gas prices having reached levels that made continued operation unfeasible, the company placed its Laverton plant on care and maintenance status in 2016. The proposed reservation policy has given Coogee Chemicals reason to reconsider its decision. According to Lukey, if the policy can secure long-term gas contracts priced below $10 per gigajoule, the company plans to restart the Laverton plant within 18 months. This potential revival is viewed as a pivotal moment for the broader manufacturing sector, which has suffered significant job losses and capacity reductions since the early 2010s. The policy’s effectiveness hinges on its ability to generate sufficient domestic supply to exert downward pressure on gas prices. While the federal government has not specified a target price reduction, it anticipates that the mandated redirection of LNG shipments will lead to an oversupply in the domestic market. Industry representatives have underscored the importance of achieving these lower prices through well-designed contractual mechanisms. Matt Flugge, CEO of Chemicals Australia, highlighted that securing gas at less than $10 per gigajoule via long-term agreements is vital for sustaining investment in the chemicals manufacturing sector. Other affected facilities, such as Dow Chemicals’ Altona plant in Melbourne, RemaPak’s operations in western Sydney, and Incitec Pivot’s Gibson Island plant in Brisbane, have also faced closures due to similar challenges. These cases illustrate the widespread impact of the gas price surge on Australia’s industrial landscape. If the reservation policy proves successful, it could catalyze the reopening of these facilities and the restoration of critical manufacturing capabilities. The success of the policy will depend on the cooperation of gas producers and exporters, who must comply with the new regulations while managing the economic implications of reduced export volumes. The government’s approach emphasizes creating a sustainable domestic market rather than imposing strict price controls, aiming instead to foster conditions conducive to long-term investment and job creation. As the policy moves closer to implementation, stakeholders across the manufacturing and energy sectors await its outcomes with cautious hope.