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By Kirstin Crothers

Australia’s gas industry has come under increased scrutiny in recent months and years, with the risk of blackouts during peak summer and winter months a serious concern for independent authorities including the Australian Energy Market Operator (AEMO) and the Australian Competition and Consumer Commission (ACCC). Speakers from the upcoming Australian Domestic Gas Outlook (ADGO) 2024 discussed their views on the gas crisis and what can be done to help fix it.

Market interventions unfriendly to gas development

EnergyQuest’s Rick Wilkinson is concerned that current policy settings and regimes have not addressed the fundamental problem of insufficient supply and investment to meet expected demand. He said the market interventions of 2022 delayed investment in supply and raised the cost of capital for projects.

Patrick Gibbons from Orizontas has worked on energy and climate issues for over 20 years. He notes that governments recognise gas as valuable, but environmental pressures stop them from acting to ensure ongoing gas security. From the developer perspective, this makes investment unattractive. He is critical of what he describes as the “ongoing warfare against new developments.”

Senex Energy’s Ian Davies diagnoses current supply issues stem from a system “not fit for purpose and failing to match up with broader government energy goals and requirements.”

“Industry needs certainty their investments will be able to progress and make a return. Policy fluctuations and open-ended regulations and approval processes are causing chaos.”

MST Financial’s Saul Kavonic said only “significant change” can help reduce the risk of shortages. He is keen to emphasise new policy interventions are not required, believing the solutions lie in unwinding the “cumulative policy changes that have damaged the investment landscape to begin with.”

Code concerns

Australia has unexploited gas fields, but the current regulatory environment makes access difficult.

Senex’s Atlas project in Queensland has supply deals with major onshore industrials keen to tap into a secure long-term supply, even at prices above the $12 set by the Mandatory Gas Code of Conduct. But the project remains on hold.

Ian Davies said the political and regulatory climate has allowed the sector to ‘fester’ over the last few years and has slowed down contracting activity.

Saul Kavonic takes particular aim at the Code as a major source of current market dysfunction, describing it as “one of the most economically damaging and anti-market policies Australia has seen in recent memory.”

He believes the Code has resulted in less supply than if the intervention had never occurred.

While no one is a fan of recent market regulation, Clyde Russell from Thomson Reuters notes that previous governments could not create a functional regime and Labor’s more recent interventions “have at least forced the market to think.”

He says there needs to be an acceptance by producers that Australians should be able to get the lowest price for gas.

“If domestic buyers are to pay market price, the consequence is heavy regulation.

“Industry must commit to supply, as much gas as domestic industry needs, at a price that is not market-driven, but rather at cost plus a reasonable margin in a regulated environment that delivers certainty to end users.”

Will the future gas strategy build confidence for gas investors?

The Department of Industry, Science and Resources is currently receiving submissions on the Future Gas Strategy, but Patrick Gibbons is concerned the government’s plan is built around a flawed assumption of no new demand for gas.

Ian Davies agrees, saying, “The fact there is consideration of a future focus for gas is positive in a sense, but the demand destruction focus is misguided.”

Davies is adamant gas remains vital to industry and energy, saying, “Natural gas is an essential fuel in local manufacturing, especially those with high industrial heat loads. It will continue to provide a reliable energy source as intermittent renewables and new technologies mature.”

Australian Energy Producers Chief Executive, Samantha McCulloch, emphasises the Future Gas Strategy must provide the policy and regulatory certainty needed for investment in new gas supply.

Clyde Russell has a more radical approach – he believes gas needs to be treated as the ‘champagne’ of fuels and reserved for vital applications like gas peaking plants, and as a heat source for industries without electrification.

States decide the future of specific projects

Patrick Gibbons says states hold the key to new gas developments as they run planning regimes and environmental approvals. He believes the best chance lies with the New South Wales government, though it would be ‘challenging’ for them. Victoria is more problematic.

With steep declines in gas production from offshore Victoria, McCulloch describes Queensland as “doing the heavy lifting for the east coast market, helping to keep the lights on while extracting significant economic benefits from gas production.”

Rick Wilkinson says there is limited time left to meet the East Coast shortfalls beginning in 2028. He warns, “Policy changes and regulatory reviews are not likely to change enough in time – too little, too late. Narrabri is critical for New South Wales’ gas supply.”

Defining the fields that could alleviate short supply

Ian Davies spruiks Senex’s Atlas project as a potential game changer, boasting it could contribute more than 10 per cent of annual east coast domestic gas requirements by the end of 2025.

Patrick Gibbons says gas reserves in the Northern Territory’s Beetaloo Sub-basin are the most promising source for new supply. This could be connected to the eastern grid, though he warns that such a connection will be costly.

Clyde Russell nominates Narrabri and Beetaloo as two fields that might relieve supply woes but cautions that whilst tapping into new gas sources might be the industry’s preferred approach, other options must be considered. These include the forced curtailment of exports to re-direct supply to domestic buyers via the Australian Domestic Gas Security Mechanism (ADGSM).

Rick Wilkinson is concerned by the ADGSM, cautioning against breaking liquefied natural gas (LNG) contracts to prop up domestic gas supply, which he believes will have serious consequences for trade relationships. He notes that in September 2023, Queensland’s LNG supply was 21 per cent of China’s total LNG imports.

LNG import terminals

Patrick Gibbons notes LNG import terminals will lock in international prices, and Clyde Russell agrees. He says it is hard to see Western Australia prices being low enough on a sustained basis and considers LNG import the least economically viable solution for improving supply.

But Rick Wilkinson considers LNG import terminals a credible solution to current supply woes, saying, “LNG import terminals would be a reliable back up and provider of peak capacity.”

Wilkinson says LNG import terminals would allow Western Australia and Northern Territory as well as international gas supply to meet south-eastern Australian gas demand, providing an alternative or backup to long-distance pipelines and storage.

Patrick Gibbons says the proposed electrification of liquefaction plants could free up a ‘significant’ amount of gas, but warns that this process is not simple.

Whatever happens, Gibbons says a return to $3-5 gas is unlikely.

Energy Magazine is a media partner of the Australian Domestic Gas Outlook conference. For more details on the conference, agenda, exhibitors and how to register for the free-to-attend event, click here.
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