Exporters of LNG from Australia’s eastern coast could be required to divert spot cargoes for the domestic market this winter as the country’s energy market operator forecasts increased peak demand and greater future supply uncertainty.

The Australian Energy Market Operator (AEMO) recently published an updated outlook of the country’s domestic supply risks and the potential impacts on its lucrative liquefied natural gas export industry. As production from Australia’s southern offshore fieldscontinues to dwindle, regulators and politicians are placing increasing pressure on LNG producers in the Queensland region to help supply more gas for consumers.

A shortfall was avoided during the current winter, thanks in part to an agreement forged between thefederal government and LNG producers, but AEMO researchers wrote more volumes originally intended for export could be needed as soon as this winter due to possible extreme weather events spiking demand.

“Supply gaps affecting domestic consumers may result if this is not the case,” and exporters could experience LNG supply shortages, meaning production diverted to consumers could cause them to not be able to meet contract commitments, if more investments aren’t made in Australia’s southern gas fields.

While AEMO’s report offered near-term guidance, it also focused on eastern Australia’s domestic gas supply concerns as a larger issue in the country’s long-term energy transition to net-zero emissions by 2050.

Demand for natural gas as a fuel for power generation is growing considerably in the short-term as consumers rely more on electric heating during peak winter events, driving up the risk of supply shortfalls, AEMO researchers wrote. However, AEMO noted that Australian consumers appear to be switching from gas to electric appliances more slowly than previously forecast based on annual gas demand.

If the trend continues, AEMO researchers concluded there could beeven greater pressureon exporters to divert spot cargoes to domestic markets after 2027 as production from southern fields continues to decline.

“From 2026, without additional commitments to expand domestic supply, or alternative developments such as hydrogen or biomethane that may offset natural gas demand, gas contracted for export byQueensland LNG producersmay instead need to be used to maintain domestic gas adequacy,” researchers wrote.

Australian Exports

Australia isAsia’s largest single supplierof LNG volumes. Exporters sent almost 80 million tons (Mt) of LNG to the Asian market last year, according to data from Kpler. The United States has been growing as a distant second-place supplier, reaching 33.6 Mt in 2021. U.S. exports to Asia fell to 19.2 Mt last year as European demand for spot cargoes boomed.

The European energy crisis also stoked natural gas prices worldwide, causing rates in eastern Australia, particularlyNew South Wales and Victoria, to skyrocket. In response, regulatorsinstituted a price capon domestic gas sales and made adjustments to regional mechanisms that could divert LNG feed gas to Australian markets. Thelatest changesto the Australian Domestic Gas Security Mechanism (ADGSM), which allow it to be triggered more frequently, are set to take effect in April.

In a Tuesday speech in Sydney, Minister of Resources Madeleine King said she intended for the mechanism to “remain a last resort,” but that intervention would be animportant toolas Australia balances the need for additional gas investments and its energy transition. While serving as a “flex fuel” during the energy transition, she said natural gas is a vital part of refining critical minerals for renewable energy infrastructure.

She added that Australia’s position as a leading LNG supplier for Asia has also intertwined its economy and energy systems with that of its neighbors, giving it a responsibility to play a part in world decarbonization efforts.

“It is often forgotten, but our exports also make an important contribution to our neighbors’ energy security, stability and reliability,” King said. “Moreover, we know that Australian gas will play an important role in our trading partners’ own net-zero pathways.”