By Nick Toscano
Oil and gas executives have been put on notice that the re-elected Albanese government will make them do more to avert local energy shortfalls, as Resources Minister Madeleine King warns Australians are “tired of seeing our vast gas resources exported overseas” while paying high prices at home.
While some of the nation’s top gas producers make billions of dollars shipping liquefied natural gas (LNG) overseas from Queensland, authorities warn consumers in the south-east, including in Victoria and NSW, are at risk of gas shortages in as little as three years unless more supplies are urgently made available.
ExxonMobil’s Marlin B platform in Bass Strait was traditionally the mainstay of Victoria’s gas supply, but its fields are depleting rapidly.Credit: ExxonMobil
“Australians recognise this to be unfair,” King told industry leaders gathered at the Australian Energy Producers conference in Brisbane.
“The Australian gas industry should pay careful attention to public concern of rising gas prices and supply gaps.”
However, Kevin Gallagher, chief executive of Adelaide-based gas giant Santos, has pushed back against the threat of another wave of heavy-handed regulatory scrutiny, warning that ad-hoc government interventions to fix supply and prices have all “backfired” so far. “They’ve had the opposite impact that was intended,” he said.
The threat of domestic gas shortfalls comes as the 50-year-old Gippsland Basin gas fields in Bass Strait, which have traditionally provided the bulk of eastern Australia’s domestic gas, have begun depleting rapidly, with scant new supply projects to replace them, sending prices higher.
Some Australian LNG producers were “doing the right thing” in ensuring the market had enough gas, added King, who pointed to agreements struck this year to divert an extra nine petajoules of gas to stave off a quarterly supply deficit. “I thank them for that,” she said.
“But there remains a lot of work to do to ensure the domestic market remains well supplied.”
While most of Queensland’s gas is locked into long-term export deals and sold as LNG to buyers in Asia, two of the state’s three LNG producers – the Origin Energy-backed APLNG joint venture and Shell’s QCLNG – are also key suppliers of east coast domestic gas, together accounting for about 40 per cent of the market.
But as shortfalls loom and prices rise, consumers, including gas-intensive manufacturing companies that need the fuel to make products such as steel, cement, bricks, fertilisers and food, have been pleading for the government to clamp down on the LNG sector with export restrictions.
Former opposition leader Peter Dutton had promised to slug LNG exporters with a charge on uncontracted gas supplies that were shipped overseas instead of sold locally if he had won the May 3 election.
While dismissing Dutton’s idea as a “thought bubble”, King said on Tuesday that the government was preparing to launch a review of laws and regulations governing the LNG sector to “make sure they are delivering as intended”, and urged the industry to co-operate and participate in the process constructively.
This will include changes to the so-called Australian Domestic Gas Security Mechanism (ADGSM), which gives the government power to force Queensland LNG ventures to hold back more gas to supply local homes and businesses in the event of a looming shortfall. The mechanism, however, has never had to be triggered.
“I think there is a case to be made for industry and industry groups turning their consultancy spends to practical policy responses instead of simplistic CEO surveys,” King said.
The prospect of a gas shortage underscores a deepening challenge for governments that are having to balance goals to combat climate change with the need to shore up polluting fossil fuels for those who still depend on them.
Consumers are increasingly making the switch from gas stoves and heaters to electric alternatives, aided by government schemes and policies banning gas hook-ups in new dwellings. However, the transition is still not happening fast enough to avert the need to boost supplies, warns the Australian Energy Market Operator.
Global consultancy Wood Mackenzie on Tuesday said east coast gas demand “remained resilient” while supply dwindled.
“Australia faces a future of chronic gas shortages, particularly during winter months,” it said.
Holding back more export gas for local buyers could boost domestic supply, Wood Mackenzie added, but also risks damaging Australia’s reputation as a reliable LNG supplier. There is also limited pipeline capacity to transport its gas thousands of kilometres south to consumers in NSW and Victoria, especially in winter, when gas heater demand is highest.
Simon Younger, local chair of US energy giant ExxonMobil, which operates the Gippsland Basin gas fields, said it was vital that the government’s imminent review of gas industry policies boosted investor confidence rather than hurt it. He said investment conditions had been badly damaged the last time the government intervened in the market, with price caps to tame soaring energy bills following the onset of the Russia-Ukraine war.
“It’s incredibly important we come out of that process with stability and certainty,” Younger said.
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