ONG Report: U.S. Pursues Offshore Dominance While Australia Struggles with Supply

U.S. Pushes for Offshore Energy Dominance

Global Supply Shifts: Your 4 Key Takeaways This Week

Australia's LNG Export Paradox

Despite being one of the world's top LNG exporters, Australia is facing acute domestic gas shortages. Long-term export commitments have drained local supply, forcing regulators to enforce strict market interventions. This highlights a critical lesson in energy security: being a massive producer doesn't guarantee domestic affordability if infrastructure and policy aren't balanced.  

Venezuela and Russia Solidify Energy Alliance

Venezuela is doubling down on its partnership with Russia, signing new agreements for upstream development and expanding oil trade operations. This moves beyond simple diplomacy; it is a strategic alignment of resources that complicates the geopolitical landscape and potentially offers Russia a stronger foothold in the Western Hemisphere's energy market.  

U.S. Offshore Drilling Expands to New Coasts

In a controversial move for "energy dominance," the Trump administration has unveiled plans to open waters off California and Florida to drilling. This reverses decades of protections and sets up a major legal and political clash between federal energy goals and coastal state opposition regarding environmental risks and tourism.  

Australia's Market Weight

‍The industry tidbit provides crucial context for the first point. Australia supplies roughly one-fifth of all global LNG shipments. Any regulatory move to curb exports in order to satisfy domestic demand could undermine contract sanctity, creating sovereign risk concerns for importers across Asia and Europe.

Structural Imbalances in a Leading Exporter

The Australian energy sector presents a case study in the complexities of managing resource abundance. As of late 2025, the nation stands as a dominant force in the global LNG market, yet it is simultaneously confronting a domestic supply emergency that borders on the absurd. This "export paradox", where a country awash in gas cannot keep the lights on for its own citizens without state intervention—reveals deep structural flaws in the liberalization of resource markets and the failure of infrastructure planning to keep pace with export ambitions.

Market Dominance vs. Domestic Scarcity

Australia’s ascent to the pinnacle of the global gas trade was driven by an unprecedented wave of capital investment during the 2010s, which saw the construction of massive export terminals in Western Australia, the Northern Territory, and Queensland. This infrastructure build-out allowed Australia to rival, and at times surpass, Qatar and the United States in export volumes. In 2022 alone, Australia commanded a 21% share of the global LNG market.

However, this export-oriented growth model has created a bifurcated economy. The "eastern market"—comprising the populous states of New South Wales, Victoria, and Queensland—is facing a crisis of affordability and availability. The Australian Competition and Consumer Commission (ACCC) and the Australian Energy Market Operator (AEMO) have issued escalating warnings regarding supply shortfalls, predicting that without new supply, the southeastern states face inevitable winter blackouts and industrial curtailments.

The Anatomy of the Crisis: Causes and Mechanisms

The origins of this crisis are not geological but structural and regulatory. The following factors have converged to create the current volatility:

The Geographic Mismatch and Infrastructure Failure

Australia is not a single gas market. It is a collection of isolated regional markets disconnected by a lack of transcontinental infrastructure. The prolific North Carnarvon Basin in Western Australia, which anchors the nation’s largest export projects, has no pipeline connection to the east coast demand centers.

• Pipeline Constraints: The eastern market relies on gas from the Cooper, Gippsland, and Surat/Bowen basins. The "pipeline constraint" phenomenon is acute; even if gas is available in Queensland, limited southward pipeline capacity creates bottlenecks during peak winter demand in Victoria and New South Wales.⁷
• The Queensland "Net Withdrawals" Phenomenon: In a perverse twist of market dynamics, LNG exporters in Queensland—originally approved on the premise that they would develop coal seam gas (CSG) for export and domestic use—have at times become net withdrawers from the domestic grid. When their own production underperforms, they purchase gas from the domestic market to fulfill lucrative international contracts, effectively cannibalizing local supply to serve foreign buyers.³

The Pricing Mechanism: Asian LNG Netback

The liberalization of the gas market shifted domestic pricing from a "cost-plus" model to an "export parity" model, specifically Asian LNG Netback.

• Mechanism: The domestic price is calculated as the Asian spot price minus the cost of liquefaction and shipping.
• Implication: This transformed Australian gas into a globally traded financial instrument. An industrial manufacturer in Sydney is effectively competing for molecules with a utility in Tokyo or Shanghai. When global prices spike—due to European conflict or Asian demand waves—Australian households pay the price, despite the gas being extracted in their own backyard.⁷ The weak Australian dollar further exacerbates this, as global gas is denominated in USD, importing currency inflation into the domestic energy bill.⁸

The Decline of Upstream Investment

The supply-side response has been paralyzed by a collapse in exploration.

• Exploration Drought: Between 2023 and 2025, Australia experienced an unprecedented two-year gap where zero offshore exploration wells were drilled. This contrasts sharply with the historical norm (pre-2015) of discovering approximately one billion barrels of oil equivalent annually.⁷
• Regulatory Fatigue: The approval timelines for new projects have become prohibitive. The Narrabri Gas Project, capable of supplying half of New South Wales’ demand, languished in regulatory review for ten years before approval. Woodside’s North West Shelf expansion faced a six-year delay. These extended timelines destroy the Net Present Value (NPV) of projects, driving global capital to jurisdictions with faster cycle times.⁷
• Capital Flight: The unpredictable fiscal and regulatory environment has had tangible consequences. A stark example occurred when the Abu Dhabi National Oil Company (ADNOC) abandoned a potential $19 billion acquisition of Santos, explicitly citing the complexity and uncertainty of the Australian regulatory landscape.⁷

From "Light Touch" to Heavy Intervention

Faced with public outrage and industrial collapse, the Australian government has abandoned its traditional laissez-faire approach in favor of aggressive interventionism.

The ADGSM and the "Code of Conduct"

The primary instrument of state control is the Australian Domestic Gas Security Mechanism (ADGSM).

• History & Evolution: First introduced on July 1, 2017, as a temporary safeguard, the ADGSM empowered the Resources Minister to restrict LNG exports if a domestic shortfall was forecast. However, the mechanism was initially criticized as toothless.
• The 2023 Hardening: Effective April 1, 2023, the mechanism was significantly tightened. Reforms included shifting to quarterly (rather than annual) assessments, mandating equal shortfall-sharing among all exporters, and introducing tradable export permissions. The mechanism is now legislated to remain in force until January 1, 2030.⁹
• The Code of Conduct: Alongside the ADGSM, a mandatory "Code of Conduct" became fully operational on July 11, 2023. This code essentially functions as a price regulation tool, capping gas prices at A$12 per gigajoule for domestic sales through 2033.⁷
• Sovereign Risk Concerns: Industry bodies have argued that granting a Minister broad discretion to break export contracts amounts to "sovereign risk." They contend that if Australia creates a reputation for arbitrarily intervening in trade, international buyers (like Japan and Korea) will view Australia as unreliable, prompting them to diversify toward Qatar or the US. This "sovereign risk" argument is the central tension in Australian energy policy: does the state's duty to its citizens override the sanctity of commercial contracts?.⁹

The "Import Insanity"

The most striking symptom of Australia’s policy failure is the move to construct LNG import terminals. It is a profound irony that the world's second-largest exporter of gas is preparing to import it.

• The Import Terminal Pipeline:
  • Port Kembla (Squadron Energy): Located in New South Wales, this terminal is under construction and expected to be operational by mid-2026. It is pitched as the "fastest" solution to the southeast's winter shortfall.²
  • Geelong (Viva Energy): A proposed terminal in Victoria, targeting a 2029 start date.⁷
  • Market Logic vs. Strategic Risk: The proponents of import terminals argue they provide "market-driven" flexibility. The logic is simple: if Australia exports too much, it can simply buy it back on the spot market. However, strategic analysts warn this creates a dangerous vulnerability. Reliance on imported LNG—just like Australia's 90% reliance on imported refined fuels—exposes the nation’s energy security to maritime disruption. In a conflict scenario in the Indo-Pacific, just-in-time supply chains are fragile. Defence experts have long warned that replicating the liquid fuel vulnerability in the gas sector is a strategic error.²
• The Economic Absurdity: Importing gas means Australia would be paying the full global cost regarding liquefaction, shipping, and regasification for gas that likely originated in its own waters, introducing a permanent "import parity" price floor that is significantly higher than historical domestic costs.⁸

The "Free Gas" Controversy

Beyond supply security, there is a fierce debate regarding the economic return to the Australian taxpayer.

• The Royalty Void: Research from the Australia Institute indicates that approximately 56% of gas exported from Australia attracts zero royalty payments. This is due to the structure of the Petroleum Resource Rent Tax (PRRT), which allows companies to carry forward massive deduction credits from the capital-intensive construction phase, effectively neutralizing their tax liability for decades.⁶
• Public Sentiment: This statistic fuels a narrative of corporate greed—that multinational corporations are liquidating Australia's natural inheritance for free while domestic prices skyrocket. This political pressure creates a persistent risk of further fiscal raids or retrospective tax changes, adding to the "sovereign risk" premium investors assign to Australian assets.⁶

The Geopolitical Weaponization of Energy

While Australia struggles with the internal contradictions of market liberalization, the Western Hemisphere is witnessing the consolidation of a state-centric energy bloc designed to challenge Western hegemony. The renewal and expansion of the Russia-Venezuela alliance in late 2025 marks a critical inflection point in the geopolitics of the Americas.

The 2025 Strategic Partnership Treaty

On October 8, 2025, Russian President Vladimir Putin and Venezuelan President Nicolás Maduro formalized the deepening of their alliance by signing a 10-year Strategic Partnership Treaty at the Miraflores Palace. The agreement, ratified amidst the symbolic backdrop of President Putin’s birthday, is not merely a diplomatic nicety but a comprehensive roadmap for economic and military integration.¹⁰

Key Structural Provisions:

• Duration: The treaty is valid for a decade, with automatic five-year renewals, indicating a long-term commitment that transcends immediate political cycles.¹⁰
• Scope: The document covers a vast array of sectors, including energy (upstream/downstream), mining, transportation, metallurgy, pharmaceuticals, and railway infrastructure.¹¹
• Ideological Context: The treaty was framed by Caracas as a tool for "anti-imperialist" survival, providing Venezuela with "legitimacy and economic survival" in the face of persistent US pressure.¹³

The Shadow Financial Architecture

The most consequential aspect of the treaty is its focus on dismantling the mechanisms of Western sanctions. Both Russia and Venezuela are heavily sanctioned states, excluded from SWIFT and global dollar clearing. The treaty explicitly aims to construct a parallel financial infrastructure.

Alternative Insurance Systems

A critical choke point for Western sanctions (specifically the G7 price cap) is the maritime insurance market. The vast majority of the global tanker fleet is insured by Western "Protection and Indemnity" (P&I) clubs, which are legally barred from covering sanctioned cargoes.

• The Treaty's Solution: The agreement calls for the "creation of an alternative system of oil transportation insurance and international recognition of insurance services".¹²
• Strategic Implication: If Russia and Venezuela can successfully underwrite their own fleets and—crucially—convince buyers in India and China to accept this insurance, they effectively nullify the Western blockade. This allows for the unhindered flow of Venezuelan heavy crude and Russian Urals to global markets, bypassing the price cap entirely.

Financial Clearing Infrastructure

The treaty prioritizes the creation of "financial infrastructure to facilitate trade" independent of the US dollar.10 This likely involves the integration of Venezuela’s banking sector with Russia’s SPFS (System for Transfer of Financial Messages) and the use of digital assets or ruble/yuan settlement mechanisms to clear payments for oil and industrial equipment.

The Technical Alliance

Venezuela sits atop the world's largest proven oil reserves, primarily in the Orinoco Belt. However, this oil is extra-heavy and technically difficult to extract, transport, and refine. It requires diluents (like naphtha) and complex upgrader facilities—infrastructure that has crumbled after years of mismanagement and lack of Western parts.

• Russian Technical Intervention: The treaty mandates cooperation in "exploring and developing new oil and natural gas fields" and "increasing the yield of fields operated by joint ventures".¹²
• The Value Proposition: Russia possesses world-class expertise in maintaining production in mature and technically challenging fields. By applying enhanced oil recovery (EOR) techniques and supplying industrial metallurgy and machinery (sectors explicitly named in the treaty), Russia aims to rehabilitate PDVSA’s production capacity.
• The Gas Pivot: Interestingly, the treaty also emphasizes gas sector development.¹⁰ Venezuela has historically neglected its offshore gas potential. Russian assistance could help monetize these reserves, potentially for export to power-starved Caribbean neighbors, thereby buying diplomatic influence in the region.

Hybrid Power Projection in the Americas

For Moscow, Venezuela acts as a strategic fulcrum in the Western Hemisphere. The relationship is described by geopolitical analysts as a "model of hybrid power projection," blending military diplomacy, energy interdependence, and intelligence cooperation.¹³

• Reciprocity: Russia provides Venezuela with a veto-wielding patron at the UN Security Council and the military hardware to secure the regime. In return, Venezuela offers Russia a platform to harass the United States in its "near abroad."
• OPEC+ Coordination: The treaty reinforces alignment within OPEC+. As two of the bloc’s most hawkish members, their coordinated production policies are designed to maintain a price floor for oil that sustains their war economies, often complicating Western efforts to manage inflation.¹³
• Electric Power Grid: The treaty includes specific provisions for "joint projects to retrofit and enhance power generating capacities".¹² Stabilizing Venezuela's electric grid is a prerequisite for oil production and regime stability; Russian involvement here is a direct intervention in the internal governance of the Venezuelan state.

The 2026-2031 Offshore Strategy

While the Eastern Hemisphere fragments and the Global South builds parallel structures, the United States is undertaking a radical pivot in its own energy policy. The Trump administration’s "2026–2031 National Outer Continental Shelf Oil and Gas Leasing Program" represents the most aggressive expansion of federal offshore access in decades, signaling a return to a maximalist interpretation of "energy dominance."

Dismantling the Predecessor's Legacy

The Biden administration’s approach to offshore leasing was characterized by restraint, scheduling the bare minimum of sales required by the Inflation Reduction Act. The Trump Department of the Interior has moved to explicitly "end" the 2024–2029 program and replace it with a far broader vision.¹⁴

Scope of the Expansion:

• Lease Sales: The new draft proposal schedules up to 34 potential offshore lease sales.
• Acreage: The plan covers a staggering 1.27 billion acres of the Outer Continental Shelf (OCS).¹⁴
• Philosophy: Interior Secretary Doug Burgum framed the policy as a corrective measure, arguing that the previous administration "slammed the brakes" on development and "crippled the long-term pipeline." The new goal is to ensure the US remains "energy dominant for decades to come," viewing resource extraction as a fundamental component of national power.¹⁴

The Three Frontiers

The plan targets three distinct and politically volatile theaters: the Pacific, the Arctic, and the Eastern Gulf of Mexico.

The Pacific Theater: California

For the first time since the mid-1980s, the federal government is proposing new leasing in federal waters off the California coast.

• The Plan: The proposal includes six lease sales between 2027 and 2030.
• Commercial Interest: Despite the hostile regulatory environment, industry interest persists. Sable Offshore Corp., a Houston-based entity, is actively seeking to restart production in waters off Santa Barbara, targeting assets damaged in the 2015 Refugio spill. The administration has hailed Sable’s efforts as a model for the industry.
• The Political War: California Governor Gavin Newsom has vowed to fight the plan, labeling it "idiotic" and "reckless." The state’s strategy will likely rely on the "infrastructure blockade"—using state jurisdiction over the first three miles of coastal waters to deny permits for pipelines or onshore terminals needed to transport federal oil.

The Arctic Theater: Alaska

The plan proposes a massive reopening of the Arctic, including the Beaufort Sea, the southern Gulf of Mexico, and the High Arctic.

• Reversal: This explicitly reverses the Biden-era withdrawal of 625 million acres of federal waters from development.
• Scale: The plan envisions 21 lease sales in the Alaska region.
• Strategic Rationale: Proponents argue that Arctic drilling is essential not just for oil, but to maintain a US industrial presence in the region to counter Russian and Chinese Arctic expansion.

The Gulf Theater: Florida and the Eastern Gulf

Perhaps the most politically explosive element is the proposal to drill in the Eastern Gulf of Mexico, an area traditionally off-limits due to military testing requirements and tourism concerns.

• The Plan: The proposal includes sales in the Eastern Gulf, targeting areas "at least 100 miles" from the Florida coast to mitigate visual impacts.
• Intra-Party Conflict: This places the administration in direct conflict with Florida Republicans. Senator Rick Scott, a key Trump ally, has historically opposed drilling near Florida, having successfully lobbied for an exemption in 2018. The tension between national energy goals and local electoral politics in a key swing state will be a defining feature of this policy’s implementation.

The Legal and Environmental Battlefield

The path from lease sale to first oil is paved with litigation. The administration faces a sophisticated legal insurgency from environmental groups and state attorneys general.

The Rice’s Whale Precedent:

A specific and potent legal threat has emerged regarding Rice’s Whale, a critically endangered species in the Gulf of Mexico.

• The Legal Weapon: Energy attorneys have warned that the Bureau of Ocean Energy Management (BOEM) must conduct exhaustive Endangered Species Act (ESA) reviews. If drilling activity is found to jeopardize the whale’s existence, courts could issue injunctions halting entire lease sales. The lack of specific provisions for the whale in previous rules is viewed by legal experts as a major vulnerability for the new program.¹⁹
• Regulatory Uncertainty: While the administration seeks to remove "regulatory barriers," statutory requirements like the ESA cannot be waived by executive order. This creates a "permit purgatory" where leases are sold but cannot be developed, stranding capital.

The Fragmentation of Energy Security

The convergence of the Australian, Russo-Venezuelan, and American narratives points to a fundamental restructuring of the global energy order. We are witnessing the death of the integrated global market and the rise of a fragmented, mercantilist system.

The "Security Premium" and Market Efficiency

The common thread across all three regions is the subordination of market efficiency to national security (or regime security).

• In Australia, the efficiency of global trade is being curbed by the ADGSM and price caps to protect domestic stability.
• In Venezuela, the efficiency of Western capital is rejected in favor of a politically aligned (but technically inferior) Russian partnership to ensure regime survival.
• In the US, the efficiency of onshore shale (short-cycle, lower risk) is being supplemented by a push for high-cost, high-risk offshore development to achieve absolute "dominance."

The Future of LNG

Australia’s crisis serves as a canary in the coal mine for the United States. As US LNG exports surge to replace Russian gas in Europe, the American domestic market is becoming increasingly coupled with global prices. The Australian experience demonstrates that being an "energy superpower" does not guarantee cheap energy for domestic citizens. If US domestic gas prices were to spike due to export volumes, the political pressure to implement Australian-style export controls could become irresistible. This would shatter the confidence of European and Asian buyers who currently view US LNG as the "safe" alternative to Russian gas.²⁰

The Rise of the "Dark Fleet" Economy

The formalization of the Russia-Venezuela insurance and financial alliance suggests that the "dark fleet" or "shadow market" is no longer a temporary evasion tactic but a permanent feature of the global economy. A bifurcated oil market is emerging: a "compliance market" (trading in dollars, insured by London, abiding by sanctions) and a "sovereign market" (trading in rubles/yuan, self-insured, sanctions-proof). The expansion of this secondary market reduces the leverage of Western financial sanctions, forcing Western powers to consider more kinetic or diplomatic tools to enforce their will.