By Nick Toscano
Australia’s energy ministers are developing a plan to kickstart the first deliveries of huge liquefied gas shipments into Victoria and NSW, fearing they are out of time and other viable options to avert a domestic gas crisis.
Despite Australia’s position as a top global gas exporter, homes and businesses in the south-east are facing a shortage of the fuel by 2028 unless urgent measures are taken to offset rapidly depleting gas fields in the Bass Strait that have supplied the local market for decades.
Eastern Australia is running out of gas, leaving little choice but to import it, either from ourselves or overseas.Credit: Xabier Mikel Laburu
Surging gas demand on cold winter days – when households crank up their heaters – could lead to sporadic shortfalls even sooner, officials warn.
With long lead times involved in exploring and developing new gas fields, state and federal ministers are looking for a more immediate solution and have agreed to collectively seek advice on underwriting special shipping terminals to import liquefied natural gas (LNG) into Victoria, NSW or South Australia for the first time.
If projects proceed, retailers in the south-east would be able to ship in giant cargoes from LNG ventures in Queensland, the Northern Territory, Western Australia or overseas and turn it back into vapour to supply their customers.
Victorian Energy Minister Lily D’Ambrosio said ministers had agreed that “time is running out” as legacy gas fields off the southern coastline continued depleting with scant new supplies to replace them. Kick-starting imports from at least one LNG terminal by 2028 was the only way Victoria and NSW – which depends on Victoria for much of its gas – could cover their forecast annual gas deficit, she said.
“That’s the quickest way – and probably really right now the only feasible option – for us to meet that 2028 shortfall,” D’Ambrosio said.
South-eastern Australia’s looming shortage of gas, a major source of carbon dioxide and methane emissions, presents a challenge for governments, which are having to balance efforts to combat climate change with the need to shore up traditional energy supplies for consumers that still depend on them.
The most advanced plan to import LNG is the Port Kembla energy terminal, being developed by Andrew and Nicola Forrest’s Squadron Energy in NSW. The terminal finished construction this month, but the company is yet to strike necessary deals with long-term customers to underpin its commercial launch.
Another is Viva Energy’s planned terminal at its Geelong oil refinery near Melbourne, which is undergoing assessment for environmental approval. Dutch storage company Vopak, meanwhile, proposes a floating terminal in Port Phillip Bay, 19 kilometres offshore from Avalon, and Venice Energy is planning one in Port Adelaide.
The Andrew Forrest-backed Port Kembla LNG import terminal could meet nearly half of NSW’s gas needs on peak days.Credit:
East coast energy ministers were increasingly worried that negotiations between the developers of LNG import terminals and buyers, such as gas retailers, appeared deadlocked, D’Ambrosio said. By enabling the Australian Energy Market Operator (AEMO) to intervene and provide support for one or more projects, ministers hoped to reduce the level of risk for operators and buyers – known as offtakers – who were so far unable to agree on price and terms, she said.
“The [operators] want long-term contracts, the offtakers want short-term contracts, but if you can’t get contracts struck, no one is going to go forward and actually build the necessary infrastructure to make sure we’ve got that 2028 fix.
“Nothing is moving, so something has to give.”
State and federal officials have been instructed to work with AEMO on policy options and report back to ministers by March. One of the proposals being considered is empowering AEMO to contract a certain volume of LNG through the terminal as a “strategic reserve”.
Campaigners against new LNG terminals argue that the idea of Australia becoming a gas importer, despite being one of the largest exporters behind the United States, is absurd and would further tie Australians’ energy bills to swings in global gas markets.
Instead, they call for a greater government focus on getting more homes off gas and for more gas to be held back from export, given Queensland’s LNG producers are not subject to rules requiring them to reserve a portion of their production.
However, because most Australian gas sold overseas is produced in Queensland or Western Australia, it would be unable to ease the full extent of the worsening supply crunch in the south without special import terminals, said Rick Wilkinson, head of energy consultancy EnergyQuest.
The north-south gas pipeline is already routinely running at capacity during winter, and there is insufficient storage capacity in the south to store off-peak gas, he said. Gas from Western Australia, meanwhile, has no pipeline connection to the eastern states.
As well as fast-tracking import terminals, D’Ambrosio said Victoria would continue working to reduce gas usage and boost supplies through pipelines, storage and gas drilling permits. “We are still doing other things … but all those other things collectively are not going to be enough,” she said.
Tony Wood, energy director at the Grattan Institute, said imports were now critically needed as “insurance” against the worsening shortfall threat in Victoria and NSW.
“I think everybody recognises that we’ve got to find a way to get these terminals working,” he said.
“And that means serious commercial arrangements have to be put in place involving the gas producers, terminal operators, the big customers and probably the government.”
Although gas supplies are tightening, any LNG import terminal would likely be an under-utilised asset until larger gaps emerged from 2028, adding to the difficulty for operators and offtakers to agree on terms, Wood said.
“The risk is that without some sort of catalyst to make it happen, you end up with a game of chicken, and that’s not a good place to be,” he said.
Viva Energy chief strategy officer Lachlan Pfeiffer welcomed energy ministers’ recognition that AEMO could play a “critical role in delivering a solution” to the shortfall.
“For years, Victoria has relied on Bass Strait gas, but these reserves are rapidly depleting, and a new solution is needed to secure gas to Melbourne,” he said.
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