By Nick Toscano
The developer of a stalled gas project in Victoria’s Otway Basin has backed the federal government’s new gas market rules, saying they provide much-needed investment certainty to companies considering boosting production of the fuel to help avert a looming east-coast shortage.
Adelaide-based Cooper Energy last year delayed a decision on whether to proceed with an offshore gas field expansion, known as OP3D, near Port Campbell, citing uncertainty over the reach of future rules governing gas sales that could damage the project’s economic viability.
Cooper Energy’s Sole gas project off the coast of Victoria. Credit: Supplied
A new mandatory code of conduct for the gas industry, which comes into force this week following months of consultations, aims to curb soaring energy bills by extending a $12-a-gigajoule cap on domestic gas sales, but exempts smaller producers who sell all their gas domestically rather than export it overseas as liquefied natural gas (LNG).
Cooper Energy on Tuesday confirmed it qualified as a small domestic supplier under the gas code, with yearly gas production of less than 100 petajoules, and was therefore exempt from the price cap for any gas sales made from 2024.
“We welcome policy certainty and stability, in the form of the gas code, to facilitate investment into new gas supply,” Cooper Energy managing director Jane Norman said.
Cooper has struck a deal with AGL, the largest Australian power and gas retailer, to supply it with up to 10 petajoules of gas a year for six years if OP3D proceeds.
Another gas company, Senex, which has paused its $1 billion Atlas gas project in Queensland, said it would take the necessary time to review the final wording of the code of conduct, and hoped it would establish “workable rules” enabling it to bring new supply to the market. “In this particular case, the detail really does matter,” a Senex spokesperson said.
The push for more domestic gas production has taken on increasing urgency as two agencies that monitor supplies – the Australian Competition and Consumer Commission (ACCC) and the Australian Energy Market Operator (AEMO) – have expressed concerns about the outlook for south-eastern Australia later this decade, warning of a material risk of shortfalls.
Although Australia is one of the world’s largest producers of gas, massive volumes of production from Queensland’s gas fields are locked into long-term export contracts to LNG buyers, while several gas fields that have supplied southern markets from the Bass Strait for decades are entering rapid decline without new projects to replace them.
By 2027, gas users in Victoria, NSW and South Australia would face yearly gas supply deficits unless new gas supplies were made available, AEMO has warned.
Conservation groups, including Environment Victoria, insist the forecasts leave ample time for governments to enact strategies to slash gas demand, such as switching gas heaters to electric and banning new residential gas connections, rather than lifting supplies of harmful fossil fuels that emit carbon dioxide into the atmosphere and contribute to the worsening climate crisis.
However, with more than 2 million gas-connected homes and businesses in Victoria alone, there are concerns that time is running out.
Rick Wilkinson, chief executive of energy consultancy EnergyQuest, said the east coast market was on track to be running short by the end of the decade, or possibly much sooner, depending on whether new sources of gas production or shipping terminals enabling LNG imports from other parts of Australia or overseas became available.
He expected there would be a level of “inertia” for gas projects that had been nearing final investment decisions but stalled when the federal government’s market intervention was first announced, such as OP3D.
“Senex’s decision on Atlas and Cooper’s decision on OP3D should be watched closely,” he said. “If these projects don’t proceed quickly, a downside risk for supply will have materialised.”
In a joint statement, Treasurer Jim Chalmers, Energy Minister Chris Bowen, Resources Minister Madeleine King and Industry Minister Ed Husic said the code would ensure gas was available for Australian users at reasonable prices, give producers the certainty they need to invest in supply and help to ensure Australia remained a reliable trading partner.
The government said gas producers had already made supply offers of at least 260 petajoules – the equivalent of about 40 per cent of typical east coast annual demand – out to 2027. “These indicative commitments will reduce the risk of shortfalls as assessed by the ACCC and AEMO,” the ministers’ statement said.
Woodside Energy, which operates Victoria’s Gippsland Basin oil and gas fields in a joint venture with ExxonMobil, welcomed the release of the code of conduct and said it was reviewing the detail.
“Woodside remains committed to investigating all available options to maximise supply of gas to the eastern Australian market, including opportunities for LNG imports,” a spokesperson said.
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