Domestic Gas Market Interventions, International Experience, 2020 update

In 2013 EnergyQuest completed an independent report for the Australian Petroleum Production and Exploration Association (APPEA) on domestic gas policy in 20 countries. The report was updated in November 2020.

International experience is that government interventions to reduce domestic wholesale gas prices are often unsustainable, and have numerous negative side-effects in terms of economic, energy and environmental policy.

Developed countries

  • Of the five developed OECD countries reviewed, none have made material use of government interventions in their gas markets.
  • The U.S. and Canadian export controls have not been used in practice to restrict gas exports. The U.S. has a total LNG export capacity in operation, or under construction, of 114 Mtpa, with a further 22.4 Mtpa approved, but yet to reach Final Investment Decision (FID) (EIA, 2020). This will be the largest national LNG export capacity in the world. Canada has been exporting gas to the U.S. for almost 60 years, and has approved 26 licences to export gas and propane, including up to 40 Mtpa of LNG.

Developing countries

  • Of the 15 developing countries reviewed, eight were net exporters of gas (Qatar, Oman, Egypt, Algeria, Russia, Peru, Indonesia and Malaysia), and seven were net importers of gas (United Arab Emirates (UAE), Brazil, Argentina, Mexico, China, India and Thailand).
  • Governments in these 15 developing countries, all intervene in domestic price setting for natural gas.
  • While these policies may produce low headline domestic prices, the experience is that they artificially stimulate demand and tend to restrict supply, leading to gas shortages and imports of gas from other countries at higher prices. There is little incentive for energy efficiency and often governments must decide on the allocation of scarce gas to particular industries, picking winners on political grounds.
  • The regulatory policies are often associated with government ownership, or control of downstream industries, and controls on exports to avoid leakage of the subsidies provided by regulated gas prices.
  • Many of these countries are experiencing upward pressure on domestic gas prices, in some cases to import parity. However, it is typically politically difficult to increase prices once they are regulated.
  • Regulation does not necessarily produce low gas prices in these countries. According to the International Gas Union (IGU) survey of wholesale gas prices in 2019 (IGU, 2020), five of the countries reviewed in this report (Brazil, China, India, Malaysia and Thailand) had higher average gas prices than Australia.
  • The other ten countries (Qatar, UAE, Algeria, Egypt, Mexica, Argentina, Peru, Oman, Indonesia and Russia) have particularly low prices due to tight regulations and government intervention.
  • Peru is the only country identified that exports gas and has domestic gas reservation. Investment in exploration has collapsed in recent years and raises doubts about the country’s ability to replace reserves in the medium to long term.

The report can be downloaded below.