Research Reports

In January 2007, original research was completed which presented a review of international energy policies related to the reservation of, primarily, natural gas, but in some cases also oil and coal, for domestic energy use. Below is a description of the background and structure of the report. This report may be purchased and distributed electronically as a pdf file. Please contact the Coordinator regarding the purchase of this report, email: M.Bijoux@curtin.edu.au

"Domestic Energy Reservation Policies: An International Comparison"

Background and Structure of the Report

The State of Western Australia released its domestic gas supply policy statement in October 2006. This policy aims to ensure future security of natural gas supply for the domestic (WA) market. The state government will negotiate with gas producers in new Liquified Natural Gas (LNG) projects to obtain 15 per cent of gas to be supplied for domestic use rather than exported. This commitment by producers will be made a condition of their access to WA land for the location of their gas processing facilities. The policy will only apply to projects which require access to WA land or waters for processing or other purposes, not those located entirely offshore, in the Commonwealth jurisdiction. There has been some resistance to and criticism of this policy. There may be applicable international policy lessons which would assist in the furtherance of the debate.

Some countries with large natural gas reserves but limited domestic demand are weighing the long-term benefits of LNG exports against use of the gas for domestic industries. According to Flower (2006),
“the effect of countries giving priority to domestic gas use over LNG exports is already being felt since it is one of the reasons for the estimated shortfall of 15 million tones of LNG production this year (compared to nameplate capacity of liquefaction plants)”¹.
He further argues that the global impact of this trend could be much larger in future years as planned projects are delayed or even cancelled due to an inability to secure the gas supplies to support production.

This report presents a review of international energy policies related to the reservation of, primarily, natural gas, but in some cases also oil and coal, for domestic energy use. It focuses on a number of self-contained country case studies. For each country of interest, a case study is provided in laymen’s terms, including:
• brief details of the level of gas or energy reserves, consumption and exports ;
• a description of the reservation policy (past or present), or relevant domestic market promotion policy or production sharing agreement/contract conditions, be it for oil, gas or coal.
• conclusions at the completion of each case study in Sections I through III discussing some of the benefits and criticisms of the policies.

There are three environments currently evident with regards to international energy policies which can provide the potential lessons relevant to the domestic gas reservation policy in WA.

The first environment of particular interest is an industrialised country similar to Australia. The United States also utilises a concession/licence scheme (like Australia), operating in a privatised industry environment for exploration and production of fuel for energy use, and several relevant US energy policies are covered in Section I. A policy of interest is the Strategic Petroleum Reserve. One method of filling this reserve, the Royalty in Kind Program, fulfills the intent of a domestic reservation policy by compelling the submission of production to the government.

The second environment occurs in other countries in which energy fuel reservation is utilised, in which there is a strong central government operating with a nationalised or semi-nationalised fossil fuel industry. In this environment, there arise 2 other situations of interest (generally applying in “lesser developed” countries) in which:
• there is an overarching, explicit domestic policy of reservation, that is setting aside of domestic supply via a clearly outlined public policy. There are 4 countries selected in this category (covered in Section II). As much as is possible, an effort has been made to strongly place the reservation policy in the context of the country’s relevant energy market structure and policy setting.
• nationalised or semi-nationalised petroleum industries have a broadly-defined policy of promoting or developing the national/domestic market (eg. for gas) which plays some part in the granting of licences or production sharing contracts/agreements (PSCs/PSAs), or the establishment of joint ventures. There are 3 countries selected in this category (covered in Section III). Though no explicit reservation policy exists, indirect or implicit policies may have a similar result.

Finally, contemporary energy policy events in a number of other countries, particularly those with large gas reserves and exports, will be briefly detailed in Section IV. There are 5 countries chosen in this category.