Government reacts to ‘damning’ gas report

The Australian government says a new report is “damning” of gas exporters for not engaging in the right “spirit” with the domestic market.

Australia’s Resources Minister, Madeleine King, says a new report from the nation’s consumer watchdog is “damning” of gas exporters after it found they were not engaging locally “in the spirit” of the heads of agreement.

The Australian Competition and Consumer Commission’s (ACCC) gas inquiry 2017-2025 interim report warned businesses could shut down and there could be a record shortage of gas in the southern states next year unless something is done.

The report noted that around 70 per cent of exporters sell their excess gas overseas to spot markets, but they will be expected to contribute to the domestic market to fight the projected shortfall.

The report noted Australia had “relatively abundant gas resources”, but a large amount of it was shipped overseas for higher prices.

The government has called a new report on the gas industry ‘damning’ of exporters. Picture: NCA Newswire

“We remain concerned that some (liquefied) natural gas LNG exporters are not engaging with the domestic market in the spirit in which the heads of agreement was signed,” the report said.

“LNG producers will need to divert a significant proportion of their excess gas into the domestic market.”

Ms King said gas producers “know” the report is “damning for them”.

“The ACCC report is damning, no doubt about it,” she said.

“It sets out patterns and instances of behaviour that are clearly not acceptable in an environment where we do have an international and domestic energy supply crisis.”

The ACCC described the outlook for 2023 as “very concerning” with gas prices likely to increase.

The ACCC has told the government and exporters to take action over Australia’s gas issues.

“The outlook for 2023 is very concerning and is likely to place further upward pressure on prices, which could result in some commercial and industry users no longer being able to operate,” the report said.

“It could also lead to demand having to be curtailed.”

The ACCC forecasted a 56 petajoule shortfall in east coast gas supply for 2023, a figure it called a “significant risk to energy security” that was equivalent to 10 per cent of expected domestic demand.

This shortfall will mainly affect NSW, Victoria, South Australia, the ACT and Tasmania, where “resources have been diminishing for some time”, though Queensland may also be impacted.

The forecast was the largest projected supply shortfall since 2017, with the ACCC describing this situation as “worse” than what happened five years.

The shortfall was almost 10 times worse than what was forecast for 2022 at this time last year.

The southern states will be the most impacted by the projected shortfall.

The ACCC recommended that the federal government activate the first step of the “gas trigger” (Australian Domestic Gas Security Mechanism) and work with exporters to ensure more gas will be available domestically.

“This is a significant deterioration in conditions relative to what we projected for 2022 at the same time last year and presents a real risk to Australia‘s energy security,” the report said.

“These effects are likely to be felt most acutely by gas users in the southern states, but given the interconnected nature of the market could also affect users in Queensland.”

“It is highly likely that liquefied natural gas (LNG) exporters would need to divert more gas into the domestic market to avoid a shortfall in 2023.

“(The ACCC) recommends that the Australian Government initiate the ADGSM process for establishing whether 2023 will be a shortfall year and work with LNG exporters to supply more gas into the domestic market in 2023 over the latter half of 2022.”

But the Australian Petroleum Production and Exploration Association (APPEA) assured the public there will be enough gas for everyone in 2023.

“Gas customers can be assured supply will be adequate next year, so households and businesses can continue uninterrupted,” APPEA acting chief executive Damian Dwyer said.

“There has never been an actual shortfall and there will not be one next year – this is the ACCC signalling that action is needed, and the industry will act.”

The Australian Petroleum Production and Exploration Association has assured the public there will be enough gas next year. Picture: NCA Newswire

Ms King said there were issues in the gas industry which needed to be fixed amid low social licences from producers.

“There is a decline in the social license for these gas producers,” she said.

“I think the report suggests there are issues in the industry and they need to be fixed.

“What we saw is ever since the ADGSM was first enacted, the commitment to supplying domestic gas has decreased.”

Activating the gas trigger allows the government to put export controls on suppliers to divert gas for domestic use.

Ms King announced she was preparing to issue a notice of intent to make a determination as to whether to use the gas trigger, the first step towards using the mechanism next year.

“After the notice of intention is released, gas producers will have the opportunity to provide information on gas production, plant export volumes and the market outlook,” she said.

“This is their opportunity to demonstrate that there won‘t be a domestic shortfall next year.”

Resources Minister Madeleine King said she was starting the first step of the gas trigger process. Picture: NCA NewsWire / Gary Ramage

Ms King announced the government will open consultations on reforms to the existing gas trigger and extend its life until January 2030, with it due to expire at the start of next year.

She also said the government will begin negotiations on a new heads of agreement with major gas producers to ensure uncontracted gas is offered to Australians.

Mr Dwyer said there was already enough uncontracted gas to cover the projected shortfall.

“The ACCC report shows 167 PJ of uncontracted gas is available for supply into the domestic market next year. This is more than enough gas to ensure that no shortfall occurs,” he said.

“We very much understand our obligation to Australians and the importance they place on gas in running their homes and businesses, and that will be honoured.

“It has been confirmed by Australian Energy Market Operator just last week that the reason for pressure on the system is the extraordinary and rapid demand for gas we have seen this winter because of the extreme pressure on the broader energy system.”

Treasurer Jim Chalmers said the report’s findings were “deeply concerning”.

Treasurer Jim Chalmers told gas producers to do ‘the right thing’ by Australians. Picture: NCA NewsWire / Gary Ramage

“The findings are deeply concerning and I urge gas producers to do the right thing by Australians,” Mr Chalmers said in a statement.

“It’s critical that our domestic gas supply is secure and competitively priced, particularly when households and businesses are under extreme pressure.

“The ACCC has raised concerns about the level of competition in this market, and I welcome its commitment to look into this and take enforcement action as required.”

The ACCC will release the next interim gas report in January, 2023.