Future Gas Strategy: consultation paper

Please direct all responses/queries to:
Luke Northcott, Commercial
E: northcott@mimi.com.au

13 November 2023

Dear Future Gas Strategy Taskforce,

SUBMISSION TO THE FUTURE GAS STRATEGY CONSULTATION

Japan Australia LNG (MIMI) Pty Ltd (MIMI) welcomes the opportunity to contribute to the Future Gas
Strategy consultation process.

1. Introduction

MIMI is a 50-50 joint venture between Mitsubishi Corporation and Mitsui & Co., Ltd. MIMI is very proud
to have contributed to Australia since 1985 through our one-sixth equity interest in the North West
Shelf Venture (NWS), which was the first liquified natural gas (LNG) project in Australia. MIMI also
participates in the Browse Project (Browse) and has done so since 2012 through a 14.4% equity
interest, and in the Angel Carbon Capture and Storage Project (Angel CCS) since 2022 through a
20% equity interest.

2. Executive Summary

Natural gas has a critical role to play in Australia and in Japan as energy security and affordability
becomes increasingly important. Natural gas combined with carbon capture and storage (CCS)
technology will be a key enabler for the energy transition pathway for both Australia and the Indo-
Pacific region. Australia’s natural gas industry is well positioned to continue to supply our key trading
partners, such as Japan, with energy security while also making significant contributions to the
economy including by way of tax, rent and royalty payments to state and federal governments.

Australia is a strategically important country for investment for many foreign investors, including
Japan. Recently, Australia’s natural gas industry has experienced serious challenges relating to
significant policy changes and lack of regulatory approvals. These challenges introduce additional
risks from an investor’s perspective and result in a perception of a less stable and attractive investment
environment.

While the specific objectives of the recent policy changes may be achieved, they may also have
unintended consequences for Australia’s natural gas industry. MIMI requests that a holistic and global
approach is adopted for changes to Australia’s natural gas industry policies, with a focus on a stable
and reliable investment environment.

Regulatory approvals have also become increasingly gridlocked as the requirements for approvals
have grown more cumbersome, which undermines investor confidence. MIMI requests that the state
and federal environmental approval processes are reformed to provide an accelerated and
streamlined regulatory approval pathway.

Australia is well positioned to be a low carbon energy supplier through a natural gas industry with a
supporting CCS industry. To achieve this, MIMI requests that the government considers the policies
adopted by countries with successful CCS industries. MIMI also seeks assurance of the legal and
regulatory systems for the use of CCS to assist Australia and our trading partners to decarbonise.

It is MIMI’s strong desire to continue to invest and operate in Australia and to continue to supply
natural gas to Australia and the Indo-Pacific region into the future. We look forward to working
collaboratively with the Australian government to find solutions to make Australia’s natural gas industry
globally competitive and effective.

3. MIMI’s view of the role of natural gas

3.1 Natural gas in Australia

Domestic gas is critical for electricity generation, manufacturing, and mining in Western
Australia, and domestic gas is the largest electricity generation fuel source in Western Australia1.
The oil and gas industry contributes up to $470 billion in economic activity each year2, supports
80,000 highly skilled jobs, and made direct tax, rent and royalty payments of $64.4 billion to
state and federal governments between 2010 and 20213.

While the Western Australian domestic gas market is expected to be tightly balanced through
until 2029, domestic gas demand is forecasted to exceed potential gas supply from 2030 due to
the expected retirement of coal-fired generation projects. This will result in a Western Australian
domestic gas supply shortfall of up to 296 TJ/day by 20324.

3.2 Natural gas in Japan and Asia

The majority of Australia’s natural gas is exported to our trade partners in the Indo-Pacific region
as LNG1. Last year, Australian LNG exports met 40 per cent of Japan’s gas demand, 36 per
cent of Taiwan’s gas demand, 25 per cent of Republic of Korea’s gas demand, 25 per cent of
Singapore’s gas demand, and 8 per cent of China’s gas demand5,6.

Japan does not have the resources to produce gas domestically. Therefore, the import of LNG
will be a key component of Japan’s energy security for many years. Given that Australia is the
world’s largest LNG exporter, accounting for 21% of global LNG exports in 20227, Australia has
an important role to play in supplying natural gas to our trading partners in the region, such as
Japan. Australia’s role has become increasingly important during the recent geopolitical events,
where Japan’s dependence on Australia as a reliable supplier of energy is higher than ever
before.

Australia is well placed to continue its role as a preferred supplier of natural gas to Japan;
Australia has historically had a world-class regulatory and policy framework to protect the
environment, our workforce, the general public and the communities where we operate.

The importance of Australian gas continues to lead Japanese investors who are focused on
energy security and decarbonisation to invest in Australia. Japan was the third-largest direct
foreign investor in Australia in 2022, accounting for 12% of total direct foreign investment8. On
23 October 2022, Japanese Prime Minister Fumio Kishida reaffirmed Western Australia’s
position as a significant trading partner of Japan, saying Western Australia's LNG exports were
“of particular importance to Japan's energy security”. On 8 October 2023, Japan’s Minister of
Economy, Trade and Industry, Yasutoshi Nishimura stressed the need for Australia to have a
“stable investment environment”.

3.3 Energy transition pathway

Natural gas has a critical role to play in the energy transition pathway. Under all the International
Energy Agency’s modelled scenarios, demand for natural gas will remain through to 20509.
Across most of its scenarios, additional investments in natural gas production are nonetheless
required to meet natural gas demands. Furthermore, many consultancies have predicted that

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natural gas demand will increase especially in Asia despite a net zero emission goal by 2050
because operating and sanctioned projects are not enough to satisfy such increasing demands.
Therefore, new LNG projects will be required to meet the increasing natural gas demand.

These new LNG projects should serve their role within the fuel mix to the net zero emission goal
and reach their end of field lives near net zero 2050. Many of these projects have already
experienced delays due to regulatory approvals. Therefore, it is critical that these new LNG
projects receive immediate regulatory approval support from the government. Otherwise, they
will be unable to fulfill their role and the energy transition pathway may also be delayed.

MIMI supports the views articulated in the Future Gas Strategy consultation paper that CCS will
likely play an important role in the decarbonisation of Australia. Modern natural gas projects are
well placed to incorporate CCS technology as part of their development to decrease greenhouse
gas emissions. CCS technology has been identified as a key enabler to achieve net zero
emissions by 20508. CCS technology can also be used to sequester unavoidable greenhouse
gas emissions from various sectors or produce fuels including ammonia and hydrogen.

MIMI is involved in two CCS projects. The first is the CCS concept on Browse which could
sequester approximately 50% of the Scope 1 offshore emissions from the Browse to NWS
Project Proposal. The second is Angel CCS which is a multi-user hub capable of storing
greenhouse gas emissions from multiple industries in offshore reservoirs in the Northern
Carnarvon Basin.

3.4 Challenges being faced by the natural gas industry

The complex nature of LNG projects requires significant upfront capital investment which the
investor hopes to recoup over the long lifetime of the asset. The investor invests on the basis
that it will likely receive a return for the investment in exchange for taking on the developmental,
operational and market price risks of that project.

Recently, the Australian government has introduced several significant policy changes which
impact the natural gas industry over a short period of time. These changes include the
Safeguard Mechanism reforms, the Australian Domestic Gas Security Mechanism reforms,
changes to the Petroleum Resource Rent Tax, impacts from changing expectations on
regulatory approval consultation requirements, East Coast domestic gas price interventions, and
the upcoming EPBC Act reforms and sectoral decarbonisation plans. Unfortunately, these
changes introduce additional and unpredictable risks for the investor, and, in some instances,
they may make projects no longer investible.

This is particularly the case from a foreign investor’s perspective. Australia’s economy competes
with global economies for limited capital investment. The recent policy changes could undermine
Australia’s ability to attract this investment when foreign companies are deciding where to
allocate their capital. The outcome of this could be that either global energy prices will rise as
energy demand outpaces supply, or foreign investors will invest in other economies to meet
their energy needs. The governments of these economies may not have the same
environmental regulation or greenhouse gas aspirations as Australia, making global net zero by
2050 an impossible task.

As Australia accelerates its energy transition and decarbonisation, there will be more changes,
but the direction is clear. Australia and Japan need to work with the natural gas industry to avoid
any further “gas surprises”. It would be best for an investor if there would be no major policy
changes impacting returns after the investor has committed significant capital following an
investment decision. MIMI would like to see the Australian government develop a more balanced
and sustainable policy setting that international investors can invest in with confidence.

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4. MIMI’s request to the Future Gas Strategy Taskforce

4.1 A holistic and global perspective for policy setting

The natural gas industry’s role has shifted over time and there is a growing necessity for
decarbonisation and energy security. MIMI understands the government’s requirement to
introduce policy changes from time to time.

Each of the recent industry policy changes were designed to meet a specific objective. For
example, the Safeguard Mechanism reforms were designed to reduce Australia’s greenhouse
gas emissions. However, Australia’s natural gas industry is a part of the global energy system,
and therefore policy changes made in Australia will have an impact on this system. While the
specific objectives of each policy change may be achieved, they may also have unintended
consequences for Australia’s natural gas industry, economy, energy security and relationship
with Australia’s trade partners such as Japan.

Given the extreme importance of Australia’s natural gas industry, to both Australia and the Indo-
Pacific region, MIMI believes that it is critical for the government to consider the broader impacts
of the policy changes before implementing them. Given Australia’s large impact on the global
energy system, Australia’s energy policies should incorporate a holistic and global perspective.

Therefore, prior to implementing new policies, MIMI requests that the Future Gas Strategy
recommends to the Australian government to adopt a collaborative approach to the natural gas
industry by consulting with companies, trading partners, and other governments such as Japan,
who are a part of the global energy system, to understand the fulsome impact of potential policy
changes. We think that this collaborative working approach will help to find solutions for policy
changes and can ensure energy security and affordability. MIMI would welcome the opportunity
to make contributions to such a collaboration.

Furthermore, MIMI would like to request the Australian government implement natural gas
related policies in a stable and predictable way to support and enable critical investment in long
term natural gas projects in Australia. Such a stable investment environment would allow
Australia to continue to be a dependable energy supplier to our trade partners like Japan, as
well as ensure affordable and reliable energy for Australians, and allow for further significant
contributions to Australia’s economy and tax, rent and royalty payments to state and federal
governments.

4.2 Unlocking regulatory approvals

Regulatory approvals have become increasingly gridlocked as the requirements for approvals
have grown more cumbersome, for both proponents and regulators, and recent legal challenges
have introduced a sense of anxiety and reluctance, for both investors and regulators.

MIMI believes that the partnership between investors and regulators is critical to achieving timely
approvals which can help to ensure stable energy supply, managing Australia’s energy
transition, support Australia’s trade partners, and attract investment into Australia.

To achieve this, MIMI requests that the Future Gas Strategy recommends to the Australian
government that it reform the state and federal environmental approval process to provide an
accelerated and streamlined approval pathway, particularly for economically and nationally
strategic projects such as the NWS and Browse projects. The reform should introduce regulatory
transparency and support to ensure the quickest possible pathways are achieved.

4.3 Carbon management

Under the Safeguard Mechanism, Safeguard facilities are required to manage their excess
emissions by purchasing and surrendering Australian carbon credit units (ACCUs). However,

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many forecasts show that ACCU demand may begin to exceed supply by 2027. Therefore, MIMI
is concerned that there may be future liquidity issues in the ACCU market.

MIMI acknowledges that it is hard for the industrial sector under the current policy setting to
abate CO2 emissions to meet Australia’s net zero commitments. MIMI’s view is that key
supporting mechanisms enabling the rapid deployment of cost-effective, safe, and verifiable
CCS projects in Australia are not equivalent relative to other more successful countries, such
as the USA, UK, and the European Union. The most successful CCS supporting policies in
these countries seek to alleviate the variation in revenue risk due to an immature carbon market.

Australia has significant advantages including hydrocarbon reserves available for production
and use as a low carbon, dispatchable energy source, Australia’s extensive geological
sequestration potential, and an established regulatory regime. To ensure the Australian
economy continues to benefit from these advantages into the future, additional incentivising
policies are required, particularly to reduce investment risk due to a variable carbon price. The
Future Gas Strategy consultation paper acknowledges the close relationship between CCS and
gas production and consumption in a way consistent with net zero by 2050.

MIMI believes that supportive mechanisms such as those enacted in the USA, UK and EU would
help to encourage investment and accelerate the deployment of CCS in Australia. MIMI requests
that the Future Gas Strategy recommend that the Australian government review and consider
the supportive CCS policies adopted in these countries.

Furthermore, the Australian CCS industry could be further incentivised by the potential
commercial opportunities from the international transfer of CO2 that the ratification of the London
Protocol could enable. International transfer of CO2 for geosequestration could be provided to
regional trading partners who do not have the availability of suitable storage locations such as
Japan and Korea.

MIMI acknowledges the ‘Inquiry into the 2009 and 2013 amendments to the 1996 Protocol to
the Convention on the Prevention of Marine Pollution by Dumping of Wastes and Other Matter,
1972 (London Protocol)’ and the Environment Protection (Sea Dumping) Amendment (Using
New Technologies to Fight Climate Change) Bill 2023. Subject to the passage of this Bill through
the Australian Parliament, MIMI requests that the Australian government develop all necessary
matters to enable international transfer of CO2 for the purposes of geosequestration in a timely
manner. MIMI is seeking assurance of the legal and regulatory systems for the use of CCS to
assist trading partners to decarbonise and for Australia to secure the commercial opportunities
that come from the international transport and storage of CO2.

Thank you for the opportunity to contribute to the Future Gas Strategy consultation process.

Yours sincerely,

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1 DCCEEW Australian Energy Update 2023, Commonwealth of Australia, 2023.
2 Australian Economic Advocacy Solutions Report for the Australian Gas Industry Trust: Economic and
Employment Contribution of the Australian Gas Industry Supply Chain 2020–21.
3 APPEA Key Statistics 2022, Australia Petroleum Production & Exploration Association Limited, 2022.
4 AEMO 2022 Western Australia Gas Statement of Opportunities, Australian Energy Market Operator Limited,

2022.
5 Department of Industry, Science, Resources (DISR), Resources and Energy Quarterly March 2023,

Commonwealth of Australia, 2023.
6 Energy Institute, Statistical Review of World Energy, Energy Institute, 2023.
7 DISR, Resources and Energy Quarterly June 2023.
8 Department of Foreign Affairs and Trade (DFAT), Japan Country Brief, Commonwealth of Australia, 2023.
9 International Energy Agency (IEA), World Energy Outlook 2023, IEA website.

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